Fed QE2 vessel to launch in oceans of uncertainty

ON BONDS

Marlborough's Geoff Hitchin says the latest bout of quantitative easing in the US will only work if consumers start spending the extra money.

Governments can only do so much. The stimulus measures have increased the supply of money – but without demand there is no-one to drive economic growth by spending it. While rapidly spiralling inflation would swiftly erode the value of the fixed interest paid by bonds, in a period of low inflation or deflation the fixed nature of those coupons would be prized by investors. On the balance of probabilities, the most likely scenario looks to be a sustained period of sluggish growth and low inflation. While prudent investors will hold some sovereign debt in the interests of diversificatio...