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I'm wondering as well, how much of this is due to monetary policy pushing investors into higher-risk investments. That's been the point of QE and negative inter

I'm wondering as well, how much of this is due to monetary policy pushing investors into higher-risk investments. That's been the point of QE and negative interest rates, right, although I don't recall hearing it framed as an attempt to push investors into taking on more risk?

moorhosj 8y ago
==I don't recall hearing it framed as an attempt to push investors into taking on more risk?== Because that was never the goal. Investors are taking more risks because they have to in order to find return in a world where the interest rate was basically zero for 8 years.
- rebuilder 8y ago
  And in the EU, going by financial reporting, that seems to have been the goal. I just haven't seen it mentioned that this means investors taking on more risk.
jahewson 8y ago
No that’s not the point of QE. The point of QE is to allow the government to continue deficit spending without running out of money. The treasury lowers the interest rate and then creates new money to buy cheap debt from the government when there would otherwise be no takers. The interest rate affects everybody, which allowed troubled banks to lend cheaply to each other in the wake of the financial crisis (good) but also means that low-risk investments generate very little return (bad). It’s the later that has pushed investors into riskier assets - whether or not that’s beneficial depends upon how much systemic risk there now is... which is not obvious, after all mortgage-backed securities were supposed to be safe but we all know how that worked out. The treasury would like to raise interest rates but this means that consumer debt will cost more each month and is painful for homeowners especially. So it’s a slow process. We may already have trapped ourselves in unstainably cheap consumer debt - much like those 2005-vintage mortgage “teaser rates”.
- ascorbic 8y ago
  There are always takers for government debt. QE is supposed to crowd them out, so they invest their money elsewhere. Always seems needlessly indirect to me. Helicopter money is far more likely to be actually spent.
- rebuilder 8y ago
  I admit I'm not very familiar with the discussion around QE in the USA, but in the EU, a lot of the reporting about interest rates has specifically quoted an increase in investments as a desired result of low interest rates; pushing money out of cash and bonds into "useful" investments.

moorhosj 8y ago

==I don't recall hearing it framed as an attempt to push investors into taking on more risk?== Because that was never the goal. Investors are taking more risks because they have to in order to find return in a world where the interest rate was basically zero for 8 years.

rebuilder 8y ago
And in the EU, going by financial reporting, that seems to have been the goal. I just haven't seen it mentioned that this means investors taking on more risk.

jahewson 8y ago

No that’s not the point of QE. The point of QE is to allow the government to continue deficit spending without running out of money. The treasury lowers the interest rate and then creates new money to buy cheap debt from the government when there would otherwise be no takers. The interest rate affects everybody, which allowed troubled banks to lend cheaply to each other in the wake of the financial crisis (good) but also means that low-risk investments generate very little return (bad). It’s the later that has pushed investors into riskier assets - whether or not that’s beneficial depends upon how much systemic risk there now is... which is not obvious, after all mortgage-backed securities were supposed to be safe but we all know how that worked out. The treasury would like to raise interest rates but this means that consumer debt will cost more each month and is painful for homeowners especially. So it’s a slow process. We may already have trapped ourselves in unstainably cheap consumer debt - much like those 2005-vintage mortgage “teaser rates”.

ascorbic 8y ago
There are always takers for government debt. QE is supposed to crowd them out, so they invest their money elsewhere. Always seems needlessly indirect to me. Helicopter money is far more likely to be actually spent.
rebuilder 8y ago
I admit I'm not very familiar with the discussion around QE in the USA, but in the EU, a lot of the reporting about interest rates has specifically quoted an increase in investments as a desired result of low interest rates; pushing money out of cash and bonds into "useful" investments.