Nouriel Roubini: The QE3 credit channels stay blocked and distorted.
Per Nouriel Roubini
Despite the Fed’s impressive commitment to aggressive monetary easing, its effects on the real economy and on US equities could well be smaller and more fleeting than those of previous QE rounds.
The credit channel is blocked -
The credit channel also is not working properly, as banks have hoarded most of the extra liquidity from QE, creating excess reserves rather than increasing lending. Those who can borrow have ample cash and are cautious about spending, while those who want to borrow—highly indebted households and firms (especially small and medium-size enterprises)—face a credit crunch.
The currency channel -
The currency channel is similarly impaired. With global growth weakening, net exports are unlikely to improve robustly, even with a weaker dollar. Moreover, many major central banks are implementing variants of QE alongside the Fed, dampening the effect of the Fed’s actions on the dollar’s value.
And, the wealth effect of rising equity-markets – has not happened so far. Neither the equity-markets are rising nor the wealth is spreading.
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