Thoughts Offerings blog has an interesting piece on how QE actually does not encourage traditional bank lending via deposit creation, but instead encourages lending through security issuance. I recommend the reading, it ties a lot of things together neatly.
If we take this post a little further, given that lending via security issuance is currently frozen on the consumer debt side, those benefiting from QE are those with access to capital markets: large corporations, financial intermediaries (who take fees on issuing, buying/selling securities), and the Government, but not the consumer or small business (except as recipient of Government welfare or subsidies). As a result, domestic demand is poor, which leads companies to invest and grow their revenues abroad (BRIC in particular), bringing rampant inflation in emerging economies and taking the dollar down. This is a self-reinforcing feedback loop.
Two things follow:
- the biggest risk to this growth is a slowdown in BRIC countries, China in particular. The reflation trade could easily morph into a vicious deflationary force as dollars are repatriated, assets sold, debts paid back, preference for safety over risk, short-term duration over long-term, returns.
- with consumer and small business loans still going down, paradoxically encouraged by QE as the Thoughts Offerings post expose, there is a major opportunity for peer-to-peer lending and crowdfunding. This is an area where lawmakers could have a huge impact with no dollar spent, just a regulation signed. Maybe they could even win an election with this one!
Guillaume: I like where you're going with this. The question is how motivated are lawmakers and politicians to be paying attention to this space at all. it ain't broke it, why fix it.
Job creation is what matters right now. I think a good place to start would be to have good numbers on the efficiency of crowdfunding/peerfunding in terms of job creation, vs the Government/Fed actions of the past few years.