Ritchie and Hines still don’t understand QE do they?

They’ve a new report out, the Murphaloon and Colin Hines:

These QE programmes had two goals. First they were intended to provide liquidity to the world’s
major financial markets by injecting additional cash into them as a result of bond purchases from
major market participants. Second, it was expected that those market participants would then use
that liquidity to invest in the wider economies of the countries concerned. That was meant to both
provide an economic stimulus and avoid the onset of deflation, which looked likely.
The huge sums involved have, however, been predominantly invested in assets such as the stock
market and property, thus concentrating the benefits amongst the financial community and
wealthier parts of the societies. The proceeds from selling such bonds do not appear to have trickled
down enough to help kick-start the real economy in any of the countries involved, and the track
record on avoiding deflation has also been partial, at best.

Nope, the aim was to get investors to move out along the risk curve so as to reduce long term interest rates. That’s what has happened, QE has worked as designed.

Seriously, and I say this candidly as neoliberal sophistry, if you’re going to talk about QE it really does help if you first understand QE.

And they’ve entirely, as usual, missed the point that QE is designed to be reversible. All they’re really suggesting, with their non-reversibility, is printing money to spend. Which does have, it’s got to be said, something of a rocky track record.

8 thoughts on “Ritchie and Hines still don’t understand QE do they?”

  1. Tim

    You could insert almost anything in place of QE and that sentence would still hold – it’s truly sad to watch such a deeply misguided individual blunder around puffing himself up when he patently has no idea of the topics on which he chooses to pontificate – I feel some sympathy with his family – what must he be like to live with?

  2. That’s the current debating method. First declare that something’s purpose is something that it is not, then complain that it’s not achieving that purpose.

    Look, the whole purpose of the Tampon Tax is to stop women having periods. But it’s clearly not working, Something Must Be Done! George Osborne is to blame.

  3. “QE is designed to be reversible”

    True – but no central bank has reversed it. BoE has said it might sell Gilts when Bank Rate gets to 2%, but what if they don’t hike that high? The Fed is even less transparent. It might yet end up as de facto monetization.

  4. True it hasn’t been reversed, but as is the case with markets perception is important. The fact that it can be reversed should be factored in to some extent.

  5. Why bother to understand something when there is good money to be made from not understanding it, Murphy is just satisfying market demand for populist idiotic drivel

  6. Hmm. Tim, your own explanation of QE is not exactly adequate either.

    The purpose of depressing interest rates along the curve was to encourage investors to substitute riskier investments such as corporate bonds for safer ones such as government debt (yes I know, Greece….). It did work to a degree – corporate bond issuance increased. However, there was never any guarantee that corporations would use the money raised through issuing bonds at very low interest rates productively. Lots of them simply used cheap debt to fund share buy-backs, thus artificially inflating their return on equity.

    There was also never any guarantee that low interest rates would force investors to take on more risk, if they could find higher-return substitutes for safe assets. Hence the flood into property and commodities. But enough investors did move out along the risk curve to depress yields on EM sovereign debt and junk bonds. Trouble is, they don’t really want to be in those risk classes, so the moment interest rates look like going up or default probability increases even slightly, they stampede back to safer waterholes. Hence the “taper tantrum”, and “risk on-risk off” behaviour more generally.

  7. jgh,

    Absolutely wrong. The whole purpose of the Tampon Tax is to raise money. After all, if you can impose a tax on something a substantial proportion of the population is obliged to use much of the time, it’s pretty nearly a guaranteed income – and given the uncertainty of everything else George is trying to rely on, he desperately needs a stable source of income.

Leave a Reply

Your email address will not be published. Required fields are marked *