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The End Isn't Nigh
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The End Isn't Nigh

Central Bank Challenges as the Era of Cheap Money Enters a New Phase

The Economist Intelligence Unit
EIU, 2013
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When slashing interest rates failed to ignite a recovery in the aftermath of the global financial crisis, several developed nations resorted to quantitative easing. Central banks bought up assets, “funneling trillions of dollars of newly created money via commercial banks to the real economy.” As the world recovers, central banks inevitability will need to wean investors off cheap cash, but the mere idea creates market hysteria. getAbstract recommends this succinct assessment to policy makers, central bankers and skittish investors, who need not fear: “The end isn’t nigh.”

Summary

In January 2008, the collective balance sheets of the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Japan (BoJ) were $2.9 trillion. By January 2014, that figure will have grown to $8.8 trillion. The quantitative easing (QE) policies that led to this expansion are without precedent, and the prospect of an end to cheap money has been a cause of great concern in global financial markets.

In the US, the Fed may begin to slow its asset purchases by the end of 2013, which would mean a conclusion to QE by the middle of 2014. Previous guidance indicates that...

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The Economist Intelligence Unit is an independent research and analysis organization.

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