Doubts over QE

Graham_Devon

Is QE working? Well doubts are growing...

Quantitative easing has been one of the main weapons in the armoury of central banks this year as they battle to head off deflation and pump money into the banking system. Nowhere has the programme been more aggressive than in the UK.

There are questions about how well QE is working.

Government bond yields have remained stubbornly stuck around the same levels as the day QE was launched on March 5. Ten-year gilt yields are currently 3.67 per cent compared with 3.64 per cent just before the QE announcement.

However, analysts say yields have risen because of hopes of economic recovery and worries about the vast amount of debt issuance rather than the failure of QE. They estimate that yields would be 50 basis points higher without the programme.

Then there are questions about the extent to which QE is distorting the market.

This is because the size of the Bank’s holdings has reduced liquidity, which in turn has increased volatility – two things gilts investors hate due to the greater risk of getting on the wrong side of a trade.

The Bank intends to hold these gilts for the time being but is expected to sell them eventually, once the economy improves.

Scott Thiel, head of European fixed income at BlackRock, says: “The Bank of England’s buying programme has brought some idiosyncrasies into the gilts market. The Bank has bought so many gilts that it has made some bonds very illiquid.”

So it is working, or is it just a plaster which is not going to heal the wound?

http://www.ft.com/cms/s/0/c5e7bdc4-6b1b-11de-861d-00144feabdc0.html

HAMISH_MCTAVISH

The only way QE can fail to re-inflate the economy is if they don't do enough of it, or continue to limit the range of assets bought.

Quit screwing around and print half a trillion or so. Pump it into the economy directly through tax rebates and asset purchases.

We need to devalue the pound further to remain competitive, as the recent strengthening against other currencies threatens to postpone the recovery.

Graham_Devon

HAMISH_MCTAVISH wrote: »

The only way QE can fail to re-inflate the economy is if they don't do enough of it, or continue to limit the range of assets bought.

Quit screwing around and print half a trillion or so. Pump it into the economy directly through tax rebates and asset purchases.

We need to devalue the pound further to remain competitive, as the recent strengthening against other currencies threatens to postpone the recovery.

Are you just posting to get a reaction?

tomterm8

HAMISH_MCTAVISH wrote: »

The only way QE can fail to re-inflate the economy is if they don't do enough of it, or continue to limit the range of assets bought.
.

Um, liquidity trap. As in the sentance, 'Despite aggressive QE, Japan remained in deflation for years because it was in a liquidity trap'.

Graham_Devon wrote: »

So it is working, or is it just a plaster which is not going to heal the wound?

It's sort of working, but it's the kind of policy you use when you have already lead the economy to the brink of disaster.