Quantitative Easing Connected to Private Debt

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Determining the connection between private debt in the U.S. and the Fed’s Quantitative Easing is of enormous importance, as the correlation between real national GDP and the change in the level of the U.S.’s private debt growth has already been proven. It has been shown that in times when real GDP is on the rise, there is direct association with an increased acceleration in private debt. Vice versa, when real GDP is falling, private debt shows a similar decline.

Q1 and Q2

Various Quantitative Easing programs implemented by the Federal Reserve have had a rather clear on and off effect when it comes to changes occurring in the speed of growth of private debt within the U.S. economy. This is especially visible for both Quantitative Easing 1.0 and Quantitative Easing 2.0, as the acceleration of growth in private debt surged upwards at the same time or immediately after the QE 1.0 and QE 2.0 programs were implemented, and it went down almost immediately after the effects of these programs wore off.

Q3

Quantitative Easing 3.0 had somewhat different results as the Fed had a different approach during the program. In this situation the acceleration of growth in private debt surged upwards at the start of the program, as the Fed started acquiring MBS assets, however, when they expanded the program at the start of 2013 to encompass U.S. Treasuries, the usual surge in private debt growth did not occur.

Instead, after the Federal Reserve started consistently tapering its accumulation of MBS and UST assets, the acceleration of private debt growth started to decrease, and has been going down steadily ever since. As of August of last year, the rate of acceleration in the U.S.’s private debt has been negative.

The final result is that as of June this year, the average annual acceleration in private debt in the U.S. has failed to reach the levels that were prompted by the previously implemented QE programs which may have implications for the future.

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