Quantitative Easing: further into uncharted waters
Wither bound?
With the infusion of a further USD1.5 trillion by the US Federal Reserve, as part of its Quantitative Easing (QE) programme; the world economy has been steered further out into uncharted waters. The post-Covid19 impacts are unknown.
QE, and other central bank equivalents, are untried policy instruments. To date they have postponed traditional economic adjustments from boom/bust cycles; but at what cost and further implications to the business environment, society and political policies? While some would claim that QE1 stabilised the stock markets and calmed sentiments post 2008, yet the continuing effects seem adverse. QE and its ilk, have seen the emasculation of the main tool of central bank control - interests rates: low, then zero and even now, negative have been introduced. Disappointingly after 12 years, demand and business growth have not been stimulated. Yet, it has led to a boom of stock market levels; fuelling corporate buy-back programmes and inflating asset prices artificially. The primers to the current market sell-off. It seems likely that the Fed's balance sheet has been bloated dangerously. Traditional methods of Monetary, Fiscal and Legislative adjustment, namely: inflation; taxation, FX controls, asset sequestering/seizure; populist legislation; etc, may all be re-tested in the medium term.
This journey into the unknown raises fundamental questions with regard to the: appropriateness of current political policies; efficacy of governance; robustness of the capitalist system; as well as the role of fiat currency. Historically, social revolutions, in the true sense of the word, have been ignited for lesser causes. Populist sentiments may yet rule. A future world order is unlikely to be installed overnight, but the forces that shape it are at work.
For the individual investor, it is a time of reflection. Firstly, to determine what a future world (evolving, near and medium term) might look like. Secondly what steps to take to best protect one's capital and prospects. Thirdly, that means the investor should make: an objective definition of needs; assessment of her/his risk profile; set realistic return objectives and metrics; as well as act accordingly. The horizon beckons.