Another reason why quantitative easing is popular: it gives the illusion to act without really acting

Monetary Policy: the great illusion

BY GUY SORMAN

Since the European Court of Justice has extended the mandate of the European Central Bank, it will be allowed to start a programme of quantitative easing. 

Economists and pundits are celebrating what the left wing medias in Europe have dubbed as a “victory” for monetary policy. 

It remains to be demonstrated whether an active monetary policy will drag the Eurozone out of its current stagnation. 

The supposed efficiency of the quantitative easing policy, injecting new money into the economy via the banking system, is, according to its supporters, to be found in the US recovery. 

However, coincidence in Economics, as in any other science, cannot be accepted as a proof. The US Federal Bank monetary policy may or may not be the cause of the current impressive American rebound. 

Maybe, and most probably, entrepreneurship, innovation, the “animal spirit” of the Americans are the true reasons why America is back. 

It also remains to be verified to whether or not this abundance of cheap money, originated by the Federal Central Bank, has been invested mostly in speculative funds. 

If this were the case, when interest rates inevitably rise, quantitative easing could be revealed in a couple of years as a time bomb ready to explode, leading to a new financial crisis, comparable to 2008.

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