“No Linkage” Between QE3 and Job Growth

While a small but growing group of individuals have noted of late that more money printing by the Federal Reserve will not lead to any improvement in the job market, it was rather refreshing to hear a former big-wig on Wall Street echo this sentiment.

Stephen Roach, the former non-executive chairman of Morgan Stanley and a senior fellow at Yale University, stated in a CNBC interview this morning that it will be “exceedingly difficult” for the Fed’s latest round of quantitative easing (QE3) to lower the U.S. unemployment rate and improve the nation’s dismal employment situation.

“I hobnob with all these macro theorists at Yale,” Roach noted, “they don’t see any evidence of a linkage between liquidity injections in the mortgage-backed securities industry and the labor market distress in the U.S.”

Instead of printing money to temporarily boost asset prices, Roach contended, what is needed to help ordinary U.S. consumers is debt restructuring.  “We need debt forgiveness for consumers who have bet the ranch on collateral that is now under water…And they need financial security that can only come from higher level of personal savings.”

Roach also discussed a related issue raised on many occasions by The Hussman Funds’ founder John Hussman – a favorite of GoldAlert – that “banks need to take write-downs” rather than continuing to essentially lie about the value of the toxic assets on their balance sheets.