Nov 5 (Reuters) – When it comes to creating inflation, bond
buying by central banks may actually ultimately be
Called quantitative easing, it continues to be a mainstay of
the policy reaction to the ongoing economic malaise. Yet here we
are five years later and the evidence that QE can kindle
inflation, much less revive the economy, is decidedly mixed.
In part that may be because everyone realizes that QE isn’t
forever: ultimately the bonds the bank buys will have to be
repaid. It is also true – and here we can consider the
remarkable valuations of Twitter and Pinterest – that QE causes
bad investments, which ultimately must be deflationary.
With U.S. inflation rising just 1.2 percent year on year in
September, well below the Fed’s 2.0 percent target, bond buying
by the Federal Reserve will continue – a bit like the old joke
about beatings carrying on until morale improves.
Very radical increases in bond buying in Japan under
Abenomics – more or less a pledge to buy and buy assets until
inflation reaches 2 percent – has also had only mixed success so
far, with core inflation flat in the year to September. That
this, the first time Japan core inflation hasn’t fallen outright
since the end of 2008, is seen as a victory is itself a bit of
an indictment of extraordinary monetary policy.