Europe continues to face long-term challenges from its debt crisis, including severe austerity measures that undermine growth and high youth unemployment. Central banks worldwide are ending quantitative easing programs. While money printing can cause inflation if the money is lent and spent in the real economy, much of the benefits of quantitative easing programs were absorbed rather than stimulating broader growth. Developed economies will need to focus on creating real wealth in today's difficult environment rather than relying on nominal growth.

1. Economics Briefing
Gnostam Monthly Economics Briefing
May 2013
The impact of the end of QE3

2. Europe Battles Long-term Challenges
Europe’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.

3. QE is ending worldwide
— Recovery in housing is driving this;
— Gold price down, but at $1,300/oz is still half of
value in real terms i=of 1980’s peak;
— Cash out of in I-shares SPDR Gold trust, means
real economy has more potential for real returns,
[280 T increase 2012, 177T decrease in Q1 2013];
— Industrials in US increase profits, have great
balance sheets, but growth in sales is a problem,
>1%.....

4. A lot of QE benefit swallowed up
Gap between mortgage rate paid by homeowner,
and yield on mortgage bond
Source: http://www.newyorkfed.org/research/conference/2012/mortgage/primsecsprd_frbny.pdf

5. Does QE cause inflation?
Printing money causes inflation only if the money
is lent & spent …
6.50
6.70
6.90
7.10
7.30
7.50
7.70
7.90
2008 2009 2010 2011 2012
$trn
0.0
0.5
1.0
1.5
2.0
2.5
3.0Money supply
(right axis)
Bank credit
(left axis)
Source: Gregory Ip, Economist. Shows the extent of bank solvency problem!

6. … or if expected inflation rises
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2008 2009 2010 2011 2012
Expected inflation
Real bond yield
Source Gregory Ip, Economist

7. Conclusion
— Democracies in advanced are addicted to nominal
growth, not real growth!
— Money supply has bought time for the adjustment
in living standards;
— Now it is up to developed world to create real
economy wealth, and that is very difficult in today’s
economic environment;
— Banks role at center of developed economies will
have to change [= regulated], as have not been able
to fund growth, just asset bubble lending.