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Three Strikes Against the Fed (Vox EU, 12 min read) The former chief economist of Citi, Willem Buiter, outlines faulty Fed practices: not adopting negative policy rates, ‘non-transparent (quasi-)fiscal actions’ and lenient stress testing failing to fully incorporate the severity of COVID (i.e. L-shaped recovery scenarios were missing). He proposes the following changes: ‘symmetric policy rate around zero’, extending the ban on dividend payments (going beyond Q3 for banks), ‘new equity issuance’, and conducting a complete stress test of the financial system.
QE Goes Global (M&G Investments, 6 min read) QE in EM can become problematic. If investors feel this is used as an alternative to fiscal discipline it could cause significant capital outflow, in turn fuelling currency depreciation and imported inflation. DM found it challenging to wind down QE, and the same could be true for EM. Additionally, some EM (i.e. South Africa and Turkey) have suffered from lack of credibility and independence in the past, and investors may raise similar concern in the future. [Bearish EM QE]
The Theory of MMT Falls Flat When Faced with Reality (Part II) (Advisor Perspectives, 6 min read) ‘We fear that MMT, which promises “free everything” with no consequences, instead delivers inflation [no accurate measure of inflation exists hence it appears low on the surface], generates further income inequality, and ultimately higher social instability and populism. Such was the result in every other country which has run such programs of unbridled debts and deficits.’