August 30, 2012

The Fed (and ECB) should not fire more bullets until the gun pipes are cleaned

Jim Paulsen writes that “the Fed is out of bullets”, evidenced by “$1.5tn in excess US bank reserves” which hardly points to “a lack of liquidity”, “It´s time for the Fed to pass its easing baton to the ECB” August 30. 

Sir, I almost feel stupid repeating for the umpteenth time this to you, but the fact is that one of the reasons for the excess US bank reserves is that the banks do not have the capital that is required of them when lending to those officially and stupidly perceived as risky, namely small businesses and entrepreneurs. 

Of course the Fed should forget about firing off more bullets, at least before they have assured themselves that the gun tubes have been cleaned… and, by the way, ECB needs to do the same cleaning.