The scale of global quantitative easing seen since 2008 is mind-boggling. It took the US Federal Reserve 94 years to grow its balance sheet to $900bn (£575bn). Within six weeks of the Lehman collapse in September 2008, the scale of the Fed’s QE had doubled the size of its balance sheet. By the end of the same year it had virtually tripled and has since ballooned to over $4 trillion. The Fed has not been alone. Before the crisis, the balance sheets of the US, European and Japanese central banks totaled around $3.5 trillion or 11pc of their combined GDP. The numbers are now approaching $11 trillion and 30pc, and that’s before adding in the stimulus provided by the central banks of the UK, China, India, Russia, Australia etc, bringing total central bank balance sheets up to a grand total of over $16 trillion – about three times the pre-crisis level.
Nothing even approaching this scale of monetary intervention has ever been seen before and so there is no reference point for gauging the longer term consequences.
This massive central bank credit has in turn fuelled dramatic asset price inflation, with the combined valuation of world equity markets (before the very recent jitters) reaching almost $75 trillion – a not-entirely-coincidental threefold increase from the March 2009 low of $25 trillion. Charts plotting the rise in equity markets against the increase in central bank balance sheets show an almost perfect correlation.
Increased asset prices have helped increase real wealth and spending, but the effect has been concentrated in the wealthiest 1pc or even 0.1pc of the population. Of course, the bubble may continue to be inflated, the Fed has been slowing bond purchases this year and has stopped (but not reversed) its QE, but the ECB has not yet really begun to print money outright. Meanwhile, Japan’s addiction is chronic, with a suitably scary Hallowe’en announcement of yet another increase in its programme, to swell the monetary base annually by 80 trillion yen (more than £447bn) in an attempt to overcome a lost quarter-century of economic growth.
The next couple of years will be exciting.