{"id":708,"date":"2013-08-02T17:29:00","date_gmt":"2013-08-02T17:29:00","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=708"},"modified":"2013-10-16T10:37:01","modified_gmt":"2013-10-16T10:37:01","slug":"quantitative-easing-madness","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/britain\/quantitative-easing-madness","title":{"rendered":"Quantitative Easing Madness"},"content":{"rendered":"<p>The Mysterious Madness Called QE<\/p>\n<div id=\"attachment_709\" style=\"width: 550px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/www.thebizsense.com\/views\/files\/2013\/08\/print.money_.600.jpg\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-709\" class=\" wp-image-709 \" title=\"Quantitative Easing\" alt=\"Quantitative Easing\" src=\"http:\/\/www.thebizsense.com\/views\/files\/2013\/08\/print.money_.600.jpg\" width=\"540\" height=\"360\" srcset=\"https:\/\/www.thebizsense.com\/views\/files\/2013\/08\/print.money_.600.jpg 600w, https:\/\/www.thebizsense.com\/views\/files\/2013\/08\/print.money_.600-300x200.jpg 300w\" sizes=\"auto, (max-width: 540px) 100vw, 540px\" \/><\/a><p id=\"caption-attachment-709\" class=\"wp-caption-text\">Quantitative Easing<\/p><\/div>\n<p>Quantitative Easing (&#8220;money printing&#8221;). Investors love it. It\u2019s an avalanche of liquidity that drives up the value of interest-sensitive investments. Everybody gets richer. Or so it seems.<!--more--><\/p>\n<p>But the mere hint that the US central bank soon intends to cut back on this flood of easy money triggered the equivalent of a mild heart attack in the markets last month.<\/p>\n<p>The mystery is: why do governments persist with a strategy which completely fails to boost economic growth, when it poses great long-term dangers?<\/p>\n<p>Stephen King, HSBC\u2019s group chief economist, has many interesting points to make about QE in his new book*\u2026<\/p>\n<ul>\n<li>Why QE? It\u2019s because banks \u201cno longer easily channel funds from savers to borrowers. Hence, there is a serious shortage of money. Knowing this, the natural response by households and companies is to hang on to the money they\u2019ve got.\u201d QE \u201cis designed to overcome the perceived shortage by directly injecting money into the economy\u201d by creating money that is used to buy bonds already owned by investors.<\/li>\n<\/ul>\n<p>This puts cash into the hands of the sellers to reinvest elsewhere. As QE buying lowers yields on the safest assets, \u201cdemand for riskier assets \u2013 equities, real estate \u2013 may then increase. Listed companies can then raise funds more cheaply \u2013 via the stock market \u2013 and households can, in theory, borrow more easily against the \u2013 now-rising \u2013 value of their properties.\u201d<\/p>\n<p>Trouble is, in practice QE has done little to boost economic growth. Potential investors in expansion are wary. For many, QE \u201csounds distinctly suspect [and] has no personal relevance.\u201d So it \u201cmakes little difference to economic behaviour.\u201d<\/p>\n<ul>\n<li>One reason \u201cfor increased skepticism\u201d is that the lower long-term interest rates produced by QE makes it costlier for pension funds \u2013 already seriously in deficit &#8212; to provide for their growing future entitlements. Their investments are going to deliver less income.<\/li>\n<\/ul>\n<p>Consequently, \u201cindividuals save more (or borrow less), aware that they are at risk of suffering a pension shortfall; companies choose to divert profits into their pension funds instead of investing in the capital that might kick-start economic growth; and governments have to raise taxes or cut public spending,\u201d reducing the very demand QE is intended to expand.<\/p>\n<ul>\n<li>\u201cThe benefits of QE have a nasty habit of being channelled to precisely those parts of the economy that are unlikely to respond in a positive way. If, for example, lowering bond yields leads to a rally in stock prices, it will be easier for big, blue-chip companies to raise funds.\u201d Most of those are already very profitable and don\u2019t need the extra money.<\/li>\n<\/ul>\n<p>\u201cSmall and medium-sized companies that have little or no access to capital markets and, instead, remain dependent on bank lending, have however derived little or no benefit.\u201d<\/p>\n<ul>\n<li>QE boosts the value of government bonds and other, riskier assets such as equities. But most of those are owned by the mature and the wealthy. \u201cThe rich become even richer as the economy as a whole remains weak\u201d \u2013 one reason being that when the rich gain more, they tend not to spend much of that extra.<\/li>\n<\/ul>\n<ul>\n<li>The easy money leaks away to other countries. \u201cThe institutional funds that receive it in exchange for central bank asset purchases may choose to invest in other parts of the world where growth prospects appear\u2026 to be superior.\u201d<\/li>\n<\/ul>\n<ul>\n<li>The easy money doesn\u2019t go where it\u2019s really needed. Governments push aside other borrowers, \u201csiphoning funds to themselves that might otherwise have gone to, for example, small and medium-sized companies.\u201d<\/li>\n<\/ul>\n<p>CopyRight \u2013 OnTarget 2013 by Martin Spring<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Mysterious Madness Called QE Quantitative Easing (&#8220;money printing&#8221;). Investors love it. It\u2019s an avalanche of liquidity that drives up the value of interest-sensitive investments. Everybody gets richer. Or so it seems.<\/p>\n","protected":false},"author":1,"featured_media":709,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"amazonpipp_noncename":"","amazon-product-isactive":"1","amazon-product-single-asin":"B00CKSWP62","amazon-product-content-location":"3","amazon-product-content-hook-override":"2","amazon-product-excerpt-hook-override":"3","amazon-product-singular-only":"","amazon-product-amazon-desc":"","amazon-product-show-gallery":"","amazon-product-show-features":"","amazon-product-newwindow":"2","amazon-product-show-list-price":"","amazon-product-show-used-price":"","amazon-product-show-saved-amt":"","amazon-product-timestamp":"","amazon-product-new-title":"","amazon-product-use-cartURL":"","amazon_featured_post_meta_key":"","_amazon_featured_alt":"","amazon-product-template":"","footnotes":""},"categories":[6,8,9,52],"tags":[237,12,236],"class_list":["post-708","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-britain","category-featured","category-news","category-usa","tag-interest","tag-investors","tag-quantitative-easing","has_thumb"],"yoast_head":"<title>Quantitative Easing Madness - TheBizSense Views<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.thebizsense.com\/views\/britain\/quantitative-easing-madness\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Quantitative Easing Madness - TheBizSense Views\" \/>\n<meta property=\"og:description\" content=\"The Mysterious Madness Called QE Quantitative Easing (&#8220;money printing&#8221;). 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