Quantitative Easing has helped to expand global stock market capitalization by a staggering $36 trillion over the last five years. As the accompanying chart indicates, the only intermissions were after each dose of Quantitative Easing (QE1 & QE2).
What is truly astounding is the minimal impact all of this has made with respect to economic growth and employment (some argue that the global economy would have collapsed without QE – but that argument only resonates with the first emergency dose in 2008-2009 – the following applications were more about engineering a recovery in the job market).
All this highlights the risk presented by a full “Tapering” of QE3. There may be some central bank optimism that the recent increase in economic growth might be enough to weather the headwind that a Taper will create. However, history shows us that things almost immediately slowdown after the foot is taken off the QE gas pedal. With this in mind, it may be just too difficult for the current dovish regime of central bankers to maintain their pledge of ending QE3 by the end of this year. Who knows, come 2015 we might be at new records for global stock market capitalization … if things really get bad, that is.
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