As noted in previous posts QE does little to stimulate demand because it just increases the reserves banks hold in their accounts at central banks. Central bank electronic reserves cannot and do not leave the central bank. There is a mistaken notion that increasing reserves enables commercial banks to lend more. In fact there is little correlation between reserves and bank lending. Increasing reserves has had no effect on the amount of money in the wider economy. Indeed this has decreased as reserved have increased dramatically. The only good QE does is that it props up certain asset prices and reduces some interest rates. In doing so it helps to delay insolvency and defaults.
Less well known is the fact that the reduction in interest rates induced by QE acts to reduce demand by reducing net private sector interest income. When central banks purchase securities paying high interest rates this interest income is effectively diverted from the previous owners (the private sector) to the central banks who pass this income to governments. Thus QE is effectively a tax that reduces government deficits.
Since these deficits inject demand and net financial assets into economies, enabling the private sector to reduce its debts, QE reduces demand. Not exactly helpful!
Less well known is the fact that the reduction in interest rates induced by QE acts to reduce demand by reducing net private sector interest income. When central banks purchase securities paying high interest rates this interest income is effectively diverted from the previous owners (the private sector) to the central banks who pass this income to governments. Thus QE is effectively a tax that reduces government deficits.
Since these deficits inject demand and net financial assets into economies, enabling the private sector to reduce its debts, QE reduces demand. Not exactly helpful!
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