QE mck
Source: McKinsey & Company

 

 

McKinsey has a new study out on the impacts of QE. I have yet to read the full report (or summary) but the graphic above and excerpt below give you some flavor:

The impact that ultra-low interest rates have had on banks has been mixed. They have eroded the profitability of eurozone banks, resulting in a cumulative loss of net interest income of $230 billion between 2007 and 2012. But banks in the United States experienced an increase in effective net interest margins and a cumulative increase in net interest income of $150 billion. The experience of UK banks falls between these two extremes.

 

Category: Analysts, Bailouts, Digital Media, Federal Reserve

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5 Responses to “QE & Ultra-low Interest Rates: Distributional Effects + Risks”

  1. Jonathan says:

    So if I am reading this correctly, there is a correlation between QE and household incomes going to hell? Shocking!

    • drveen says:

      if _I_ read it correctly, that’s _interest_ income, neither wage nor aggregate income. Very different.

    • RW says:

      Based on the timeline, QE was instituted after household incomes went to hell so, even though correlation is not causation, it seems likely the collapse in household balance sheets was part and parcel of the recession that led to QE.

  2. winstongator says:

    Capital gains need to be included for any analysis along these lines. Whenever someone talks about ‘interest income lost due to (insert QE, money-printing, Fed Policy)’ it has the underlying theme that those interventions are bad.

    Retirees should not have significant fractions of their investments in savings accounts. For conservative accounts, bonds should be the vehicle of choice.

    Bondholders are getting lower interest rates on bonds they have purchased in the past 4 years. However, bonds they bought prior to 2008 are much more valuable than they were before interest rates lowered – capital gains on bonds have been significant.

    The stock market’s over doubling needs to be considered in any distributional assessment.

    • lucas says:

      “Retirees should not have significant fractions of their investments in savings accounts. For conservative accounts, bonds should be the vehicle of choice.” Given the low net worth of most retirees, bonds are not an option.