It is a cure that is far worse and more pernicious than the economic slowdown we are trying to escape. That’s the conclusion in this latest Commentary from AIMS Fellow in Financial Markets Harry Koza.

Koza, who is Senior Analyst for Canadian markets at Thomsonreuters’ IFR Markets, calls Quantitative Easing, or QE, the flavour of the day and one that will leave a very sour taste very soon.

“The latest mania is Quantitative Easing, or QE. It’s basically printing money,” writes Koza. “The Federal Reserve is already buying US Treasury Bonds in the market, paying for them with cash created out of thin air. The Fed plans to buy US$300 billion worth of bonds, plus another $750 billion worth of agency (Freddie Mac and Fannie Mae) mortgage-backed securities, plus another $100 billion in Freddie and Fannie bonds, for a total of US$1.15 trillion. That’s a lot of clams.”

In Call it Q.E.D.: Quantitative Easing ‘Dementia’ Koza calls QE pretty much the end of the line for monetary policy, the last act of a desperate central bank. He says it’s for when you’ve exhausted all your interest rate-cutting ammo and are reduced to throwing rocks at the enemy, which in this case is deflation.


In a deflation, the dollar you have becomes more valuable every day, while the dollar you owe becomes more of a burden. In order to fight deflation, then, goes the logic, we have to have QE. Koza says it is hardly a new idea and uses the example of Juan and Evita Peron.

Time was, Argentina was a comer in the global economy. From the 1880s through the 1930s, Argentina had one of the world’s fastest-growing economies, rapidly expanding agricultural and industrial sectors, a burgeoning middle class, and rivaled the US as a magnet for immigrants. Then the Perons came to power.

Peronist Argentina featured huge social spending, a metastasizing welfare state, rampant protectionism, confiscatory taxation, gigantic deficits, fawning corporatism, and the printing of lots and lots and lots of money. Gee, that sounds a lot like what’s coming out of Congress these days, doesn’t it?

To read the complete Commentary, click here.