Salient to Investors:

Richard Koo at Nomura said:

  • Mini-bubbles can occur during a balance sheet recession, like this one. Not yet seeing a big bubble, but concerned about mini bubbles.
  • In a monetary policy-driven market, money created by an accommodative central bank typically spreads throughout the economy and lifts markets. During a balance sheet recession, the private sector is a net saver, so only the financial sector is flooded with funds that are generated by private sector saving and deleveraging.
  • Cheaper money does not work when nobody wants to take on debt.
  • The US private sector is still more inclined to save than take on debt, so monetary policy is impotent to stimulate the economy.
  • In the absence of the desire to spend or invest in real things, the Fed’s cheap money can and will create financial bubbles.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.