The Federal Reserve denies it, but it seems that quantitative easing (QE) is back with us. QE is when money is created out of fresh air with a few strokes on a keyboard and is used to buy financial assets – usually government bonds – to increase their price and push down their yields (interest rates).
You could be forgiven for thinking that the Fed’s unofficial objective is to underwrite the US stock market. This view gained credence under Alan Greenspan in the 1990s when interest rates were cut when things started looking shaky to prop the market up. Investors have been relying on it ever since.
Of course, slashing interest rates after the technology bubble burst in the early 2000s has arguably created the mess we are in now. Cheap money has created too much debt that the incomes generated by economies have struggled to service. Since the financial crisis over a decade ago, which was caused by easy credit and over-valued property prices, we have even more debt and even higher property prices.