Guest Post: Has QE Ever Worked In History?

Tyler Durden's picture

Submitted by Bob Murphy via The Ludwig von Mises Institute of Canada,

Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet:

Fed assets

Many critics, including me, have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. (Obviously our warnings on the latter point are either totally wrong, or have yet to be fulfilled.)

The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. Moreover, they claim that the Fed will simply let its balance sheet unwind as the economy returns to normal. Bernanke himself discussed several “exit options” when he was still at the helm (which I criticized at the time).

One of the odd points that people raise in Bernanke’s defense is the case of Japan. They explain that Japan implemented a comparable policy, and hey, they didn’t wreck the yen in the process. So why don’t the critics learn their history and cut Bernanke some slack?

Well, hang on a second. Here is a chart (source) showing the relationship between the Japanese central bank’s “monetary base” and price inflation, both expressed as indices of the level:

Japan QE

So yes, it’s true that the Bank of Japan had a rapid expansion of its balance sheet (with the monetary base serving as a proxy), especially in the early 2000s, and yet the official consumer price index is actually lower now than it was in the mid-1990s. (This  site shows the annual CPI rates in Japan, many of which were lower than negative 1% during this interval.) I have two responses:

(1) Look at what the Japanese central bankers had to do, to contain the public’s expectations about price inflation. When their CPI stopped (gently) falling and began rising, in the mid-2000s, the central bank drastically reduced its monetary base–that’s the red line falling off a cliff. So really it seems the lesson from Japan is, “Sure you can get away with a rapid expansion of the monetary base without wrecking your currency, so long as you crash the financial sector whenever price inflation begins rising.” I don’t think any of the gold-bugs and other critics of QE denied this; that was part of their warning.


(2) Japan has not at all been successful with its strategy: It is a poster child of an economy stuck in a rut for decades, and counting. The Nikkei 225 (the major Japanese stock exchange) in 2009 was down more than 80% from its peak twenty years earlier. (Yes I wrote that correctly.) So at best, the defenders of Bernanke can say, “Hey, for all you know, we can keep our economy in the gutter for another 20 years without price inflation getting out of hand. You guys are such hypochondriacs!”

In closing, let me point out that we do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To my knowledge, this has never actually worked anywhere in history. Can anyone point to a successful example?

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Atomizer's picture

Let's jump start Operation Twist. I tells you it wills be more effective this time around. 


philipat's picture

QE worked for the Oligarchs and Corporatocracy. For the man on the street, not so much. They pay me nothing on savings so I say bring on the deflation, the lower prices would be very welcome.

syntaxterror's picture

Of course QE worked. It bailed out the banking elite. Stox are worth more. Housing is unaffordable again. Real inflation is 10%. Bernanke is a hero on CNBC. The free shit army is basking in glee.

Worked fucking great.

satoshi411's picture

Over 60% of the US public gets' a US TREASURY deposit, ask them if its 'working' fuck yes its working.

NAZISM under HITLER worked cuz all were on the PAYROLL, Nazism under the US umbrella today works cuz everybody is on the payroll.



So long as the 500LB gorilla puts FEAR into the minds of those who are force to trade in that said 'worthless paper'. Given that the USA is still the worlds policeman, and NOBODY wants that fucking job on earth, ...I would say it will be working for a long fucking time tomorrow.

EconomicGenocide's picture

WTF do you know what is going on in this country in the bushes. My guess is you have no clue what is going through the mind of the lower 50% in this country. You woke up in a bed the last 3 weeks, i did not.


Faq the money, faq the power,,,,,,there are alot of people REALLY angry, and all your economic mombo jumbo means shyte.


Economic genocide is in full swing,,,,,,,,,,,,,,and it aint the US gov that is the problem, it is the Z scourge and they are showing up on more outhouse wanted posters than you think!

satoshi411's picture

'economic genocide' what a paradox, long ago baby-jeebuz said ..

Give unto caesar what is caesars, all FRN belong to Z-Tribe, if you trade in FRN, then you enable Z

nobody says you have to trade in USD, ... fuck the system go off grid and barter,

don't confuse MURDER with LIFE, don't CONFUSE paper-money with wealth

USD don't mean shit, came from the dust and will return to the dust,

Go find a 'free country' and get a life, ... but then your a BOT,

Where might a BOT find life? A real life? A meaningful BOT-LIFE?


