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Executive Summary

It is time to call it quits. QE proved to be a very effective crisis management tool, but we have probably reached a point where the use can no longer be justified on economic grounds. Just as John Maynard Keynes talked about the euthanasia of the rentier back in 1936, we are now facing the euthanasia of the economy, unless we change course. The obvious problem facing policy makers, though, is that if financial markets are the patient, QE is the drug that keeps the underlying symptoms under control. We have already seen once how dependent the patient has become of this drug (think 22 May when Bernanke mentioned the mere possibility of tapering), and the market reaction clearly scared central bankers on both sides of the Atlantic.

The western world was very critical (and rightly so) of Japan in the 1990s for not dealing decisively with its sick banking industry. Twenty years later, Japan is still paying the price for its dithering. The problem is that we are now making precisely the same mistake. QE has proven effective of suppressing the underlying symptoms, but that doesn’t mean we should stay on that medicine forever. In order to reinvigorate economic growth, and avoid falling into the Japanese deflation trap, we need a healthy banking industry. That will only happen if it is thoroughly cleaned up once and for all.

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​QE: Euthanasia of the economy?

Quantitative Easing: Effect on Asset Prices
Nov 20   ( From Credit Writedowns, FT Money )​
Most of the Central Banks around the world joined the Elite Club of Quantitative Easing ( QE ) when the crisis began in 2008...

Buying of bonds had a huge and material impact on interest rates first, and then on other assets at the beginning of the process . Even the Bank of Japan did implement a QE for other assets like Reits ...

But the other phases of ​​QE were a lot less effective in terms of asset prices change as shown by the chart below...


Quantitative Easing: Effect on Asset Prices  $MACRO, $STUDY, $FED, $SPY, $SPX, $ES_F, $OIL, $CL_F, $BONDS, $ZN_F, $GLD, $GC_F , $EEM
Source: The license to print money is running out, FT Money, 19-20 October 2013
But as you may observe on the chart, the effectiveness have been declining tremendously for each QE...