This is an excellent article from the respected macro-economist, Gavyn Davies, writing in his FT blog. If you are financially literate, it is well worth a read. Check it out!
My simple conclusion from reading the article is that we should not necessarily expect markets to crash when QE ends (quantitative easing); there will obviously be a period of adjustment as highlighted by Mervyn King, outgoing head of the Bank of England. However, in my view, by the time QE ends, economic fundamentals will be on a stronger footing. This is good news.
Hopefully, major corporations will start to invest some of their piles of cash soon? When big corporations start investing in major capital spending and acquisitions, it will filter through the economic food chain and hopefully create jobs and give unemployed young people renewed confidence and hope; for many, capitalism is still on trial.
At the moment there is a major disconnect between those with financial assets and those dependent upon wages and salaries. The first group, let’s call them the “wealthy” are doing surprisingly well on the bull-run in financial markets; meanwhile, the second group, we can call them the “workers” are squeezed by austerity measures in the US, the UK and the Eurozone – the “workers” are also being squeezed by non-availability of low-cost credit.
For me, it is time for the benefits to be shared. I am not talking about redistribution from the “wealthy” to the “workers”, like in Francois Hollande’s France. I am referring to fiscal stimulation and deferring austerity a little; watch the US, the UK and Germany; they will lead and others will follow and share the benefits.