Regarding 'z' and outhouse bullshit, let's just say, if it was NOT 'Z', it would be X or Y, the cost of all freedom has always been vigilance, but the USA is sadly a nation of hairlip morons, ... thus was easily dominated by 'Z', but if you were to remove 'Z', 'X' or 'Y'  would fill the vacuum, until the USA hairlip can use his brain, he will always be another man's BITCH.


The biggest problem with ameriKKKa as seen in the FSA, is that most ameriKKKan's are lazy parasites, ... and that is why Z is-was able to keep you on the leash for 100+ years.

Note that RUSSIA&CHINA have run 'Z' out of their country's, ... there are men with balls on this planet.

EddieBurgerPie's picture

500lbs.? Did the gorilla lose a few hundred pounds? With the Fed's 5 year feeding frenzy, I would imagine that gorrilla would be well over a ton by now.

AldoHux_IV's picture

exactly my major problem of how these questions are posed-- it did work according to its real intent & purpose, the stated reason for the "economy" is all bullshit; resource theft & power rebalancing, now that's historical & proven to work under the guise of the shamanistic reasoning that is economics

Oldwood's picture

Its different this time because we are "exceptional", and we have smart phones.

sunny's picture

Of course it has worked in the past.  On the planet Zephod 7B, it has worked like a charm.  I'm surprised that you asked.

Next question?

max2205's picture

In 20 years a lot of us here on ZH will be.......dead

Atomizer's picture

I thought ACA was structured to provide affordable health care to extend an extra 10 dog life years.? / lol 

satoshi411's picture

Working Just Fine since 1911,

Who in the fuck are you kidding?

Every nation on earth on Paper Money in 2000 years has ended badly, but so what, 47 years on average and USA is now a modern day ROME.

Also nobody in HISTORY flooded their paper-money on earth, nobody in history made sure that all black-market uses their FRN's.


Working, I would say its working JUST FINE, if your part of the Likud FuckWit tribe.

are we there yet's picture

QE always works in one way. For varying ammounts of time it postpones insolvency. Much like if you paid your bills with uncovered checks and tried to cover them by larger uncovered checks. Eventually....

Atomizer's picture

Banks: We are magnifying the systematic risk in stealing your banking account balances to stop our insolvent ass bleeding. We'll get back with you shortly. 

satoshi411's picture

'QE' is just a name like 'TAPER' invented by ZH to bambooble the moron class.

The FRN from the FED has always been dilluted going back to 1911. No paper money on earth has never not been dilluted, just the way of mercantilism.


Today we're told that CHINA is dumping their US-DEBT and that EUROPE is buying that DEBT, we already know that the FED has secretly sent EUROPE 10's of TRILLIONS in secret off the book accounting going back the years.

Ron Paul say's "AUDIT THE FED", .. bull fucking shit, Ron Paul wants his retirement, and his family sucks on the US gubmint tit.

Nobody in the USA wants the FED audited, nobody in the USA wants to the world to know the Emperor Sam has No Clothes.


How long will it last? Well since 1911 the USA has murdered over 100 million people to make its self the CURRENCY-RESERVE, ... thus how many people will die in the future? Just look today at all the civil wars the USA is engineering world-wide to create unrest, and that unrest makes the US-DOLLAR look good.

[ What I'm saying is NOT rocket science, but what I'm saying is not what ZH wants you to HEAR ]

Oldwood's picture

Come on, tell us...who do you love?

-NaN-'s picture

I agree with Satoshi411.  My Mom's sister's half brothers grandma now earn $7,328 a month by working at home.  You too Satoshi can take advantage of this rare offer by clciking this link now:

Atomizer's picture

How many Central bankers does it take to shit their pants before a new taxpayer bailout unfolds? 

fijisailor's picture

Even the Spanish who looted the gold of the Americas, completely mismanaged the wealth they had stolen and it only benefitted the .01%.  They squandered it on useless wars and pleasures.  

Waterfallsparkles's picture

The only people that Bernanke spared from the Great Depression was Wall Street and the 1 percent.  The rest of the people are living it.  No, maybe they do not line up at soup kitchens but look at the amount of people on Food Stamps.

Darkman17's picture

It worked in the United States from 2008 to 2018 because we are that much better tan any other country who tried it.

whatthecurtains's picture

If QE's job is to bankrupt thecking cpuntry and turn a natiion's currency into worthless paper then yes... WE works every time.

-NaN-'s picture

If what you mean by "worked" = plundered the citizens while failing to correct malinvestment in the overall economy, then YES, QE worked every time.