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QE debate with clients on Saxo Bank Trading Floor

Friday November 28th 2014

 Client 1:

Do you have any proof that QE solves deflation problems?

USA and Japan tend to disprove your theory.

I even doubt that QE has solved underlying economic problems.

True it has helped some currencies decrease in value and unleashed speculative bubbles, but is that what the world needs?


Japan is a most curious case; struggling through a lost 30 years , however, I do not accept that QE has had no effect. CPI was lowest at -2.52% in October of 2009. In more recent time the local low was booked at -0.6% in January 2011. Since Abe came to power & the BOJ has been buying more JGB assets we saw inflation at 3.7% in may this year & it was most recently booked at 2.90% in October.

In the US CPI was at 5.6% in July 2008 from quickly during the height of the financial & economic crisis to -2.7% in July 2009 but recovered to 3.0% in September 2011. Yes, since then it tracked lower to 1.4% in July 2012 but since then it has cycled between 1.0% & 2.1%.

The UK has CPI at 5.2% in September 2008. With the economic lag effect it fell to 1.1% in October 2009, recovered to 5.2% in October 2011; whilst lower now, like the US UK CPI cycles between 1.2% and 2.9%.

This is better than the Eurozone whose real problems are a lack of structural reform in France and Italy & a sluggish ECB.

Client 1:

Well "better" is a subjective view . I would like QE because it will help the Euro on its way down which I think will happen anyway. I must say though the most impressive economy long term in Europe was Germany that had low inflation for many years after the war.

True there was not the boom and bust of the UK or US property market but a great deal of social justice.

Ottmar Issing would probably disagree with your views ...still it seems to me the Germans will lose this battle very soon and Euro will go to par.

We will see if that is better in the end.

As I have said for two years, the advantage the USA has is the cheap energy , we cannot compete here in Europe, QE was probably less important than the people who mismanaged the FED think.


The US dealt with banking system issues quickly and fairly decisively . In Europe there have been three stress tests of which only the last of which had rigour. Everything takes far too long to be resolved and enacted in the Euro zone. Too many political agendas geared to intervention and a lack of reform.

Client 2:

Hi Stephen,

I do agree with Client 1 and I do not.

I thinks that QE solves deflation problems but in the same time it creates complex problems like the Moral hazard.

If France, Italy etc. know that, “whatever it takes”, the BCE will support theirs deficit and debt. How they will be encourage to make the reforms they need to do?

Eurozone is not a country like U.K., USA or Japan. Flemish people don't want to pay for Walloons, Catalans for Madrid or North Italians for South Italians even they live in the same countries . So how would you explain to Nordic and Protestant people that they shall give a guarantee for loans in favour of South and Catholic people.


I concur with the issue of moral hazard. Just reflect on the lac of progress since September 2012 when OMT was first proposed by Draghi. It was an insult to the ECB that the Spanish PM, Mariano Rajoy demanded to know what exactly what securities would be required and even then was pushing for long dated debt to be purchased.

In the 26 months since OMT was proposed only Spain, among the leading four economies of the EZ has offered any reform and yet its unemployment is horrendous. Hollande has no idea as to how to run a pro-business policy and in Italy the succession on Monte...Letta and now Renzi are all shying away from the hard reform needed as soon as the public take to the streets.

I have suggested that time must be called on the non-reforming politicians being able to enjoy skinny yields. The ECB should state that it will buy sovereign debt from Austria, Finland, Germany, Ireland, Netherlands and maybe Portugal who have tried hard and engaged in slimming down the state.

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