It’s a sign of the Eurozone’s financial plight that it’s preparing to start a Quantitative Easing (QE) programme just as America’s is drawing to a close. But this monetary expansionism has, in another form, already appeared at the heart of Europe, courtesy of artist Axel Stockburger. His Quantitative Easing (for the Street) has given residents of Vienna an early chance to reflect on their (and their governments’) response to the Global Financial Crisis, and the role of money more generally in establishing (or eroding) social values.
Stockburger’s golden installation – hereafter QE(s) - randomly distributes Euro coins in a public square. Although his explanatory web-page ends with a series of links to serious articles on Quantitative Easing, nitpicking economists might query some aspects of the representation. Real QE, as practised by central banks, releases newly created money – formerly by printing it, now via electronic keystrokes. QE(s), in contrast, hands out coins that are already in circulation, presumably supplied by sponsor KÖR (Kunst im öffentlichen Raum), a promoter of art in public spaces.
Real QE uses the money to buy bonds from private investors, enabling them to buy new (often higher-quality) bonds from the government, which can thereby step up its borrowing without forcing interest rates upwards. QE(s) just hands out the money to passers-by. If QE(s) actually introduced new money, this would add to price-inflation pressures, unleashing more demand for an unchanged volume of production. In contrast, QE channels the new money into financial institutions, which don’t necessarily spend or lend it straight into circulation. That’s why massive increases in US and UK money supply since 2008 haven’t done anything to raise inflation, which in December fell back to its pre-crisis low.
Despite these humourless caveats, Stockburger’s illustration of QE is at least as revealing as those offered by the central banks that perform it. The Bank of England offers a reassuring picture-postcard describing how it “creates money electronically” by buying government bonds (and other debt) when demand and inflation fall too low, and reverses this process if they get too high. The Bank’s film version says more, but also reveals how complex and uncertain the process is. Central bank bond purchases (and the more controversial purchases of higher-risk corporate assets, which have also been slipped in) drive down financial asset prices, which extends the drop in borrowing costs already achieved through low interest rates, which boosts confidence (and home-owner wealth) and leads the private sector to consume and invest more. Unofficial accounts of the technique, notably that of Antipodean comedians Clarke and Dawe, distil a widespread scepticism over whether it’s enough to revive depressed economies.
One problem with QE is that it may not, on its own, do enough to re-start stalled economies. Although presented a something new, it’s really a variant of the ‘open market operations’ which central banks have long engaged in, modified to ensure that interest rates stay down while governments finance their much-expanded deficits (since 2008) by issuing new bonds. The monetary policy ‘reins’ exerted by such action are traditionally likened by economists to pieces of string – able to pull a galloping economy away from runaway inflation, but not push a stopped horse back into motion. The Bank of England’s video presentation admits that buying bonds from banks has mainly led them to refill their empty coffers, rather than lend more. Other firms it buys from – insurers, fund managers, non-financial businesses – were equally inclined to save the new money, until the government’s budget deficit gave some extra stimulus.
While not assuredly reviving production, QE has very clear effects on distribution – worsening the income – and wealth-inequality that’s now arousing global concern. By raising asset prices and keeping down borrowing costs, it further enriches people who already have assets and can afford to borrow – especially those who can borrow to take ‘leveraged’ bets on the rising markets. Those without assets are left no better off, and might even lose out if inflation flares again when the money created by QE does finally start to circulate.
This means that the European Central Bank’s first step into QE, announced in January, had a paradoxically muted reception. Governor Mario Draghi’s 2012 pledge to do “whatever it takes” to defend the euro brought near-instant relief, rescuing Spain and Italy from spiralling debt costs and keeping the single currency alive. But now that the ECB can finally act on that pledge, after Germany’s objections were rebuffed by the European Court of Justice, there is widespread doubt on whether QE alone can end the Eurozone’s malaise. Governments will also need to take more fiscal action – an option potentially opened up by an ECB bond-buying programme, but in practice still closed down by the Eurozone’s reluctance to take collective responsibility for individual governments’ debts. Like Michael Jackson’s comeback concerts, the announcement caused a sensation, the reality could disappoint.
Not far from the ECB’s headquarters in Frankfurt, Stockburger’s installation has delivered another insight into QE that the central bankers’ models may have missed. Confronted with a machine that randomly spat coins into the street, Vienna’s (often homeless) street-dwellers didn’t allow such arbitrary distribution to persist for long. They quickly created a system of sharing-out the money more fairly. Sadly, there’s been too little change in financial-sector rules and bonus culture for the real QE to have such equitable results.
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