{"id":97489,"date":"2017-08-28T12:00:00","date_gmt":"2017-08-28T11:00:00","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=97489"},"modified":"2017-08-24T10:48:18","modified_gmt":"2017-08-24T09:48:18","slug":"quantitative-easing-for-wealth-redistribution","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2017\/08\/quantitative-easing-for-wealth-redistribution\/","title":{"rendered":"Quantitative Easing for Wealth Redistribution"},"content":{"rendered":"
\"\"<\/a>

A man pushes a cartful of garbage near a busy intersection in Yangon, Myanmar. Credit: Amantha Perera\/IPS<\/p><\/div>\n

22 Aug 2017 <\/em>– Following the 2007-2008 global financial crisis and the Great Recession in its wake, the \u2018new normal\u2019 in monetary policy has been abnormal. At the heart of the unconventional monetary policies adopted have been \u2018asset purchase\u2019 or \u2018quantitative easing\u2019 (QE) programmes. Ostensibly needed for economic revival, QE has redistributed wealth \u2013 regressively, in favour of the rich.<\/p>\n

As its failure to revive most economies becomes apparent, and opposition to growing inequality rises, QE may soon end, judging by recent announcements of some major central banks. Already, the US Federal Reserve and the Bank of England have been phasing out purchases of financial assets, while the European Central Bank (ECB) is publicly considering how quickly to do so from December. Meanwhile, these monetary authorities are considering raising interest rates again.<\/p>\n

Evaluated by its own declared objectives, QE has been a failure. Forbes<\/em> magazine, the self-avowed \u2018capitalist tool\u2019, has acknowledged\u00a0that QE has \u201clargely failed in reviving economic growth\u201d. By \u2018injecting\u2019 money into the economy, QE was supposed to induce banks to lend more, thus boosting investment and growth. But in fact, overall bank lending fell after QE was introduced in the UK, with lending to small and medium sized enterprises (SMEs) \u2013 responsible for most employment \u2013 falling sharply.<\/p>\n

Bank failure to finance productive investments was not because corporations were short of cash as they have considerable reserves. Instead, the problem is due to under-consumption or overproduction, exacerbated by protracted stagnation and worsening inequality. After all, producing more when demand is soft or shrinking only leads to excess supply or gluts.<\/p>\n

QE\u2019s regressive wealth distribution<\/strong><\/p>\n

But QE has transferred wealth and income to the rich in the guise of reviving the world economy. New money created by QE was not invested in new productive activities, but instead mainly flowed into stock markets and real estate, pushing up share and property prices, without generating jobs or prosperity. QE has enriched asset owners, increasing the wealth of the rich, while not generating real wealth.<\/p>\n

By effectively devaluing currency, QE has diminished money\u2019s buying power, thus reducing real incomes. However, first-time or new asset purchasers lose, having to spend more to buy more expensive assets such as shares or real property. While increased asset prices have to be paid by purchasers, the additional cost to existing asset owners is partially compensated for by higher prices received for assets sold.<\/p>\n

Thus, the claim that QE would encourage investment as well as boost growth and employment has disguised the massive redistribution or wealth transfer to the rich. QE, especially in the US and UK, has seen real wages fall as profits rose. While output may have recovered, real wages have been generally lower.<\/p>\n

\u00a0<\/em>In the South too<\/strong><\/p>\n

QE has had similar effects in the global South, enriching asset owners at the expense of the \u2018asset-poor\u2019, while making their economies more vulnerable. QE also caused housing, stock market and commodity price bubbles as speculators rushed to buy up such assets. Until petrol prices fell in late 2014, oil-exporting countries enjoyed cash windfalls, at the expense of oil-importing countries, sometimes with devastating consequences, even if only temporary.<\/p>\n

QE triggered huge capital flows into the developing world. Around 40 percent of the US Fed\u2019s first QE credit expansion and a third from QE2 went abroad, mostly to \u2018emerging markets\u2019. Much of this went into buying existing assets, rather than into productive new investments. And if their currencies strengthened, their exports were undermined.<\/p>\n

On the other hand, QE also exacerbated competitive currency devaluations. By reducing the value of their own currencies, \u2018reserve currency\u2019 monetary authorities effectively caused other currencies to appreciate, damaging their exports and trade balances.<\/p>\n

Be prepared<\/strong><\/p>\n

Unlike productive long-term investments, \u2018hot money\u2019 inflows of speculative capital worsen currency volatility. Rising interest rates in the West are likely to trigger a mass exodus of capital from emerging markets, potentially triggering currency collapses in emerging markets again, as in mid-1997.<\/p>\n

With various recent developments conspiring to reverse the last several years of unconventional monetary policies in the North, emerging markets and other developing economies are generally poorly prepared for the forthcoming change in circumstances.<\/p>\n

While policy options in different scenarios are already being publicly considered in the Western reserve currency economies, an ostrich-like approach of not discussing and preparing for such changes is much more widespread in other economies, with potentially catastrophic consequences.<\/p>\n

_________________________________________<\/p>\n

\"\"<\/a>Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.<\/em><\/p>\n

Go to Original \u2013 ipsnews.net<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

22 Aug 2017 – Following the 2007-2008 global financial crisis and the Great Recession in its wake, the \u2018new normal\u2019 in monetary policy has been abnormal. At the heart of the unconventional monetary policies adopted have been \u2018asset purchase\u2019 or \u2018quantitative easing\u2019 (QE) programmes. Ostensibly needed for economic revival, QE has redistributed wealth \u2013 regressively, in favour of the rich.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[146],"tags":[],"class_list":["post-97489","post","type-post","status-publish","format-standard","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/97489","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=97489"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/97489\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=97489"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=97489"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=97489"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}