Economics BriefingGnostam Monthly Economics BriefingMay 2013The impact of the end of QE3
Europe Battles Long-term ChallengesEurope’s debt crisis is far from over, with severe austerity measures undermining growth prospects well beyond mid-‐decade. A number of debt-‐heavy na<ons, locked in recession, are experiencing substan<al social and poli<cal fallout from sky-‐high youth unemployment rates.
QE is ending worldwide Recovery in housing is driving this; Gold price down, but at $1,300/oz is still half ofvalue in real terms i=of 1980’s peak; Cash out of in I-shares SPDR Gold trust, meansreal economy has more potential for real returns,[280 T increase 2012, 177T decrease in Q1 2013]; Industrials in US increase profits, have greatbalance sheets, but growth in sales is a problem,>1%.....
A lot of QE benefit swallowed upGap between mortgage rate paid by homeowner,and yield on mortgage bondSource: http://www.newyorkfed.org/research/conference/2012/mortgage/primsecsprd_frbny.pdf
Does QE cause inflation?Printing money causes inflation only if the moneyis lent & spent …6.506.706.907.107.307.507.707.902008 2009 2010 2011 2012$trn0.00.51.01.52.02.53.0Money supply(right axis)Bank credit(left axis)Source: Gregory Ip, Economist. Shows the extent of bank solvency problem!
… or if expected inflation rises-1.5-1.0-0.50.00.51.01.52.02.53.03.52008 2009 2010 2011 2012Expected inflationReal bond yieldSource Gregory Ip, Economist
Conclusion Democracies in advanced are addicted to nominalgrowth, not real growth! Money supply has bought time for the adjustmentin living standards; Now it is up to developed world to create realeconomy wealth, and that is very difficult in today’seconomic environment; Banks role at center of developed economies willhave to change [= regulated], as have not been ableto fund growth, just asset bubble lending.