I’ve been having a tough time trying to make heads or tails out of this article on CNBC that quotes some players in financial markets saying something to the effect that there’s a lack of liquidity in markets and QE is to blame. But there isn’t any golden thread of logic, just suspicion.
Really though, there might be something to the story, only its wrongly pinned on the supposed closest suspect to all monetary evil – printing money – QE.
If they really want to know where a lack of liquidity is coming from, they should take a look at the Fed’s reverse repo log at the NY Fed. You know, the reverse repo that sucks up a bunch of cash, each day in larger and larger chunks, in exchange for government bonds supposedly with the intent of reducing the demand for safe assets – with the added plus of jacking up short term nominal rates. Technically, it would come with nearly the same short term effect on supply/demand of liquidity as if the Fed sold the assets. Just wait until we get the medium term effect!
I haven’t been harping on the reverse repo monstrosity for nothing. 🙂