Why QE May Lead to DEFLATION In the Long Run

“If [They’re] Right, Everything The Fed Has Been Doing To Try To Stimulate The Economy Isn’t Just Useless – It’s Backward”

Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.

But the third round of quantitative easing (“QE3″) in the U.S. failed to raise inflation expectations.

And QE hasn’t worked in Japan, either. The Wall Street Journal noted in 2010:

Nearly a decade after Japan’s central bank first experimented with the policy, the country remains mired in deflation, a general decline in wages and prices that has crippled its economy.

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The BOJ began doing quantitative easing in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006.

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