UK Treasury Committee to Investigate Who Loses with QE

(September 17, 2012) – Members of Parliament will investigate the Bank of England’s claim that quantitative easing (QE) has had a “broadly neutral” effect on pensioners. 

The Treasury Committee, made up of 13 legislators representing the major political parties, is calling for written evidence in response to the Bank of England’s paper, titled “The Distributional Effects of Asset Purchases,” that was published on August 23. In the committee’s statement, it calls the investigation “part of its continuing scrutiny of monetary policy.” 

“The Treasury Committee will make sure that as much transparency as possible is brought to bear on QE’s effectiveness, the winners and losers created by it and its cost to the taxpayer,” said Andrew Tyrie, the committee’s chairman and Conservative party member. “Some people may be worse off as a result of quantitative easing. The impact—on the economy as a whole as well as on individuals—of QE requires careful scrutiny.” 

The Bank of England has drawn broad criticism for its favorable depiction of the impacts of loose monetary policy in the United Kingdom, particularly from pensioners who say QE has deprecated their assets by forcing down government bond yields. 

On a broader scale, a number of finance experts and economists have take issue with the policy of quantitative easing itself. 

Scott Minerd, chief investment officer at the asset management firm Guggenheim Partners, argued in a paper last month that central banks have entered into a Faustian bargain by trying to print and spend their way into growth: “Unlikely as it seems in a world of zero-bound interest rates, someday, as the economy continues to expand, the demand for credit will increase to the point that interest rates will begin to rise,” Minerd wrote. “As interest rates rise, the market value of the Federal Reserve’s assets will fall…This could leave the Federal Reserve without enough liquid assets to sell to protect the purchasing power of the dollar, resulting in a downward spiral in its value.” 

The United States Federal Reserve launched into a third round of asset purchases last week, known as QE3.