Are central banks losing their big bet?

https://www.project-syndicate.org/commentary/central-banks-unconventional-policy-bet-by-mohamed-a-el-erian-2019-07

by hhs • 7 years ago

2 1 7 years ago

dmt314159• 7 years ago

Don't blame central banks so much.

They only directly control one lever in the economy, interest rates augmented by QE-purchase of company bonds in Europe & US.

In retrospect, they've been caught in a downward spiral of interest rates because politicians have been unable to add pro-growth policies.

Unfortunately the "wealth effect" of shares in the US, even after Trump's unaffordable tax-cuts, has been channelled towards shareholders (via dividends & buybacks) rather than wage increases or capital investment.

Something's wrong when companies can't find worthwhile ways to spend money investing in their own future, but instead direct profits and BORROWINGS into share buy-backs.

I do suspect one of the factors encouraging buybacks is that executive remuneration is often based on the share price. I've tried searching but haven't found anything suggesting executive remuneration excluding the effects of buybacks on share prices.

Are central banks losing their big bet?

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