Features

Money printing: the cure that became a disease

Over the last ten years, major central banks have printed money and injected it into the economy in order to avoid another Great Depression.

938_MW_P04_Markets_Bottom

Central banks, including the Fed, have printed $14trn

Over the last ten years, major central banks have printed money and injected it into the economy in order to avoid another Great Depression. In 2008 and 2009 the Bank of England and the US Federal Reserve embarked on quantitative easing (QE), buying government bonds with freshly created cash.

Large-scale purchases raised bond prices and lowered yields, which bolstered growth by reducing long-term interest rates throughout the economy, notes David Smith in The Times. Fresh liquidity and loose monetary policy boosted stocks too, fuelling confidence by making people feel wealthier. All told, says David Blanchflower, who was on the Bank of England's (BoE) monetary policy committee in 2009, "it was the equivalent of 10,000 Warren Buffetts showing up".

Over a decade, the Fed's balance sheet ballooned to $4.5trn. In 2012 Japan began to print money, while in 2015 the European Central Bank (ECB) followed suit. The Bank of Japan's balance sheet amounts to almost 100% of GDP, the ECB's equals some 40%, while the BoE and the Fed bought assets worth a quarter of GDP, according to figures from exchange operator CME Group. At its peak, the amount of QE came to $14trn worldwide.

"Few dispute that QE worked in the aftermath of 2008, as ultra-cheap money and the sheer scale of intervention shored up confidence," says Philip Aldrick in The Times. But at what cost? QE has widened wealth inequality, as those with capital and assets such as equities and property have got richer. "Zombie" companies have used cheap debt to "limp on"; and liquidity has become "the opiate of the markets", says Erik Britton of Fathom Consulting in The Times. "The pain relief is so addictive that we can't now do without it."

Recommended

The charts that matter: bond yields turn back up and a new bitcoin record
Global Economy

The charts that matter: bond yields turn back up and a new bitcoin record

Bitcoin hit a new all-time high, while government bond yields turned back up. Here’s how that has affected the charts that matter most to the global e…
23 Oct 2021
Green finance is set to be the most powerful financial repression tool yet
Bonds

Green finance is set to be the most powerful financial repression tool yet

The government has launched its “green savings bond” that offers investors just 0.65%. But that pitiful return is in many ways the point of “green” fi…
22 Oct 2021
Equities are not a good inflation hedge
Economy

Equities are not a good inflation hedge

Institutional investors are definitely now worried about inflation. But they're not yet worried enough to flee to cash, says John Stepek
22 Oct 2021
Why fed-up workers are quitting their jobs
Economy

Why fed-up workers are quitting their jobs

Workers are leaving their jobs at an astonishing rate, especially in the US, leading to a shortage of workers. What will that mean for our economies? …
22 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021