QE and the Balance Sheets of the World's Central Banks

The effects of quantitative easing by the central bank of China

When talking about QE (Quantitative Easing), it is easy to lose site of just how big some of the numbers are.  We are, therefore, going to do a series of posts briefly showing some of the hugely engorged balance sheets of some of the world's major central banks as a result of QE.

First, a quiz:  Can you guess which central bank has the largest balance sheet in the world?  Whilst many might guess that its the United States Federal Reserve due to how closely the FED is watched (and frequently criticized) by analysts and world leaders, but the Fed's balance sheet - at approximately US$2.8 trillion - is not even close to being number one.  As you can see from the graph, the central bank of China - the PoBC - is far and away the highest at approximately US$4.5 trillion.  Its no wonder that inflation has consistently remained high in China, and that the Chinese leadership is concerned about inflation's effect on the Chinese Middle class.  As we have said before, if you are worried about the inflationary effects of QE, the best strategy is to hedge with real assets such as farmland investments and forestry investment.

The Con of Inflation

Why do we call inflation a con?  Its very simple really -  inflation robs workers. It’s essentially a hidden tax.   If you look at the last two to three decades, it seems like workers wages have gone up nicely.  They must be much wealthier, right.  But, if you measure workers wages based on their actual purchasing power, i.e. adjusted for inflation, workers incomes have remained stagnant.  Indeed, since the financial crisis began, workers real incomes have gone down.

High Inflation is a Tax on Workers

Let's the UK as just one example. The latest inflation figures out of the UK show inflation at 3.5pc. Indeed, inflation has remained at 3pc or higher for 28 straight months.  That means over this 28 month time period, inflation compounded has gone up a total of 8-10pc in total.  Meanwhile, actual salaries and incomes are flat or lower.  What does this mean?  It means that UK workers' real incomes - i.e. what their salaries actually allow them to buy - are lower by this same 8-10pc figure.  Is it any wonder than that real wages in the UK are back to the levels of 1997?  Talk about a lost decade.  And the UK is not alone unfortunately, the same basic calculation applies to the United States and other western countries.  Finally, due to budgetary pressures, we can expect taxes to go in only one direction - up.  

Taking all of this into account, its no surprise that most people feel poorer and hard-pressed. Whilst the rich may move to tax havens such as Dubai or Monaco, the average individual can still consider the option of protecting their financial future with real asset investments.  This blog will show you a number of options for doing so.