QE policies need a rethink after failure to achieve goals

IT'S what Oscar Wilde once referred to as the kind of relationship that "dare not speak its name" - although, in this case, it has nothing to do with sexual proclivities but rather is a way of describing the ever closer ties between the world's major central banks and finance ministries.

The very suggestion of central banks "monetising" public debt by directly underwriting government bonds is wont to elicit (at the very least) a look of stern condemnation; the censorious reaction would be that it's "just not done", and shouldn't even be thought of. Yet effective monetisation is happening on a grand scale in Japan and the eurozone. So far, only the US Federal Reserve is beginning to wean itself off the habit of buying up government debt (if not exactly at the time of issue, then as near to it as makes no difference).

The trouble is that - because they are forced by conventional economic wisdom to pretend that they are not engaging in what's supposedly a vice, and to practise it by the "back door" - central banks have little say in what happens to their money; they acquire assets over which they have no control. Central banks buy government bonds from the market (that is, from commercial banks and other financial institutions) so that those institutions can on-lend money to industry and business or to consumers - who, hopefully, will then invest and consume more, with consequent benefit to the economy.