Counting the Quacks of Quantitative Easing

In the medical world "Doctors administer so much care that they wouldn't want for themselves," confesses a US physician, breaking the taboo about not wanting to be treated like his profession treats the rest of us in what would otherwise be our dying moments.

"Much of the care we offer patients who have serious, life-threatening illnesses is ultimately futile," adds a British doctor, also wanting to avoid his colleague's best efforts when his time comes. Pointing to chemotherapy in particular, "It can involve many months of gruelling treatments that might possibly extend the length of one's life, but do nothing for its quality."

How different is economics? "Treating serious medical conditions often has unwanted side effects," declared Charles Bean, deputy governor of the Bank of England and a PhD doctor, in a speech in Glasgow last Tuesday.

"But unpleasant as those side effects sometimes are, treatment is invariably better than the alternative. So it is with the economic medicine of low interest rates and quantitative easing."

A former LSE and Stanford professor, Bean was tackling the sensitive topic of sub-zero real interest rates, and how they hurt savers and pensioners. Negative real rates are when retained capital loses real purchasing power, because the interest or yield that it earns lags the rate of inflation. Quantitative easing has only left savers and pensioners more battered and bruised still, said Bean.

"The immediate consequences may be unpalatable, but the sooner we can get the economy on the mend, the sooner we can return policy to more normal settings and the better it will be for all of us – savers, businesses and employees alike."

There, there. Now do hold still...

"[Savers] have every right to feel aggrieved at losing out," the doctor continued. "After all, they did nothing to cause the financial crisis. But neither did most of those in work, who have also seen a substantial squeeze in their real incomes."

How true! And since neither workers nor savers are to blame for this crisis, they can both pay – and pay dearly – by being fed another dose of kill-or-cure medicine which has yet to work in three years of treatment.

Defending the course of quantitative easing and near-zero rates now prescribed is a thankless task. First, it's done nothing to cure the depression to date. Second, it's actually adding to the gloom – as Dr.Bean's boss, the Bank's governor Mervyn King 'fessed up last autumn. In a very roundabout way, you understand.

"I would certainly accept that what is happening in the economy now is a very large squeeze on household incomes," Dr.King told the UK's Treasury Select Committee. "Real take-home pay has fallen by more in the past two years than any time in living memory."

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