On the QT

It’s been a while and lots of ships have passed under the bridge, including an unnecessary election in the UK, the sacking of 12 White House staff members for various “misdemeanours” but mainly for disagreeing with he who must be obeyed, an interest rate rise in the US and the “successful” launch of yet another North Korean missile. There are sure to have been far more important items on the agenda, but the one constant has been the rise and rise of the US stock market. One thing that has changed and is unarguably the most important event so far this year is the central bank narrative. Before Bernanke became an ex master of the universe he opined that QE – quantitative easing – didn’t work in the way the Fed had and anticipated i.e. cheap and plentiful money would promote economic growth as businesses borrowed to expand their operations. They borrowed all right! To the tune of having a lot more debt than in 2008, now representing 45% of GDP. Not too shabby when compared with US government debt at “only” 100% but then they don’t have the distinct advantage of being able to print money. Whilst the cheap money regime continues corporate management will continue to borrow to fund share buy backs that cosmetically…

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