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Decimal Digest
13 Jun 2011

Is Quantitative Easing finally working?

Over the past few weeks, macroeconomic news from across the globe has been below expectations, making many market commentators question the efficacy of the QE II undertaken by the Fed.

Monetary policy is expected to work through the balance sheets of the corporate sector, inducing it to invest more or less, depending on the signals given by the Central Bank. Globally, the corporate sector is carrying record cash balance, estimated at about $ 4 trillion, and therefore a monetary push carries the risk of becoming proverbial attempt to push the string.

However, beyond the world of the listed, established corporate segment, there are the start-ups and technology companies, who are able to directly and disproportionately benefit from the benign monetary policy. The evidence is clearly visible in recent data. The chart below shows the “Capital Raised by Shares Issued on Stock Exchanges” across the world. This includes new shares and listing of existing shares.

The trendline for new issues is firmly on the way up. It is interesting to note that we have three weeks before the end of the June 2011 quarter, and already figures for new issues are touching the highest levels since 2008.

The optimists hope that once these companies raise capital, they will employ more people, buy more machinery, hire more office space, and create a virtuous circle of demand.

The pessimists, however, point out that this is just a sign of a new bubble being created.

Let us see who gets it right.


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