He Begs to Differ (Grant’s Current Yield Podcast, 22 mins)

(You can listen to the podcast by clicking here)

Tuomas Malinen, CEO of GnS Economics and an Adjunct Professor of Economics at the University of Helsinki argues that an extremely low-interest-rate environment and QE don’t work as intended (in an excellent Hive special last week, John Tierney proposed that QE doesn’t reach the real economy). Malinen believes that the 1990’s experience of Japan should have been used by the major central banks as a case in point: that in effect, a low-interest-rate environment mutes price growth and fails to attack real GDP growth adequately. There is emerging evidence that these environments in fact impede productivity growth, and to illustrate his point he gives an example of how European Banking Sector profitability margins are being squeezed. Malinen also joins a number of economists calling for a re-visit in the mandate of Central Banks.

Why does this matter? Predictions are emerging of a further slowdown in the EU – at least according to the recent data. Using the reasoning presented by Malinen, further reduction in Interest Rate and QE may fail to ignite the growth engine in the EU. This, in turn, serves as a pessimistic scenario for the European Asset Classes, in particular, the Euro going forward.

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