Quantitative easing will always, no doubt, have some marginal effect on lending rates.
But the real potential power of QE is supposed to be in its ability of to make people believe growth is coming. That can spur investment, spending and genuine growth.
In that sense, QE3 will probably be a failure. It hasn’t convinced markets, businesses or the public that growth is coming.
But if you follow Dario Perkins at Lombard Street Research further down the wormhole, Bernanke’s tactics get interesting at another level.
Some investors are worried about Ben Bernanke’s latest effort to revive the US economy. In Milan last week, Italian clients described QE3 as ‘disturbing’, ‘dangerous’ and even ‘crazy’. There was lots of talk about the inflation it would create. If this reflects investor sentiment more widely, Mr Bernanke will be delighted. This is exactly the response he wanted.
Sure, Bernanke might not be able to convince anyone growth is coming but he has convinced many that Bernanke & Co. Printing Presses are flooding the market.
And really, that’s the next best thing. If you’re hoarding cash, sudden worries about inflation will make you do something.
And that something means investing. It might be in gold or stocks but even if it means investing abroad, that could still boost the economy by weaken the dollar. Something is always better than leaving it in cash on the sidelines.
Just hope all the money doesn’t go into oil.
The FT explores Perkins’ ideas further.
