Submitted by Taps Coogan on the 14th of January 2019 to The Sounding Line.
Daniel Lacalle, Chief Economist at Tressis Gestión, recently spoke with CNBC to warn that the Fed is not going be able to stop the ongoing economic slowdown.
“It’s not about rates. It’s about liquidity and all the discussion about whether the Fed is going to delay rate hikes is not avoiding the fact that spreads are going to continue to widen because risk is happening, because the growth expectations, earnings expectations, cash flow expectations in general are disappointing… You’re not going to see increasing money supply and increasing private credit coming just because rate hikes are going to be delayed. It’s not happening… The Fed continues to be extremely accommodative. That’s not the issue. The issue is liquidity.”
With regards to the possibility of additional fiscal stimulus:
“I don’t think there is fiscal space in the large economies… The Japanese model (of very high government debt) takes you to stagnation… There is a lot that can be done in terms of improving the disposable income of the middle class. There is a lot that can be done about reducing demand side policies, but that is not what governments present themselves to do. What they present themselves to do is increase their fiscal stimuli and obviously depend on very low rates and high liquidity. But debt saturation is what’s happening… We have exceed the path at which a little more of debt generates a little more of growth… It’s a perverse incentive.”
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