Lackluster economic performance, continuing concern about debt in both Europe and the U.S., and other factors have been pushing the stock market down in recent weeks.
Another factor receiving less attention is the pending end of quantitative easing. Quantitative easing had the perverse effect of making stocks look good by making other investments look bad. Investors, consequently, invested in stocks because there was nowhere else to put their money.
Like steroids, quantitative easing provided artificial performance enhancement to the stock market. Now that it’s ending, prices are becoming more market based and, as a result, have generally been falling.
Bobby Bonds and Roger Clemens can relate.
Tags: Economy, Federal Reserve, QE2, Stock Market
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I’m no economist but it seems to me that qtvauitntiae easing is no more or less than printing money and generating inflation (which is one way of reducing the national debt). What I’m quite sure we don’t need is a consumer-lead increase in GDP (which has always seemed to me to be a very dodgy way of measuring the strength of the economy since it includes all sorts of unproductive economic activities). I read an interesting article on the American economy which reckoned that private investment by business (large medium and small) would increase GDP much more effectively than increases in consumer spending. By all accounts businesses are currently sitting on quite a lot of cash at present but are failing to invest it while (certainly in the US case) there are uncertanties around future govt. policies (i.e. will extra capacity/new enterprise be stolen from them by already high/increased govt. taxes etc.).As I say, I’m an amateur onlooker on economic matters. I would welcome more informed comments.
Thanks for your comment, Antione. Policies that generate business investment would be helpful, indeed.
Brenda