The negative consequences of 10 years of quantitative easing

February, 2019 Print

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The Bank of England introduced quantitative easing (QE) as an emerging measure to stave off deflation and economic collapse 10 years. But its use has now become widespread and has led to a range of negative consequences, according to former pensions minister and pensions and investment adviser, Baroness Ros Altmann.

Altmann said that after lowering interest rates to almost zero, the Bank of England created new money to buy government bonds to boost growth, by printing £200 million in new money. It was followed by the Fed, the Bank of Japan and the European Central Bank. “The ultimate aim of QE was to boost the real economy, growth and jobs, using rising assets prices as the reflation mechanism helping the economy deal with excessive debts built up before the crisis in 2008-09,” Altmann commented.

However, the policy of QE has been maintained beyond the economic emergency. Despite rising growth and employments, global central banks continued to create more money to buy bonds, Altmann noted. “It seems that these ‘emergency’ experimental measures are almost becoming mainstream.” In fact, since 2009, £435 billion was created to buy Gilts. This also keeps the cost of government borrowing low, as well as benefiting older voters who are home owners, as QE has raised asset prices.

But Altmann said artificially raising asset prices has increased inequality in society. “In effect, monetary policy has acted like regressive fiscal policy: QE is rather like a hidden tax rise on people who rent or don’t have any assets, alongside hidden tax cuts for those wealthy groups who benefit.” Furthermore, Altmann said that QE could be undermining capitalism itself, by distorting the risk-free rate and by creating asset bubbles.

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