IN THE spoof “rockumentary”, “This is Spinal Tap”, Nigel Tufnel, the band’s guitarist, displays his amplifiers with pride. The dials range not from one to ten, but up to 11. On a normal amp, he explains, when you reach ten, there is nowhere to go, but “these go to 11.”
Three of the world’s most important central banks—the Bank of England, Bank of Japan (BoJ) and the European Central Bank (ECB)—have dialled monetary policy up to 11, expanding their asset purchases from government bonds to embrace corporate debt and even equities. With government bonds and short-term interest rates already at historically low (and in some instances, negative) levels, such asset purchases were seen as the next logical step.
The expanded policy has several justifications. It is not clear that driving government-bond yields or short-term interest rates any lower will do a lot to help the economy; negative rates may dent bank profits, for example, making them more reluctant to lend. And if the aim is to get companies to borrow more, then buying their bonds will reduce the cost of that borrowing via lower yields.
But there...Continue reading
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