Thoughtful Money with Adam Taggart "Rocky Road Ahead" For Financial Markets & Central Banks | Richard Koo, Nomura
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Jan 19, 2025 Richard Koo, Chief Economist at Nomura Research Institute and acclaimed author, dives into the shifting landscape of global economies post-election. He discusses the impact of quantitative easing on financial markets and the challenges facing central banks. Koo highlights the complexities of managing inflation and credit amid economic uncertainty. He contrasts U.S. and China's economic strategies and warns of potential market bubbles. Finally, he offers insights into how AI may reshape financial markets by 2025, emphasizing the need for government intervention.
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Excess Reserves & Monetary Policy Ineffectiveness
- Excess reserves in the banking system are massively inflated, making monetary policy less effective.
- This is due to quantitative easing (QE) and a lack of borrowing during balance sheet recessions.
Volcker's Inflation Control
- Richard Koo recalls Paul Volcker's approach to controlling inflation in the late 70s and early 80s.
- Volcker tightened reserve availability, causing a fight for reserves and pushing interest rates to 22%.
QE: Easy In, Hard Out
- Quantitative easing (QE) is easy to implement but difficult to unwind.
- The massive excess reserves make it a slow process, requiring years of quantitative tightening (QT).