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June 19, 2013

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Luke

Not sure this changes what you say, but does QE aim to (or actually) diminish the risk premium between stuff like govt bonds and equities/corporate bonds? Or does it aim to (or actually) make the return on safe assets so pathetically low that people invest in racy stuff? So corporate bonds might still be 2% higher than govt bonds, but you have a chance of a real return.

Metatone

Can we just note that random motion of money into equities does next to nothing for company financing in the short run? It's only companies selling new shares that raise money this way - and most of those aren't part of the rising indexes.

aragon

We are counting the days to the next financial crisis. And the Tech Bubble was not the railways, very little physical infrastructure resulted, and it was followed by another asset bubble.

We don't have fibre to the home, and returns from copyright and network effects are just monopoly rents.

Lack of investment opportunities, or just excessive returns on financial and some non-financial assets (housing) and some IT.

We have seen a huge transfer of wealth to the rich, including through privatisation.
(30% returns for the water industry) and inflating the stock market through QE not to mention the inflation of then housing market (off balance sheet).

paulc

"rebalancing towards corporate bonds and equities, which reduces firms' cost of capital and thus stimulates capital spending"

I see Metatone got there before me but yes it is a weak argument today. I was listening only a couple of weeks back to John Kay on a LSE talk say the very same thing about equity markets; that companies don't raise capital there any more. So it must be that they simply want to push up existing stock prices to reap the wealth effect.

Ralph Musgrave

Not only is QE a load of nonsense, monetary policy as a whole (QE plus interest rate adjustments) is fundamentally defective for the following reason.

Monetary policy channels stimulus into the economy exclusively via borrowing and investment, and there is no reason to suppose the optimum mix of investment and consumption spending changes as between when an economy is in recession and when it ins’t. You might as well channel stimulus into the economy exclusively via car production, restaurants and massage parlours.

Put another way, if in a recession, the only stimulus is fiscal, then employers who experience increased demand for their products can would decide for themselves when and how much additional investment to make without any assistance from the economic illiterates in Westminister or the Bank of England.

SteveH

The trillions currently being hoarded by the 'employers' should be noted here also.

We should also be very aware of how high levels of government/state assistance is critical to high class Broadband infrastructure.

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