QE airbags

QE was supposed to help whom? Corporate bond issuers have been the main beneficiaries

Airbags for dummies?

Bystanders at a road crash would be a little surprised if the paramedics attended urgently to the driver of the car who had seriously injured a large group of pedestrians – particularly when the driver was drunk and had been protected by a government-approved air bag.

That is the way that bystanders in the form of the general public will view the research by Bank of America Merrill Lynch analysts that shows that the top 20 issuers in the euro investment-grade bond market this year have accounted for the lion’s share of the European Central Bank’s corporate sector purchase programme.

In the minds of these bystanders, who can still see the halt and lame victims of the 2008 financial crash, this quantitative easing programme has, in large part, ameliorated the pain those who caused the accident: those who had exceeded the stated dose of intoxicating credit expansion.

Real investment?

But it is not the victims of the financial crash who have benefitted form QE. it is the bankers and the large corporates who have been protected with the quantitative easing airbag.

When corporates like Unilever, GE, AT&T and Pfizer central bank largesse in the form of quantitative easing bystanders might ask, "What’s the point"?

Bystanders might agree that QE is aimed at banks, firstly to bail them out for their mistakes, but secondly to encourage and finance real investment. They might ask wasn’t QE supposed to fund SME’s and fund job creating or productivity-improving investment?

They might be curious as to why the programme is instead featherbedding large corporates, some of them from outside Europe with no obligation to invest or invest in Europe.

Next time (and it's hard not to believe there will not be a next time) access to QE should be conditional. Instead of fuelling asset price growth and buffering large corporate borrowers, the financial emergency services should make access conditional on palpable real investment that produces evidence of new jobs, greater productivity or should be applied to the restoration of run-down infrastructure.

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