QE and QT are both terrible!

The issue with QE/QT is that it is an external influence in the available supply of a specific form of capital or input to production – money or finance capital. As with anything, change in supply affects the price, the use of substitutes and economic decisions. Let’s break this down further.

QE

-> Increases money supply and decreases cost of money/interest rates. Often this is accompanied by government intervention to specifically reduce interest rates to really reinforce the message! ->

1. Asset inflation -> wealth affect -> cycle of increasing in debt levels and asset inflation -> government sponsored exponential increase in debt to increase economic activity.

1. Other forms of capital such as labour, less competitive are less competitive and reduce over time -> wages decrease -> aggregate demand decreases -> some firms close (use expensive capital or rely on wage earners as customers) while other firms increase debt -> structural change in economy (e.g. away from labour) -> cycle of reduced wages, reduced demand, increasing debt and decline of economic activity -> reduced investment

QT

-> Decreases supply of money and increases cost (also usually coupled with government increasing interest rates) ->

1. Increase in debt servicing costs -> more debt defaults and firm closures -> less new debt, lower economic activity, loss of trust and price rises (cost of production increase due to increase in cost of finance) -> increased unemployment

1. Other forms of capital become competitive and will increase price -> wages increase -> price rises (as costs increased) -> inflation -> Government intervention -> more interest rate increases -> stagflation.

Changing the supply and cost of a factor of production (money) changes the structure of the economy.

Applying QT after QE magnifies the effect as interest rate increases will be amplified by the large debt levels created during QE and the overshoot in corrective action will more than flatten the economy.

Both approaches are bad and changing between them is even worse. Where possible, people will utilise facilities external to the Government to manage their money and wealth, such as precious metals and crypto currencies.