Procerity

The OECD is recommending that the European Central Bank (ECB) commit to more quantitative easing and that the Bank of Canada consider expanding its money supply as well. This, despite the OECD’s wavering about the effectiveness of the Bank of England’s adventure into quantitative easing. Meanwhile, China is becoming justifiably worried about the extent of quantitative easing being undertaken by the US Fed. Quantitative easing is after all simply a euphemism for ‘printing money’. If the money supply is expanded faster than the real economy, prices will rise, even though the value of non-currency assets may be stagnant or even declining. Any central bank that engages in excessive expansion of its money supply simply watches its currency become devalued. But, if every central bank simultaneously undertakes quantitative easing, at least exchange rates will appear stable, and perhaps that will provide the illusion that no currency devaluation has taken place.

Procerity’s Prognosis: Expect continued pressure for quantitative easing around the world from those who have already committed to expanding their own money supply.