I have an enormous backlog of either half written posts or posts just sitting in the draft folder and forgotten about. This was one of these posts titled How will the end of QE affect us? Well, that time is well and truly over, instead of just dumping the post, I decided to revisit and rewrite the post from a number of years back to determine if QE has helped lead to worldwide inflation.

I correctly predicted QE would lead to inflationary forces, quantitative easing was a massive stimulus to add liquidity to financial markets by pouring money into economies. Firstly the US and then Europe then followed by China, Japan and finally Australia. We have a strong financial sector in Australia that is heavily regulated, this may lead to some inefficiencies in boom times but protects the major financial institutions during periods of instability.

This really began with the global financial crisis and has just expanded from there. Whilst technically Australia was not too badly affected by the 2008 US debt saga, the liquidity issues still caused issues for us, just not to the same extent as the US and Europe. The US subprime fiasco really burdened banks and financial institutions with highly risky debt instruments that with the benefit of hindsight was always going to implode.

So now what happens? The US along with most other advanced economies have wound up their stimulus packages. The Australian domestic stimulus package was easily dwarfed by what the Chinese undertook, we indirectly benefited from their growth. Likewise, we will likely suffer when their economy slows down, Chinese excess supply has been diverted to their Belt and Road program.

I have been writing about how quantitative easing for a while now. I have been looking at what central banks are doing in the United States, Europe, Asia and now Australia. We have suffered from low wage growth, this has been hampered by a lack of productivity growth and efficiency. This was then supercharged by the covid stimulus spending as economics worldwide shut down and non-essential workers were paid to stay home.

Yes, there is a Russian invasion of Ukraine, the ongoing zero covid policies of China, related supply chain issues, European energy issues caused by Russian gas rationing combined with the excessive covid stimulus packages. The whole world was caught up in a massive money printing exercise starting with QE. These increased financial inflows disrupted normal currency movements and created an enormous demand driven building bubble that drove up the price of commodities and labour. I reckon despite economist’s predictions, we will not be seeing the soft landing we were promised in 2023 and we could see a worldwide recession.