QE and Economics: Questions from January 22nd Event
On 22nd of January Executives International held their first 2015 presentation and dinner event. Dr. Ivan Adamovich, Head of Investment Committee and Private Banking at Notenstein Private Bank reviwed what made an impact in 2014 and studied the potential economic challenges and opportunities in 2015.
After the presentation there was an active discussion and several questions were answered. We are publishing here a list of questions that Mr. Ilja Feldstein had prepared during the evening and that were also published in the online edition of L'Hebdo
Would you agree that?
- If the governor of a Central Bank, in this case Draghi, states “It was necessary to address heightened risks of too prolonged
a period of low inflation” he should immediately be replaced and sent to an isolated island in the Pacific where he
could ponder his crime together with Greenspan, Bernanke and Yellen and possibly, for heightened entertainment value,
the Nobel prize winner Paul Krugman. The latter had suggested some time ago that one should push up inflation to 4 %.
- we should give all economists with their highly sophisticated models and theories a prolonged vacation
and let nature and the market decide when an economy goes up and when it goes down?
- the number of variables in macro economics is infinite and that any attempt to “manage" the economy is a futile exercise.
Only the pronouncement of politicians and central bankers can influence - and only short term - the behaviour of the players.
- no business will make investments only because money is cheap?
- only the expectation that there will be buyers for their products can entice a business to invest in new machines, factories and
- inflation is to the benefit of those who are in debt and punishes the ordinary responsible citizen who earns a salary,
pensioners who receive a pension and perhaps some interest on their saving accounts ? Sorry, I forgot to mention the
unemployed and others who receive “benefits”.
- inflation benefits the rich at the expense of the poor and thus contributes to the inequality of wealth distribution now illustrated
by the fact that 1% of humankind allegedly now holds 50% of the world’s wealth?
- that only by putting more money into the pockets of consumers or, rather increasing their purchasing power, can you - without aggravating
the problem of debt - expect an up-turn in the economy ?
- deflation means that consumers have increased purchasing power and that increased purchasing power of the masses
leads to growth in the economy?
- the fear of deflation is largely exaggerated in particular when due to low oil prices?
Have we not seen for many, many years deflation if you look at the prices of, e.g., cars and anything electronic?
Is true that people really put off purchases - beyond a few months - because of the expectation of lower prices?
Of course, for people, companies and governments heavily indebted, deflation is poisonous because it de facto
increases their debt.
And here is open question:
What is the role of a Central Bank and what of a government?