Checked your pension recently? The chances are that it is not doing as well as you hoped it would. There have been constant reports of shortfalls in pension funds over the last few years, and a number of familiar culprits have been blamed for that. People don't save enough, charges are too high, and returns from the stockmarket are miserable. But now we have another culprit: quantitative easing (QE).
According to a report released this week by the Pension Protection Fund, the policy of printing vast quantities of money, pursued more enthusiastically by the Bank of England than any other central bank, has blown open huge holes in retirement plans. Indeed, four years into the programme of printing money, and with little sign it is over yet, its hidden costs are becoming more and more alarming.
It is not just pensions. Companies that have reached the end of their natural life are being kept artificially alive. Corporations and investors are hoarding cash because they can't earn a return on it. Tackling the budget deficit is postponed. And the housing market is inflated, despite the fact that wages are stagnant or falling and owning a house is now beyond the reach of many young people.
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Since the crash of 2008, the Bank has pumped £375bn in fresh money into the economy, the equivalent of about 40% of GDP, as well as slashing interest rates to 300-year lows. It might have been justified as a short-term response to an emergency. But the simplest lesson in economics is that there is no such thing as a free lunch. In the last year, the bill has fallen due and it is proving to be a big one.
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Take pensions. The main aim of QE is to drive down the cost of borrowing in the hope that this will encourage companies to take out loans and invest more. Perhaps it will, although there isn't much evidence of it. But what it has certainly done is drive down bond yields, and since pension funds mainly invest in bonds, that in turn has driven down returns.
The result? Companies have had hugely to increase the amount they pay into their funds to keep them solvent, says the Pension Protection Fund. By how much? About £135bn. That was money they could have been investing in their businesses instead or else paying out to shareholders to invest elsewhere.
Or take companies. Anyone who enjoys browsing CDs on a Saturday afternoon will be relieved that at least some of the music chain HMV might be rescued from administration. But the truth is that this is a company that has no future. A turnaround specialist might keep it alive for a couple more years, but it is never genuinely going to flourish. Its market has vanished. It can only struggle on because the cost of debt is so low.
In effect, QE is creating zombie companies on life-support. If they closed down, the shops might be empty for a while, and the staff might be unemployed. But sooner or later entrepreneurs would find new uses for all that space, and the people who worked there would find new things to do. The high street is now full of near-dead companies that would be better off put out of their misery. Many construction and property companies are in the same position. We badly need a blast of creative destruction'. QE is preventing it.
At the same time, one estimate suggests British firms are sitting on £750bn in spare money. A survey of finance directors by consultants Deloitte this month found they were planning to carry on building up their reserves. And why not?
When interest rates are as close to zero as makes no difference, there is little incentive to invest. If rates were 10%, that cash in the bank would be expensive it could be earning a return. That is no longer true so why not leave it there?
Likewise the property market. The Bank's latest wheeze, after a massive blast of money-printing didn't stop the economy sliding into a triple-dip recession, is its Funding for Lending scheme, designed to channel money into small businesses. But instead it is boosting mortgage lending, making housing even more unaffordable for young people.
Finally, QE stops the government tackling the deficit. Britain's structural deficit is running at around 6% of GDP, worse than Spain's and that country may need to be bailed out. If it wasn't for the vast quantities of gilts bought by the Bank, there can be little doubt that Britain would have faced some serious trouble in the bond market by now. QE is creating the impression that vast deficits don't matter. But they do. So it is simply postponing the day of reckoning.
The real issue with QE isn't whether it works or doesn't work it works up to a point. What matters is that it is an elaborate attempt to rig the market. It artificially distorts prices, and so makes the economy less efficient.
On his first day at his new desk, the best thing the incoming governor of the Bank of England, Mark Carney, could do would be to announce that he would bring the programme to a rapid close, and state clearly that interest rates would be returned to normal levels over a five-year period. The longer the Bank persists with QE, the more the hidden costs will mount.
