Bce, countdown to Qe2. The 3 reasons why he risks "creating" deflation

Many experts agree that there are at least three "deflationary" factors of the quantitative easing. And they are linked to one of the most immediate, and foregone, effects of Qe: namely the decline in interest rates. If a central bank buys government bonds on various maturities it automatically obtains a calming effect on the rate curve. Not by chance since 2015 – since the ECB launched the first Qe through which it injected 2,650 billion euros until December 2018 – the rate curve in the Eurozone has never been so low in history. So much so that on various deadlines most countries are experiencing the paradox of negative rates. «Why does Qe create deflation? – asks Ken Fischer, American investment analyst and columnist for the Financial Times and Sole 24 Ore -. Very simply because it lowers the rates. And with low rates, inflation cannot rise ".

Here are the three biggest side effects of Qe, those that have a recognized deflationary scale.

1] The social security factor
"The European social security systems, which invest in government bonds whose returns are always lower, in some cases close to zero or even negative – explains Guido Rosa, president of the Italian Association of Foreign Banks -. The risk is that in the future lower pensions will have to correspond with a consequent deflationary effect ». Distributing lower pensions in the future will have the immediate effect of weakening consumption, weighing down the economy.

2] The economic factor
"One of the side effects of low rates is to keep inefficient companies alive thanks to the fact that they can continue to borrow at lower costs than their real creditworthiness – explains Alessandro Fugnoli, strategist at Kairos -. These companies would be swept away by the market if they had to pay higher rates on debt. This forces the most efficient companies, which produce higher quality products. not being able to raise prices. Generating a deflationary effect on the economy ".

3] The inequality factor
On balance, the first one quantitative easing has certainly created inflation in the financial markets. The bond market is technically on the bubble, bolstered by central bank purchases. But even the shares are, not surprisingly, on historical highs. The value of global stock markets has gone from 2009, the first year of QE with the Federal Reserve, from 30 thousand billion dollars to 80 thousand. The value of the bonds also had a similar parabola, exploding from 20 thousand billion to 55 thousand billion.