Quantitative easing only benefits the financial sector, UK research finds

October 10, 2012, University of Bath

Quantitative easing only benefits the financial sector, research finds
(Phys.org)—A review of evidence into Quantitative Easing (QE) has shown that the Government's hope that it will pull the UK out of recession may be unfounded.

Professor Chris Martin, from the University of Bath's Department of Economics, has looked at the impact of QE not just on but also the 'real' economy of jobs, inflation and output and concluded that there is no lasting benefit in continuing to pursue the policy.

He concludes that QE has produced a limited but temporary gain for the , but it has been of no help to the wider business community or individuals and families struggling against inflation and unemployment.

His review has looked at studies of the performance of QE by central banks, including numerous historical studies of small scale QE purchases and studies of the large contemporary QE programmes.

The policy of QE has seen the Bank of England buy £375 billion of through government bonds, to bring down the cost of government borrowing and lower interest rates across the economy.

He said: "QE is serving to help the financial sector, such as banks and . That's useful because it's a sector that was really facing the cliff edge in late 2008 and 2009 but in the end the aim of the policy is not to help the financial sector but to help the wider economy, and it's not feeding through into that.

"We've had four rounds of QE, bought more and more bonds, and we're still stuck."

He believes that the real problem behind the UK's economy is lack of demand and that only large scale government spending can overcome this.

"The in the UK is the lack of demand. Making the interest rate cheaper helps but it isn't addressing the major problem. The Government needs to start spending by employing people. It needs to get involved in large scale . Roads, airports and broadband are all helpful but spending £20 billion on infrastructure is a drop in the ocean compared to the £1.4 trillion deficit.

"We have to stop the cuts and start spending the money. It's been a very miserable five years and nothing else has really worked. What is there left to do other than get back to ?"

Professor Martin's review, entitled "QE: A Skeptical Survey," is due to be published in the Oxford Review of Economic Policy.

Explore further: Economist says renewed financial crisis looms unless government acts

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5 / 5 (2) Oct 10, 2012
"We have to stop the cuts and start spending the money". In reality, the UK government spending is still increasing. Spending is tap that requires a source of money--either more debt (to be paid by future generations) or money printing (to be paid by savers via inflation).
5 / 5 (3) Oct 10, 2012
Quantitative easing is nothing else than just printing money leading to inflation.
5 / 5 (2) Oct 10, 2012
Quantitative easing is nothing else than just printing money leading to inflation.
Inflation in the short term, but severe deflation in the long term (or else, complete disintegration of the currency.) That's because modern currencies are debt-backed (i.e. backed by government bonds), so "printing money" is in fact a function of growing the national debt. However, issuing ever more currency (and debt) into the economy has diminishing returns (in a way analogous to how a junkie must mainline ever more heroin each time, to achieve the same level of well-being.) Eventually, the debt becomes unsustainably large compared to the size of the economy, which either leads to drastic austerity (i.e. deflation) or sovereign default (i.e. the end of the currency.) The latter in more extreme cases, may even lead to disintegration of the government and violent uprisings by the disposessed, with the ultimate outcome being quite unpredictable (but potentially very dangerous.)
2 / 5 (1) Oct 10, 2012
Garbage. When the world economy collapsed in 2007/8, the ONLY thing that could possibly have helped was quantitative easing. Thank you, Chairman Bernanke!
I don't have figures. But the loss sustained by individuals in terms of loss of value to housing alone was enough to shock the most hardened individual.
The effects of this devaluation is still with us.
The effects of this particular financial debacle are long lasting and definitely not over.
Older Americans are living in a new reality, one which will soon percolate through the rest of society and around the world.
BTW, in America, older people are becoming more and more common as each year slides into oblivion.
Enjoy the new reality!
5 / 5 (1) Oct 11, 2012
The more indirect the government's policy or programme, the more expensive and less effective the results. If the idea is to increase employment, raise wages, and help people pay down their debts so they can spend more thereby stimulating greater production, then we should hire those people that need employment, pay them the wage we think people doing the kind of work they'll be doing should be paid, and pay down or forgive the debts of those people directly, rather than engage in a policy of lowering interest rates below 0% for the moneylenders and insurance originators. The answer to inflation is taxation, and as those who have accumulated great claims to resources that they hoard to no productive purpose find their taxes for doing so increased, they too will begin to contribute to employment and production as they seek to avoid those taxes.
5 / 5 (3) Oct 11, 2012
Thank you, Chairman Bernanke!
It was the Fed that through its artificially lowered interest rates in the 1990's, and then ZIRP in the 2000's, helped precipitate the collapse in the first place. Greenspan was also one of the most enthusiastic champions of financial deregulation. The next collapse is coming, too.

