Submitted by Taps Coogan on the 17th of April 2019 to The Sounding Line.
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Bleakley Advisory Group CIO, Peter Boockvar, recently spoke with CNBC’s Rick Santelli about the limits of perpetual accommodative monetary, namely that it eventually stops being accommodative.
“…And then we have Mr. Kuroda, head of one of the biggest central banks in the world, Japan, very pleased with how well he has done. Their Nikkei… a little over 22,000. In 1989 it was 39,000. Peter, what’s wrong with this picture?”
“Well, I want to add one more stat. Since 1989, the Japanese TOPIX Bank Stock Index is down 80%. We have to understand that monetary policy doesn’t create economic growth that wouldn’t have happened otherwise. It just shifts around the timing. It tries to convince people to buy a house today instead of tomorrow. Buy a car today instead of tomorrow. Take advantage of these ‘new low interest rates.’ But that growth would have happened anyway and, in fact, it would have happened more through savings rather than encouraging excessive borrowing. So at the end of the day, we are left with too much debt and we are left with a damaged banking system because low rates, or zero rates, or a flat curve, doesn’t provide the impetus for a profitable bank.”
“The real test for the Fed is, yes give them credit for taking away some of the extraordinary easing relative to other central banks, but will they repeat the errors of these other central banks in the next economic downturn? Are they just going to cut rates back to zero? Are they going to initiate more QE, and repeat the same mistakes as the others?”
“But Peter, do they really have a choice though? See here’s the problem. We are all woven together on bad policy.”
“Yes they do. Yes they do.”
“Okay, so everybody eases, the globe starts to slow rather dramatically. What should our Fed do at that point Peter?”
“Perpetual easing is no longer accommodative. 30 years of low interest rates in Japan is no longer accommodative. It’s actually restrictive… how it strangles the profitability of our banks. So cutting interest rates back to zero would do the same sort of damage to our banking system and not provide any sort of impetus for further growth. Also, we already have too much debt. So lowering the cost of money further is not going to be the answer.”
There is more to the interview, so enjoy it above.
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