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?