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Central bankers almost never see bubbles before it's too late. So however much today's money printing appears to push up asset prices, policymakers will judge that markets are more or less properly priced. David Miles, a member of the Bank of England's Monetary Policy Committee, thinks he can prove it. QE is a safe, QED.
Mr. Miles' evidence is that U.K. share and house prices, adjusted for inflation, are still 20 per cent below the 2007 high. British corporate bonds look, if anything, cheap. Low yields on long-term U.K. government bonds reflect the expectation of years of low policy interest rates ahead – not the central bank's role as gilt-buying whale. He could have added commodity prices and inflation-adjusted U.S. housing and share prices – all are well off their peaks.
If QE is not blowing bubbles in Mr. Miles' world, then he is left with its benefits – higher asset prices make people spend more than they would otherwise.
The optimism is impressive – it extends to confidence that QE can be reversed easily. But the defence boils down to saying the financial world is not as distorted as it was before the financial crisis, which isn't saying much. There are more than enough distortions to be worrying. For example, without super-easy money, the price of oil would probably be 30 to 40 per cent lower.
As for any boost to spending, Mr. Miles cannot be disproven – there is no QE-free economy available for comparison. With unemployment still high and both corporate investment and consumer spending still weak, the economic gains from QE look meagre.
More significantly, Mr. Miles provides no answers to the most serious charges against QE and the rest of today's monetary policy orthodoxy – that they discourage savers, reduce market discipline on governments, falsify sovereign bond markets, distort exchange rates and create unnatural balance sheets in financial institutions. All of these point towards a messy end of the current era.
QE may not be guilty of all these crimes. It may be central banks' least bad alternative for rebalancing the economy and may be blowing only small bubbles. But even froth can be dangerous.