All over the world, central banks are employing their own versions of quantitative easing. The Federal Reserve set the standard of keeping interest rates artificially low and purchasing billions of dollars worth of bonds. However, the likes of the European Central Bank (ECB) and the Bank of Japan (BOJ) have continued and expanded the monetary experiment.
Has QE been a success for Europe? Not really. In a bid to stimulate economic growth and spur lending, it seems like every central bank is doing QE. But this will distort global financial markets and be difficult to abandon, warns Raghuram Rajan, India’s departing central banker.
Speaking in an interview with the New York Times over the weekend, Rajan warns that countries executing QE will become trapped by concerns that if they raise interest rates then any economic growth will “slow down.” This is exactly what is happening in the United States today.
Rajan told the newspaper that low rates should not replace “other instruments of policy” and other types of measures that would be needed to get the growth they want.
“Often when monetary policy is really easy, it becomes the residual policy of choice,” he said.
The exiting central bank chief’s sage words come as the unconventional monetary tools aren’t working. Officials want central banks to employ less conventional means of economic stimulus, like helicopter money and even subzero interest rates as we’re witnessing worldwide. (SEE: Central banks will try latest monetary policy tool: Helicopter Money).
With central banks incorporating these desperate acts, the global economy has become a wasteland of debt on debt on debt.
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