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QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into.

QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into. Supplying cheap money is only one half of the equation to get investors to sponsor businesses: the other half that is needed is businesses with profitable business plans. And there the Western world has a problem: globalisation is moving mainstream business away to cheaper area's in the world. That is not a new thing, and traditionally Western economies have compensated that with new innovative businesses. And although there certainly is some innovation, it is not enough to keep up and keep the GDP growing. The aging populations in most Western countries contribute to that effect because younger generations are much more likely to take risks and start new businesses than the older.

rphlx 10y ago
Another factor is that employee productivity growth has been very low in developed markets since 2008, as the dividends of the computer & internet revolutions have tailed off.
jussij 10y ago
QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into. The central bankers created QE as a way to add liquidity into the markets to allow banks to lend, to allow small businesses to grow, to help economies to generate growth. Unfortunately that money was lent to the big bankers and they realized they could take that money and make much easier profits. The carry trade has been going on for decades and no one has taken any steps to stop it. It is very easy to for institutes with big wallets, to borrow large amounts of money from central banks only to take advantage of countries with an interest rate differentials. Then take a look at how JPMorgan Chase, after loosing billions on hedge positions, they took a US government bale out with the promise not to go back to their bad old ways of gambling with hedge positions. They took the government money and sure enough put it all back on the table betting red, only find it came up black: http://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-million-usd-in-london-whale-trading-scandal/4970068 http://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-mi... A broken promise to the US people with lots of money lost and as always no consequences for those who took the money on false pretenses. In reality I can see the sense of the bet. Take someone else's money and if you lose, the billions lost will be covered by someone else.
stephen_g 10y ago
That's a very plausible theory, but I don't think it's the problem at all. It's more that pretty much all QE so far has just gone into financial assets, and extremely little of it has flowed down into the real economy. Hence we see asset prices rising (i.e. share prices and house prices), but little growth or inflation.

rphlx 10y ago

Another factor is that employee productivity growth has been very low in developed markets since 2008, as the dividends of the computer & internet revolutions have tailed off.

jussij 10y ago

QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into. The central bankers created QE as a way to add liquidity into the markets to allow banks to lend, to allow small businesses to grow, to help economies to generate growth. Unfortunately that money was lent to the big bankers and they realized they could take that money and make much easier profits. The carry trade has been going on for decades and no one has taken any steps to stop it. It is very easy to for institutes with big wallets, to borrow large amounts of money from central banks only to take advantage of countries with an interest rate differentials. Then take a look at how JPMorgan Chase, after loosing billions on hedge positions, they took a US government bale out with the promise not to go back to their bad old ways of gambling with hedge positions. They took the government money and sure enough put it all back on the table betting red, only find it came up black: http://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-million-usd-in-london-whale-trading-scandal/4970068 http://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-mi... A broken promise to the US people with lots of money lost and as always no consequences for those who took the money on false pretenses. In reality I can see the sense of the bet. Take someone else's money and if you lose, the billions lost will be covered by someone else.

stephen_g 10y ago

That's a very plausible theory, but I don't think it's the problem at all. It's more that pretty much all QE so far has just gone into financial assets, and extremely little of it has flowed down into the real economy. Hence we see asset prices rising (i.e. share prices and house prices), but little growth or inflation.