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Macroeconomics  |  October 16, 2012 09:14:04

Nouriel Roubini: Quantitative easing is not fun, economic mechanisms are destroyed

Nouriel Roubini, professor at New York's Stern School of Business and head of Roubini Global Economics, said the Fed's decision to start a third round of quantitative easing raises three important questions: Jumpstarts QE3 economic growth in the U.S.? If the markets for long-term increase in risk appetite? Will be its impact on the real economy as well as the share price?

Many now believe that the impact on QE3 rally of risk assets should be stronger than in the case of QE1, QE2 and Operation Twist. For investors should be substantial and long-term signals to size (unlimited) time horizon of the third wave of quantitative easing. Despite the Fed's commitment to aggressive monetary expansion should we count up to the fact that the effect of QE3 in the real economy and the stock market is not as strong as in previous rounds. Corrects itself faster than anyone expected.

The first round of QE came at a time of much lower valuations of shares and weaker profits. In March 2009, the S & P 500 to 660 points, earnings per share (EPS) of U.S. companies fell to lows of the financial crisis and the P / E valuation were in single digits. Today is an index to more than double, EPS is around $ 100 and the P / E ratio is above the 14th

Even during the second wave of quantitative easing in the summer of 2010, the S & P 500 P / E valuation and EPS much lower than today. If economic growth in the U.S. remains anemic despite QE3, this is reflected in the results of companies, negative effects on the valuation of shares not be long to wait.

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The absence of fiscal support

The main reason why QE3 will not work as well as the previous stimulus, is the fact that it lacks in this fiscal support. QE1 and QE2 helped prevent a deeper recession with double bottom, because they were accompanied by significant fiscal stimulus.QE3 will be combined with the exact opposite - a restrictive fiscal policy, perhaps even "fiscal cliff."

Even if the U.S. government managed to protect the economy from complete fiscal cliff (which would of GDP could "cut the" up to 4.5%), it is still very likely that the fiscal drag of at least 1.5% of GDP in the following year the economy really affects .

Assuming that GDP growth will remain around the current 1.6%, 1% had a fiscal brake almost stagnation. Maintain growth at current levels would only have significant recovery in production and on the real estate market. Whether QE3 starts, is not so sure.

In 2010 and 2011 the main economic indicators suggest that the slowdown has reached bottom. Growth accelerated even before the announcement of quantitative easing, QE that is only "nudged" a recovering economy.

Current data show that the U.S. economy is better than the first half. Plight of the labor market, low capital spending and slow revenue growth - all these factors suggest that growth in the third quarter will be more robust.

Transmission channels of monetary stimulus are paralyzed

The main transmission channels between the Fed's monetary policy and the real economy - the bond, equity, credit and currency market - remain paralyzed. Bond channel can hardly stimulate growth. Proceeds of long-term U.S. Treasury bonds are at record lows.

Why, according to economic principles Rubiniho destroyed and help grow the economy of shares can be found on the web Investment

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Nouriel Roubini: Kvantitativní uvolňování není žádná legrace, ekonomické mechanismy jsou zničené

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