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Landmark’s Blog
Why the 30th June could be important
Published on 26th April, 2011 at 11:18 by Eric Mowinski B.Sc.
The world seems to be in a state of flux. We have witnessed the horrific effects of the tsunami in Japan and the political instability in the Middle East. The effect of these events has been felt by equity markets which have been under selling pressure.
But why is the 30th of June such an important date for investors? It is the date the current program of quantative easing (QE) is due to end in the US. Whilst the climatic and geo political concerns have impact on markets they are relatively short term as investors will once again focus on the economy.
Unlike European countries the US has continued on a path of increasing the money supply to support economic recovery. In the UK we have moved to a package of austerity measures, involving cut backs and reduction of the national debt.
What is quantative easing? In very basic terms it allows a country to print money to purchase assets. These assets maybe owned by financial institutions, or by purchasing government bonds. By increasing the money supply the consumer will spend more and business will invest, thereby stimulating economic growth.
When the US Federal Reserve announced the latest program of QE, investment markets took off as now there was more money to support asset prices. The program may go on past the 30th. However if it stops what happens then?
The US will have to face up to the fundamental problems that it has which are very high rates of unemployment and significant levels of national and private debt. If markets liked QE they may well not like the alternative.
Posted under the following tags: japan, investment, quantitiveeasing.
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