No miracle cure

Quote of the day:

So, what will happen if we were to employ quantitative easing in New Zealand?

Two things. Where there are constraints in the economy, inflation. No question. A short-term fall in interest rates will feed into house price inflation faster than a real estate agent can sneeze. Asset prices, all asset prices, will rise. This will mean that those with savings denominated in New Zealand dollars will be poorer, those with assets denominated in shares, property or other affected assets, will benefit.

Where there are no constraints in the economy, such as employment, wages and prices will stagnate. Meaning those people will be poorer relative to those benefitting from an increase in asset prices. There will not be any rush of new spending.

This is a redistribution of wealth, from savers to borrowers, from workers to speculators, from the frugal to the feckless. Damien Grant

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