The Fed (like every other Central Bank) is a private banking cartel. It never does anything to benefit you. Its main job is to generate growth and profits for its member banks, while transgressing against the law just as much as possible so as not to inordinately raise the public's ire. It's a delicate balancing act, to be sure.

Ultimately, the model on which all banks are based is fundamentally flawed and inevitably leads to economic collapse and/or devaluation of the currency. That's because the banking business model presumes perpetual exponential expansion of the economy. That is fundamentally unsustainable and unrealistic over any appreciable period of time.
not rated yet Oct 11, 2012
I used to shop at the Pink Elephant.... it was a liquor store across the street from where I once worked.
Dick, the proprietor had a wild view of politics.... Dick is long gone, as is the paper machete Elephant that once hung in the window.
Wars used to start when nations didn't repay their international debts in 'good' currency... like gold, silver and precious stones.
Won't pay? We'll come and sack your country. Over and over.
Now we use the court system, but the result is the same ... or not...
Pinky? Humans are fatally flawed. How can we built a flawless system?
5 / 5 (2) Oct 11, 2012
To view humans as "fatally" flawed, rather than just merely imperfect but capable of improvement over time, is a rather -- eh -- fatalistic diagnosis. If that were truly so, then there'd be little point in going on living. We might as well just take the shortcut and kill ourselves right here and now.

Can we build a "flawless" system? Probably not. However, there is no reason to conclude that the best system we've come up with so far, is optimal and cannot be improved upon. That would be a rather arrogant and self-centered point of view.

Our form of government was constitutionally set up so that it could modify and better itself over time. Along those lines, the Federal Reserve is just another one of many failed experiments in governance. Time to recognize the failure, and attempt to design something better. There's no guarantee, of course, that it would actually BE better, but what's clear is that the current system is very broken and comprises a one-way ticket to hell.
5 / 5 (2) Oct 11, 2012
The current system has been broken for about 30 years. Still, it hobbles on. The only thing that will change it is calamity. Good luck to us.
5 / 5 (3) Oct 13, 2012
The U.S. financial and political system started it's spiral of death with the election of Ronald Borrow and Spend Reagan, 32 years ago.

He brought with him Neo-Conservative economic polices of lower taxation, higher levels of borrowing, and massive increases in unproductive military spending that has brought America to the brink of non-existence.

Now that the American nation needs stimulus, the Republicans are promising a plan of anti-stimulus through austerity.

Say goodnight to America.
1 / 5 (2) Oct 14, 2012

Fatally flawed banking system be damned!

Help me get one of them there "paper machete Elephant"s, and we'll ride it right outta this here town!!!!

1 / 5 (1) Oct 14, 2012
From the quotes in this article, this paper seems obviously politically oriented. It is one thing to study the figures and conclude that some politics did not have the desired effect, but it is an other to say what *should* be done, as the author since to do by suggesting government spending in infrastructure projects for instance. I personally don't think that one can revive an economy by printing and distributing paper to people. A good economy needs people creating value, not people digging holes because the government paid them to do so. That's a opinion, sure, but at least I can say it without giving any more justification since I'm not a scientist. This guy is a scientists and he should not give such opinions that have no relation with his studies.
5 / 5 (1) Oct 14, 2012
I wasn't aware that the U.S. infrastructure consisted of holes.

But there is nothing stopping your fantasy is there?

"A good economy needs people creating value, not people digging holes because the government paid them to do so." - GrondiluPoofie

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