By John Richardson
WHEN the Fed launched its third round of quantitative easing (QE3), a Perth Australia-based investment analyst said:
“I get the feeling that people are waking up to the fact that the Fed has lost all ability to improve the real economy.
“The balance sheet expansion only goes to help banks and that is where it ends. The liquidity is not flowing into the broader economy and is certainly not helping the job market. I think this rally will be short lived.
“Gold and oil will run, I agree. Each QE-related equity rally gets shorter and shorter and this will be the shortest.”
He was right. Just two weeks after QE3 was launched, and three weeks since the European Central Bank announced its bond-buying scheme, underlying and long-term economic problems have brought stock-market euphoria over further money-printing to an end.
In Greece and Spain, for example, social unrest over austerity has returned. This was always going to happen because, as the investment analyst pointed out, central bank money has done nothing to help the 99.9 percent who are not big-time investors in equities and commodities markets.
The Financial Times went as far as to warn that “austerity is a centrifugal political force” – hence, increased calls for Catalan, and possibly Basque, independence.
Western European, at the time of the break-up of the former Soviet Union, quite rightly claimed that this demonstrated the strength of the democratic model of government.
But now, because democracies are failing to help the 99.9 percent, Western European will face greater pressures for the creation of more independent nation states.
We need to work towards solutions through government policies that help the majority, including recognising that ageing populations in the West represent both a challenge, and a tremendous opportunity.