Integrity Competence Prudence
Shift from QE to forward guidance
In case you missed it Kevin Warsh was on CNBC this morning. Again he made some great points including highlighting one of the downfalls of QE which he suggests has led to a misallocation and “malinvestment” of capital as oppose to hyperinflation which many doomsdayers have been harping on since the beginning of Fed’s Zero Interest Rate and QE policies.
He contended that because of this misallocation and malinvestment executives at major corporations who have already seen their company’s stock price rise to an all time high, are not too keen to take additional risk on very long term capital expenditures as they too are waiting to see what will happen after QE has stopped.
In the clip below he also questions the practicality of Fed’s new tool of “forward guidance” (promise that interest rates will be zero for very long time), given how much it is dependent on the Fed’s models which clearly has not been very accurate in predicting the future. (Flashplayer is required to watch the video clip).