The stated aim of QE I was to increase asset prices. Make more money, lower interest rates, increase asset prices. This will then spark a boom opf asset creation as borrowing to invest is cheaper and thus we’ll have a lovely investment boom – as we did in the 1930s – to drag us out of recession/depression.
This isn’t a “but” this is the aim. Widely distributed aim at the time too.
Now, that it didn’t quite work out like that was because we’ve an idiot planning system. But that was indeed the aim.
I thought QE was suposed to raise interest rates, because the economies of the West were in deflation. No one would lend because there was no profit and no one would bother saving because there was no point.
Japan resorted to helicopter money because it had beenin deflation for so long.
QE was designed to reduce interest rates, not raise them. States were issuing new debt willy nilly which in normal times might mean rising interest rates as issuance exceeded demand. But if you’ve got a backstop hoovering all the new issuance up with printed money then that maintains gilt prices at a higher level (and interest rates at a lower level) than they would otherwise be.
Oh I see.
Thanks
That makes no sense whatever.
If new money is issued, it’s spent. And causes inflation. Or it isn’t spent and sucked back in. In which case it’s a waste of time and effort.
Unless the point is to game the measurements. If the gov’t can make the indicators look better than they are, maybe enough people will be fooled.
It also doesn’t make sense with the issuance. If you issued a billion in new money last year and this year you suddenly issue a trillion, I think most sensible people will want a bit more in interest because you suddenly need lots more. Which is an indicator that your finances are not doing so well. So you are a higher risk.
At least that would be the case for any company. I guess governments are somehow different.
“It also doesn’t make sense with the issuance. If you issued a billion in new money last year and this year you suddenly issue a trillion, I think most sensible people will want a bit more in interest because you suddenly need lots more.”
In a normal debt market yes, you are quite right. But a debt market with an active QE operation isn’t a normal one at all. There’s a massive hoover sucking up every debt instrument the government of the day issues, paid for with money created at the push of button. Its impossible for the genuine buyers in the market to go on strike and try to push prices lower and rates higher, because if they do the central bank just steps in and buys some more with its limitless funds. The ‘market’ is far higher than it should be. Anyone who tries to bet on rising rates gets crushed, and loses their shirt. And everyone knows this, so no-one tries. Its a self fulfilling prophecy.
“If new money is issued, it’s spent. And causes inflation.”
That was the point of QE, in 2009 at least. The thing central banks (and politicians) fear the most is a downwards deflationary spiral. QE was in part to try and stimulate the economy and create some inflation to counteract the massive deflationary effects of the drop in money supply that was going on as a result of the GFC. To what extent it worked is impossible to say, as we can’t rerun the GFC without QE and see what happens. But inflation never dropped below 1% in 2008-10 so it probably did work.
The difference was that Japan was borrowing from its own citizens, at least at the start because they had some of the highest private savings in the world, so weren’t as dependent on the bond markets so could basically set their own interest rates. At least that’s how I remember it.
Two articles in two days bemoaning the rise in price of his only asset. He’s a strange guy.
It’s because his 25 year old son has been moaning that he can’t afford to buy a house in Ely despite his high flying career as his dads YouTube fluffer.
Son’s got access to a hammer and shovel, right?”;)
More likely a hammer and sickle
Aren’t commodities like wheat and oil a global market, so the price is set globally?
Blame the invention of the steam ship. Before then it was too expensive and took too long to trade your wheat with the other side of the world.
Didn’t the people in charge know about the planning system?
The financially literate people in charge foresaw that QE would make them very rich, and acted accordingly.
Tim Worstall Fallacy #3, QE, takes a new turn. As Harvy Korman would have said, Interesting.
OH NOES!!! GROWING INEQUALITY!!!
In deference Tim this Chat GPT (I am presuming he is too tight to pay for Claude and Grok is ‘run by fascists’) infographic is actually one of the better things it has come up with – this one is obvious bollocks but (4) ‘QE financed government spending’ and (5) ‘QE rescued the banking system’ are also both only partially true and explain to a huge degree why our economy is in the state it is in. MMT wouldn’t exist without QE and therefore it has arguably created the kind of evil on which the guy thrives.
On a separate note his latest wheeze after ‘A Quantum of economics’ is ‘The economics of attention’ – brace yourselves for that.
A butt is always annoying, especially if it’s wiggled right in your face…
Now a proper butt only needs a spigot and some friends….
(and maybe something to nosh on…)
Quantitative easing. Also known as kicking the can down the road..