The world is awash with money/debt that is being created at an exponential rate by many central banks around the world. However the growth rate of 2% much favored by most governors stubbornly refuses to rise to that level. So why is it, when the basics of supply/demand/liquidity are all available to the world of humanity is there such paralysis?
The markets are full of goods for sale, there are millions who would buy if they had the money, and there is between 200 and 250 Trillion (depending who you ask) US dollars of money/debt in existence worldwide. So if there is no growth now, how is printing more going to make a positive difference?
The other question of course is why if there is supply/demand /liquidity by the bucket load, is the world’s economic growth going in reverse?
Chris

QE only helps a little bit. It's much better to get fiscal policy to do the heavy lifting, but governments around the world are too obsessed with their balanced budget mantra to attempt that.

The world's economic growth is NOT going in reverse, but it's a lot lower than it would be if competent economic management were the norm.

Too Aiden
So you think governments should get further in to debt to increase the expansion of the economy? Please name one country that has a balanced budget.
Could you explain further how you think liquidity expansion helps, even a little bit?
Could you also explain why you think the Trillions that all ready exist are not circulating as they used too.
Chris

G'day LEFTY ONE,
Someone has to get further into debt to increase the expansion of the economy, and it makes sense for it to be governments: firstly because they have objectives other than just making a profit, but they'll never retire so don't ever need to reach the stage of having no debt, and secondly because they have the deepest pockets (unlimited in the case of countries like Australia which issue their own currency).

Germany's very close to having a balanced budget, though it does vary a bit from year to year. But the real problem isn't having a balanced budget, it's the contractionary fiscal policy governments implement trying to achieve one. When the private sector's strong, contractionary fiscal policy can be a good thing as it can be used to keep inflation low without having to raise interest rates. But when the private sector is weak, as it is now, contractionary fiscal policy damages the private sector and so wrecks economic growth. So the attempt to reach a surplus is doomed to failure, but it causes a lot of collateral damage.

Liquidity expansion helps because it drives down the cost of loans, making more investments profitable.

The trillions that already exist are still circulating – indeed electronic money has to circulate in order to exist, and during the GFC some of them effectively ceased to exist. Since then, with fewer available opportunities to make money, and consumers less certain about future income, less money is being borrowed and spent.

G’day to you Adrian
Some back ground information you may not know. The UK government bonds are at the lowest rate in 320 years. At this moment in time, 11.7 Trillion US$ of world government debt is at less than zero return. The Australian government, like all other governments borrows from their respective central banks which are all private companies. The entire world banking industry is in trouble (who says? They do ) because of historically low interest rates.

So, a few more questions for you. If the entire Forbes billionaires list owns less than 8 trillion, who owns the rest. How is the concentration of wealth in fewer hands good for the economy? Why does money cease to exist if it does not move? Surly the only way it ceases to exist is if a debt is written off. How do pensioners cope in the low interest rate economy? What happens to all governments respective budgets if interest goes back to even 2%?
Chris

G'day again Lofty One,

Despite what some conspiracy theorists' websites claim, all the world's central banks are entirely in the public sector, with the single exception of the US Federal Reserve.

Though the Australian government can borrow directly from the RBA without any ill effects, it instead chooses issue bonds. It is functionally the same, but bond issuance helps maintain bank liquidity, plus there are still a few people under the illusion that borrowing directly from your own central bank risks collapsing the currency.

Money is created by borrowing it from banks. When someone borrows money, the money goes from the bank's bank account to theirs, so the bank effectively still has it. Banks lend borrow amongst themselves, so even when it's spent and goes into someone else's account, the money's effectively still in the bank. And apart from physical cash it all adds up to zero: Nobody has any money unless someone borrows it.

The concentration of wealth in fewer hands is not good for the economy. The policies that allow it to happen could conceivably be good for the economy, though due to the opportunity cost, the claim that they are is extremely dubious. Unfortunately nearly all the politicians are pretty convinced of it, though.

Pensioners cope by spending their pensions.

Interest rates of 2% wouldn't be disastrous for government budgets. It may push them deeper into deficit, but that's not a big problem. But the higher interest rates go, the more it makes sense for governments to tighten fiscal policy. Remember, just because trying to run surpluses is bad in the current economic conditions doesn't make it intrinsically bad.