It seems that dishing out free money is a cure for some ill’s and not for others, or for some patients and not others. While the rest of the economy languishes, the financial markets have seen growth, so how can this be?
With the vast amount of QE money going into the capital markets via banks there can be little doubt as to why the financial sectors health has improved. The aim of QE was to get the banking sector lending, but who to and what for was never stipulated; but the expectation was that it would make its way to the “real economy”. But this expectation was ill founded. Why is it that a cash injection to the real economy via the banks, with interest attached, is an acceptable way to capitalize businesses but a managed, debt-free cash injection via the government is not? The reasons are ideological; businesses must borrow to grow and individuals must borrow to consume, or how else would the poor old banks survive.
With the private sector debt far outweighing the public sector debt, you would think that the prescription for the banking sectors recovery would apply to the rest of the economy; are we really expecting the rest of the economy to service its existing debt and grow through more borrowing, or are we to believe that businesses will do this via the existing revenues that are already being squeezed by inflation and government cuts? Of course we are.
There is another kind of debt that doesn’t get mentioned much, material debt. If the present situation is not remedied we will have a deficit of infrastructure, health, education and opportunity. If free money in the form of a bailout plus the extremely low borrowing costs is good for the banking sector, then surely it’s good for the real economy. The real danger of “printing money” is not the printing of money in itself, but how much is printed and where it is directed. QE has been operating for quite some time now and has had no positive affect on the economy other than to subsidize more speculation in the financial markets, most notably in the bond market. There seems to be a pathological resistance to alternative economic stimulus strategies in the UK and EU, and total contempt for the negative affects that a stagnant “real economy” has on “real people”.