Quantitative Easing from an investor's perspective

mspoppins

Hi,

Sorry, this might be a bit off topic but can I ask what do you think about Quantitative Easing (AKA "printing money")?

I have to write an essay and I was hoping some nice people with a background in investments could help me out

So, how do investors/brokers view the QE? Also, is there any evidence that the rounds of QE has helped the British economy so far?

Thanks!

Glen_Clark

This is the best summary of QE that I have seen;
click here:
http://www.youtube.com/watch?v=xcldQMF4-vo

doughnutmachine

QE has been brilliant for investors. It has meant that the BoE has been buying gilts, this means gilt prices has went up and gilt yields have went down.

This means people with a lot of cash have been coming onto this website moaning about the poor yields they get from cash, they then decide to buy shares which yield comparatively more than cash. This means people like myself have seen our share portfolios go sky high

know one can really know if QE has worked, but we do know that the measures taken in the 1920s depression didn't work (ie balanced budgets). I personally think pumping money into the economy has been a lot better than doing nothing. OK, people still feel poorer than ten years ago, but without QE we would be burning furniture to keep warm

cepheus

Investors have done very well if they are relatively well off and used the stockmarket or buy to let, so far at any rate, but not if they took the safe route and kept it in cash like more typical people often do.

You aren't allowed to use wiki are you?

In August 2012, the Bank of England issued a report stating that its quantitative easing policies had benefited mainly the wealthy. For example, the report said that the QE program had boosted the value of stocks and bonds by 26%, or about $970 billion. About 40% of those gains went to the richest 5% of British households.

Dhaval Joshi of BCA Research wrote that "QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it".[76]

Economist Anthony Randazzo of the Reason Foundation wrote that QE "is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality".[76]

In September 2012, Donald Trump said on CNBC that "People like me will benefit from this."[76]

In May 2013, Federal Reserve Bank of Dallas President Richard Fisher said that cheap money has made rich people richer, but has not done quite as much for working Americans.[77]

Most of the financial assets in America are owned by the wealthiest 5% of Americans. According to Fed data, the top 5% own 60% of the nation's individually held financial assets. They own 82% of individually held stocks and over 90% of individually held bonds.[76]

dryhat

QE has shovelled billions of pounds away from productive enterprises and into speculation to the detriment to the real economy.

Until it stops, we will not have an "economy"

JohnRo

doughnutmachine wrote: »

QE has been brilliant for investors.

It's been brilliant for the crooks running insolvent banks. It remains to be seen whether investors currently riding on their coat tails will benefit in the long run.

theGrinch

QE coupled with shafting savers with funding for lending is an utter disaster. The money goes into speculative investments and not the real economy of making things.

Govt have a reason to a) inflate their debts away b) shaft savers so they spend.

personally, I would have gone for time limited tax cuts on income, savings and investment, tax simplification and reform of other taxes such as stamp duty and CT.

JohnRo

Keiser cuts to the chase as usual.

http://www.maxkeiser.com/2013/08/kr485-keiser-report-uk-cult-of-saving/

lvader

dryhat wrote: »

QE has shovelled billions of pounds away from productive enterprises and into speculation to the detriment to the real economy.

Until it stops, we will not have an "economy"

No, it created money that didn't previously exist to enable the government to pay for things like welfare and the NHS. Without it either of 2 things happen. Either banks continue to buy bonds and takes that money away from other things (the real economy) or they don't and the governemt defaults.

JohnRo

What? The government borrowing continues regardless of QE.

What QE does is provide "the market" i.e. insolvent banks with money for nothing they can use (in theory) to create liquidity and lend out to get the economy moving. We're told it's money being used to purchase "gilts" though far more likely it's worthless toxic debt.

The real problem is the crooks haven't used it the way we were led to believe they would, instead they have and are using it to try and repair broken balance sheets and as is becoming increasingly obvious, to fuel their addiction to speculating for profit.

In the final analysis QE will be shown to be a monumental fraud, imho.

Linton

dryhat wrote: »

QE has shovelled billions of pounds away from productive enterprises and into speculation to the detriment to the real economy.

Until it stops, we will not have an "economy"

A different take on the situation.....

By what mechanism can QE "shovel money away from productive enterprises"?

I suggest a lot of the QE money hasnt come into the real economy at all. Rather it has been covered by increased bank reserves which are re-deposited back with the BoE. So in that respect its more of a book keeping exercise. If it hadnt taken place money would have been extracted from the real economy.

What it has done is to reduce gilt interest rates which should make investment in productive industry more appealing to private and corporate investors. However, I guess because of lack of confidence, productive industry is not ready to carry out the investment.