vrijdag 1 mei 2015

Richard Duncan: QE is Debt Cancellation

Very interesting video on what QE really does. It cancels debt and deficits. The only problem is that it destroys the currency as well...

So basically, when governments do QE, they effectively decrease deficits (it doesn't matter if it is budget deficit, current account deficit or trade deficit, because they all follow the same path. They are correlated to each other). So let's try to visualize this in the U.S.

As you can see below, whenever QE goes up (blue line goes up), the trade deficit shrinks with a small lag (red line goes up). They effectively cancel debt.

Which means, if the Fed stops QE at this time, the deficit will go up again and the red line will drop. If the Fed were to unwind its balance sheet, deficits will go up even more.

And for Japan: their economy was really sinking due to the Fukushima disaster in 2011, then they started to really print money in 2013-2015 (green chart below) and what happened? Magically, their trade deficit disappears in 2015. So printing money isn't that bad, only, the Japanese yen has crashed since their money printing started. Printing money will not work if you take everything into account...

Historical Data Chart

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