FINANCIAL TIMES: Share prices have risen almost directly in line with expansion in the Fed’s balance sheet, with the only major hiccups in the US stock market’s post-crisis rise coming at times when its bond purchases had been paused…
Underlying this, US companies have built their profits largely through widening margins (thanks to lower credit costs), while share prices have risen largely through expanding the multiples that investors pay for those earnings (because rival returns from bonds are so low). Meanwhile, those reliant on cash have seen their savings dwindle as interest rates are cut to zero. Thus leftwingers claim quantitative easing has stoked inequality.
Meanwhile QE has saved many companies from bankruptcy, by making debt loads far cheaper to refinance. Despite a sluggish economy in which many companies would normally be driven to the wall, defaults on junk bonds ran at only 0.5 per cent last year. This compares to an average over history of 5.3 per cent, and a peak, in 1990, of 15.9 per cent. Hence critics on the right claim QE is blunting “creative destruction” and weakening market discipline… (more)
