Part of trying to revamp an economy is to stimulate borrowing and spending, get people to loosen up. It's the part of QE related to the feel good factor by pushing up prices of stocks and bonds. Some might call it a financial mirage.
To claim as many do that this is not something central bankers know and clearly intend stretches the credulitity quotient of even imbeciles. Now from the International Bank of Settlement comes some data many cenral bankers and their apologists will deny but many others know is accurate.
According to James Mackintosh's Short View today, central bankers at the Fed and ECB might be gazing at the wrong set of prices in their entrail studies. Citing authors at BIS, the so-called central bank of central bankers, paying attention to asset prices and
not employment numbers is the more important of the two.
Moreover, that "consumer prices measured by inflation statistics have little relevance for future growth. Instead, it is asset price
which really matter, housing in particular."
As Mackintose notes: "...the study makes pretty clear that consumer price deflation in itself is not usually associated with slower growth (the Great Depression was an exception)."
In case you haven't guessed it, the main meme today is deflation fears, the assumption being pushed nearly everywhere deflation is bad. What this leads us to is what we wrote about in Fence Straddling, central banks often paint themselves into a corner.
With high asset prices the Fed faces the dilemma we now have.
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