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Alan Greenspan on QE (Full text)


a while ago, zerohedge posted a widely quoted commentary:
Alan Greenspan: QE Failed To Help The Economy, The Unwind Will Be Painful, "Buy Gold"
Submitted by Tyler Durden on 10/29/2014 23:42 -0400
http://www.zerohedge.com/news/2014-10-29/alan-greenspan-qe-failed-help-economy-unwind-will-be-painful-buy-gold

Here is the full version in which Mr. Greenspan gave his views in plain English.

IMF Forum: Statistics for Policymaking-Identifying Macroeconomic and Financial Vulnerabilities (Nov. 18, 2014)

Alan Greenspan remarks as prepared

an excerpt:

Full text & many charts:
http://www.imf.org/external/NP/seminars/eng/2014/statsforum/pdf/greenspan.pdf

Quantitative Easing

The central banks’ set of quantitative easings (QEs) added 12 trillions of dollars to their balance sheet and, as a consequence of purchasing securities, drove interest rates on long-term securities to exceptionally low levels. Those long-term interest rates fostered increased price-earnings ratios on stocks and lowered capitalization rates on real estate. As I noted in The Map and the Territory, the large capital gains that emerged have been, as best I can judge, a major force in maintaining even the subdued levels of economic activity that have existed globally since the 2008 Lehman crash.

the three QE programs initiated by the Federal Reserve have had only modest direct impact on the lending activity that they support. In the American case, virtually all of the excess reserves engendered by the balance sheet expansions have laid dormant as reserve balances at Federal Reserve banks, which pay a competitive 25 basis points to attract those riskless balances. Given that very little in the way of capital requirements is required by the commercial banks on those deposits, there has been scarce willingness on the part of the banks to relend those deposits into the commercial markets to, for example, steel companies, retail establishments, consumers, and other borrowers. It is that process which, of course, creates the income multiplier and an expansion of economic activity. Very little such net lending has occurred as a result of any of the quantitative easing programs.

There is some evidence, however, that commercial and industrial loans in the United States broke out of their lethargy earlier this year and have undergone a marked increase. But, regrettably, not enough to increase aggregate borrowing throughout the U.S. economy and
galvanize economic activity.

Thus, QE has succeeded in part in engendering capital gains and the equity stimulus that
bolsters GDP. But it has done very little in the way of conventional monetary expansion that
finances economic activity. Finally, it should be noted that monetary policy operates in the context of broader economic long-term forces. Expansionary policies, or monetary stimulus, cannot engage real GDP unless it directly or indirectly affects potential productivity growth.