Central bank measures in a world of QE

Crispin Odey

Odey Asset Management

Quantitative easing came out of Fisher’s work on business cycles in 1935. For him, what created the depression was the cycle of over-indebtedness allied to overcapacity, which ensured when prices declined, loans could only be repaid by assets being sold off. The debt paid back made the debt still owing that much more expensive, because in a deflationary age, zero interest rates still meant money remained too costly. QE involved lowering interest rates from nearly 5% to almost zero very quickly, taking over the weaker financial intermediaries – AIG, Washington Mutual in the US and, in the UK, Northern Rock, Lloyds and RBS – so that assets did not have to be sold and the debt deflationary cycle did not have its pernicious way. Central banks in a world of QE have become obsessive of where they perceive the ‘risk premium’ to be too high. Where interest rates payable by industries or by banks are seen as too high, central banks intervene and buy the bonds, and in the process, grow their own balance sheets. (VIEW LINK)


Crispin Odey
Crispin Odey
Founder | Chief Investment Officer
Odey Asset Management

Crispin is one of Europe's most respected investors having delivered exceptional returns for his clients. Since he established Odey Asset Management in 1991, his flagship long-short strategy has compounded at almost 14% per annum net of all fees...

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