Tuesday, April 24, 2012

It’s the rich who benefit from QE

Why Paul Krugman is full of sh1t

Krugman argues that QE is bad for banks because (a) it causes inflation. so loans are repaid in devalued currency and (b) it reduces the (profitable for banks) spread between short- and long-term IRs. But this argument applies only to a solvent banking system that makes loans to creditworthy borrowers and has no shadow banking activity. Since banks have killed the supply of creditworthy customers and made themselves insolvent (if marking to market) the name of the game now is to support asset prices by lowering short- and long-term IRs, getting junk assets off bank books and/or creating false prices for them. QE drives up financial assets and the wealthy, who own them, thereby grab nearly all of the wealth and income gains.

Posted by icarus @ 11:05 AM (1549 views)
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One thought on “It’s the rich who benefit from QE

  • mark wadsworth says:

    Icarus, agreed. QE is very good for banks for the reason you outline – and inflation is eroding their monetary liabilities as well their monetary assets.

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