Ritchie still just doesn’t get QE, does he?

It does seem likely that QE has had impact to me. These impacts are almost entirely in asset price inflation, whether of gilts, equities, housing, land more generally, but not now of commodities, where the impact looks to have been short lived. So, QE has inflated the parts of the economy where wealth divides already exist. But it has not delivered real economic activity or inflation although these were its goals.

The aim was to inflate asset prices: so as to get people to move out along the risk curve in search of yield. That was the bloody point of it all. Ricthie has therefore just stated that QE worked and then announced that it didn’t.

Sigh.

So, we need another plan: a plan that injects real economic activity and money into the real economy. Tax cuts could do that, but are hard to reverse.

God forbid that anyone should keep more of their own money, eh? And what’s so damn difficult about changing tax rates anyway? Make employers NI rate 0 for 24 months, why not? After all, Keynes did approve of the idea…..

7 thoughts on “Ritchie still just doesn’t get QE, does he?”

  1. I wonder what proportion of people who write about how QE has inflated asset prices etc. realise that this is what monetary policy always does – that is to say, if we were merely cutting the interest rate from say 5 to 4 per cent, instead of doing QE, that would also be pushing up asset prices because lower rates of return *mean* higher asset prices and that’s what is supposed to push people into buying real investment and consumption goods

  2. This may be pedantry – and may be wrong! – but would it be better to say that, in the bond market, higher asset prices mean lower rates of return and hence lower borrowing costs rather than the other way around?

  3. Ironman – umm, dunno, I just mean that one implies the other. also, because arbitrage, asset prices going to rise / expected returns fall in other markets

  4. “God forbid that anyone should keep more of their own money, eh? And what’s so damn difficult about changing tax rates anyway? Make employers NI rate 0 for 24 months, why not?”

    We’ve been somewhere towards that for a couple of years with the up to £2000 Employment Allowance for small businesses.

  5. surely there has to be some kind of fiscal easing soon, to go with the monetary tightening? The nproblem we have is that interest rates have been so low for so long that there is asset inlation in the husing market….which will mean another 1990s style crash when interest rates start to rise.

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