Here’s Greg Ip on Jeremy Stein’s recent LSAP speeches (Oct 11, Nov 30):
If Mr Stein’s story is right, we should expect to see corporations exploiting the drop in long-term rates to refinance short-term debt and repurchase stock but not boost capital spending, and individuals exploiting the drop in mortgage rates to refinance and to buy houses. That, of course, is precisely what is happening.
Mr Stein also argues that even if QE only induces businesses to fiddle with the composition of their balance sheets, that has some benefit. When businesses reduce their reliance on short-term debt, they are less vulnerable to a surge in financial system stress that cuts off their access to credit, making financial crises less likely.
