You raise some interesting points. I would draw a distinction though between fiat currency and the present environment. We've had fiat currency for a long time, but the current level of monetary easing is a recent affair.
I do wonder what the end game is. In the absence of meaningful levels of inflation, central banks are confident in maintaining and increasing QE in the belief that if it's not working, it must be because it's not enough.
The problem is that at some point (perhaps already), governments and corporates wont be able to tolerate higher borrowing costs.
US government debt is double what it was in 2007 (~USD 18 trillion vs 9) and yet the annual interest cost is around the same. The Japanese government would need to spend every dollar of income and corporate tax revenue just to pay the interest if the interest rate on their debt rose to just 4.5%.
QE generally has the bonus effect (and some would say it's the primary motivation) of devaluing your currency. The problem though is that this only works if noone else is doing it. From Kyle Bass:
I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. And he said, "You know Kyle, quantitative easing only works when you're the only country doing it."
I do wonder what the end game is. In the absence of meaningful levels of inflation, central banks are confident in maintaining and increasing QE in the belief that if it's not working, it must be because it's not enough.
The problem is that at some point (perhaps already), governments and corporates wont be able to tolerate higher borrowing costs.
US government debt is double what it was in 2007 (~USD 18 trillion vs 9) and yet the annual interest cost is around the same. The Japanese government would need to spend every dollar of income and corporate tax revenue just to pay the interest if the interest rate on their debt rose to just 4.5%.
QE generally has the bonus effect (and some would say it's the primary motivation) of devaluing your currency. The problem though is that this only works if noone else is doing it. From Kyle Bass:
I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. And he said, "You know Kyle, quantitative easing only works when you're the only country doing it."
[1] http://finance.yahoo.com/news/thing-top-central-banker-told-...