Thoughts on QE14 Aug 2020 15:30
I read a very informative piece by Victor Hill recently, in particular his thesis on Quantitative Easing. To sum up:
Central banks all over the world are using monetary economics to bail out governments whose finances have been wrecked by the coronavirus pandemic of 2020. Monetary policy carried out by the priestly caste of central bankers, who are unelected, has become a means of facilitating fiscal policy, as determined by the politicians.
The economist Liam Halligan recently wrote that quantitative easing (QE) started out as an emergency measure in the financial crisis of 2008-09 but has since become a lifestyle choice for central banks. QE was first initiated in order to inject liquidity into the banking sector which was teetering on the brink in the fallout from the collapse of Lehman Brothers in September 2008. It worked, and banks managed to reduce their balance sheets, resulting in a huge contraction in the money supply in most advanced economies which was only partially offset by the massive creation of new money by the central banks.
But thereafter, QE was mobilised at every critical moment of economic uncertainty – the European Sovereign Debt Crisis, the Greek bailout, and now the Covid-19 pandemic. QE has bolstered asset prices (nice for the rich) and suppressed bond yields. The latter outcome has had the effect of tempting governments to borrow even more aggressively (because debt is so cheap) and thus drive up their debt-to-GDP ratios even further.
The balance sheets of the Federal Reserve, The European Central Bank (ECB) and the Bank of Japan have all swollen during the pandemic by approximately one third. Everybody’s doing it – even the Sveriges Riksbank (the Bank of Sweden).
Suffice to say that it reinforces the case for precious metals – gold, and of increasing interest, silver.
Still unknown to most investors, palladium and rhodium will outshine the traditional hedges as growth in physical demand will continue to outstrip uncertain supply.
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