Where did US quantitative easing funding end up? Andrew Smithers thinks he has the answer on the FT blog:
I am sure he is right.
That was why we did and do need green quantitative easing.
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Two points here:
1. QE/Easy monetary policy is traditionally seen as a potential inflation risk. QE itself also forces bond yields lower. it is not a surprising response for investors to then rotate out of low yielding bonds into equities, which alos offer a dgree of inflation protection.
2. Correlation is not causation. While the two terms are indeed very well correlated, the S+P500 is an index, and the monetary base is a nominal amount. The chart doesn’t prove that QE cash has directly boosted the S+P, as the rally in equities could have been caused by a number of other factors (such as better GDP growth etc).
A chart showing the US monetay base vs inflows into the S+P500, if correlated, *might* give weight to the argument that QE flows ended up in equities, but even then it would be hard to divorce it from other efefcts.
There is probably some truth that equity indices have benefitted fom QE, but the chart above doesn’t prove anything really – the efects of better GDP growth and the substitution mentioned in point 1 above are probably bigger effects. The fact that equities are enjoying a continued boom despite the fact that the FED is tapering QE suggests that QE is not the most important driver for the equity space.
I agree it does not prove and consequence should not be confused with cause, but there is likely to be a relationship because all commentators agree there is one
Not to mention the £80,000 ‘gifted’ to the richest 5 percent!
QE was probably never intended to help the productive economy out anyway. All it has done is keep banks solvent which, without money printing, would have been insolvent.
Were banks net sellers or net buyers of Government bonds over the period where QE was occurring…?
You tell me
A lot of, particularly US, QE ended up in the BRICS where it bid up asset prices – mainly real estate. With interest rates of c 10% in Brazil, it’s a no brainer for banks located in 0.25% US.