Monday, January 26, 2015

Fwd: QE

'Central banks in the U.S., Japan and Europe are trapped in a loop. They are fully invested in the theory that zero rates and bond buying are stimulative and add to inflation, yet growth, inflation and median incomes keep going down.

On Thursday the European Central Bank is likely to announce a bond-buying binge that could reach €50 billion ($58 billion) a month, yet many bond yields in Europe are already negative. Buying low-yielding bonds is a dead end for growth. The Bank of Japan has already bought bonds worth more than 50% of its gross domestic product with no growth impact. And ECB bond-buying will be a major new political negative if it gives European governments a further excuse to avoid economic reforms.

Central bankers should be forcefully urging their governments to pursue practical growth-oriented solutions that encourage private investment and hiring. Instead, they've allowed the focus to be on them and their decisions to prolong quantitative easing—even though QE hasn't worked.

Central-bank liabilities have grown by an extraordinary $7 trillion since the 2008 crisis, yet many parts of the world are in or near recession, including Japan, Latin America, Eastern Europe and most of the eurozone.


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