No one can deny that the financial markets are in poor health this morning.
I suspect most, except those who wish for their failure, will welcome the intervention of the ECB planned today. Bond buying will be useful, but unless undertaken in a long-term, coordinated fashion, will not provide the stability the markets need.
Quantitative easing can deliver that stability, but it can deliver much more than that. Because it is clear that the G-7 have turned their back on growth there are only two remaining ways to repay debt. The first is default. The second is inflation.
Quantitative easing provides liquidity. It prevents default.
It is said that quantitative easing involves printing money and this delivers inflation that washes debt out of the system.
But more important, if spent into the economy rather than just being given to banks quantitative easing can also deliver growth. Which means it prevents default whilst ensuring deflation is avoided and some inflation is delivered and by chance it generate growth as a by product.
Nothing else can do that.
Let's have more queasing please - but let's make it the productive sort.
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Richard,
It’s important to make clear the difference between debt monetisation and new debt free money spend directly into the economy.
The former is the current strategy (pursued for many years by Japan to no avail) which refurnishes bank balance sheets but does nothing to make sure that money gets into the real economy. Banks can use it as leverage for trading as well.
The latter is a different proposition, in that the new money (created in the same way as notes and coin), which we can call E-Notes, will be spent directly into the productive economy through infrastructure and high quality public expenditure thus ensuring real economic activity. Of course that money will end up immediately as new deposits in the banks which will help support them in a more reasonable way but it should be noted this money is not debt and carries no interest burden. It is therefore cheaper for the economy.
In both approaches new money is created. it is clear that the latter is the only sustainable long-term solution. At some point the penny may drop but not as long as the bankers control the policymakers. This is where the change needs to happen.
Raf
Entirely agree
I keep linking to the latte style proposal but commentators seem not willing to read what I am saying
You, of course, are right
Best
Richard