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Quantitative Easing!!!

By Andy Lees, UBS

The BoJ announced today that it will expand its asset purchase programme by JPY5trn (USD66bn), with all the purchases being directed at JGB’s. Add that to the GBP75bn (USD120bn) by the BoE, CHF50bn (USD57bn) by the SNB and the EUR341bn (USD477bn) expansion of the ECB balance sheet since the end of June, and it collectively adds up to USD720bn. Clearly this explains the market rally from the low.

The Fed expanded their balance sheet (QE2) by USD570bn over 8 months (November to end of June). Obviously as that ended, someone had to make up the shortfall as we have seen above, but what is interesting is that the central banks have had to put in about the same amount in 4 months rather than 8 months simply to keep assets at roughly the same level and support stagnant economic activity.

This makes perfect sense as the printing of money gets harder and harder to have a similar effect. Printing of money simply changes the ownership of assets, and this causes a cumulative misallocation of capital and therefore likely reduced productivity. It therefore takes increasingly more money to keep the ponzi scheme alive. Obviously there is now talk of the Fed and PBOC easing policy again, but just how big will the next stimulus have to be?

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5 Comments

  1. MrInvestor says:

    Globally coordinated QE is the monetary methdone being fed in growing amounts to a spending-addicted political class and their union/entitlement cohorts. The problem is that even if that political class has now realized the error of its ways, the cohorts do not want to go to rehab, and will seek to crucify anyone standing in the way of their next fix. Stand by for global inflation.

    • David Lazarus says:

      That might be fair if it were true. I will agree with you as regards the political classes trying to hold on to power. Though union/entitlement cohorts have suffered far more than the real beneficiaries of QE. In Ireland wages and benefits have fallen by 25% far more than the economy. I doubt that the political class has realised its errors. More QE is simply doubling down on the existing policies. The real problem facing many countries are huge asset deflation implosions that is why the Central banks are trying to prop up the asset prices and the balance sheets of the banks.

  2. fresno dan says:

    From the classic children’s book “Benny in Wonderland”

    “Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you QE very fast for a long time, as we’ve been doing.”

    “A slow sort of country!” said the Queen. “Now, here, you see, it takes all the QEing you can do, to keep in the same place. If you want to get somewhere else, you must QE at least twice as fast as that!”