Quantitative easing is raving bonkers.

The purpose of an economy is to produce what the people want: both as expressed by what they do with their cash and credit cards and as expressed by their desire to have a selection of goodies distributed to them by the state (health care, state education, law enforcement, etc).

So if there is less economic activity than there should be (i.e. if unemployment is too high), then peoples’ take home pay needs boosting, plus public spending needs to be boosted. And that in turn will result in some additional investment spending.

But QE aims to boost primarily investment spending and consumer spending by asset holders, i.e. the better off. Why? It makes no sense, at least on the face of it.

So with a view to finding out what the justification for QE is, I’ve just spent an hour Googling relevant words and phrases like “QE versus fiscal policy”. 

And what did I find? Absolutely nothing. Complete silence (unless I’ve missed something). 

The United States.

In the US, there is some sort of an excuse for QE, namely that politicians have taken to holding a selection of unemployed at gun point while threatening to keep them if said politicians don’t get their way on tax and public spending issues. I.e. Congress has temporarily gone insane.

Or as Robert Gates put it in reference to US politicains, “Too many are more concerned with winning elections and scoring ideological points than with saving the country.” I.e. US politicians won’t countenance much fiscal stimulus, so the Fed has to try to do something.

But in other countries, there is no such excuse.

Conclusion.

QE was implemented for the same reason as a baby picks up one toy when it’s bored with the toy (fiscal policy) its being playing with for the last five minutes. QE is a naked emperor.  But of course the people refuse to believe their emperors  are really naked.

Or put another way, this is an example of Joseph Goebbles’s so called “big lie”. That is, if the authorities do something totally and completely insane, the common people refuse to believe their rulers really are insane. That’s why rulers get away with doing things that are insane. 

:-)