What's going on?

A research piece recently released by Bank of America Merrill Lynch projects that global economic growth will be lower in 2015. This would be the first year of lower growth since 2009, indicating that the effects of the financial crisis are not yet over. The report puts into question the ability of monetary policies, such as quantitative easing, to stimulate true, long-term growth.

What does this mean?

Through quantitative easing, central banks have effectively created more money to reduce interest rates. People would be able to borrow money more cheaply from the bank and hence buy new products and houses. Companies would also be able to borrow more to invest in expansions. So borrowers would benefit, but savers would get a lower profit on their loans. You could call it a subsidy to borrowers and a tax on savers. Some worry that central banks are taking the governments� role of taxing and subsidising. The lines become blurred about who is responsible for what. Yet, the tax on savers and subsidy to borrowers is in itself a great boon to most of the developed world. In the big picture, the developed world, particularly the West, have borrowed huge sums of money from saving nations in Asia and oil-exporting nations. These countries are now getting a lower profit on the loans they made to the developed world.

Why should I care?

Years from now, quantitative easing will presumably be the talking point from an economic perspective to understand our times. It has made money incredibly cheap for all economic participants. It has thereby kept asset prices up, as for example seen in the housing market, and thereby increased the divide between rich and poor. It has enabled borrowers to postpone lowering their debt. It has made it cheaper for spending nations in the West to pay its loans to saving nations in Asia and the Middle East. It, therefore, has a great impact on our personal economy. It has been able to postpone some of the effects of the financial crisis. Quantitative easing complicates the life of an investor by creating market distortions. By putting more money into the markets, it will have increased the value of assets in overall terms. If central bankers reverse the scheme as planned, asset prices should drop. In addition, there could be some more hidden forces at play. For example, by inducing borrowing, it may leave some governments, companies, and individuals with more debt than they can shoulder. If money becomes expensive again, these actors may struggle to pay their debt, leading to knock-on effects. This could be particularly bad in debt-dependent sectors such as housing or finance.