EX-TREASURY OFFICIAL: Cheap central bank money is 'like heroin' for the economy

LONDON – A former senior official at the UK Treasury says global central banks' policy of quantitative easing in the wake of the 2008 financial crisis is like heroin for the economy.

Nicholas Macpherson, who was permanent secretary to the Treasury from 2005 to 2016, said on Twitter on Monday that attempts to boost the money supply through bond purchases are increasingly leading to "negative side-effects."

He tweeted the comments in response to a Financial Times article about the European Central Bank's timeline for scaling back its government bond purchases.

Quantitative easing, known as QE, is where central banks try and stimulate the economy by buying corporate and government bonds. It was adopted by many major central banks in the wake of the 2008 financial crisis and is credited with softening the impact. But QE is also blamed for inflating the prices of assets such as property and shares beyond reasonable levels.

Macpherson, who is chairman of private bank C. Hoare and Co. and who was made Lord of Earl's Court in 2016, said the policy is "yielding diminishing returns."

Here are the tweets:

Tweet Embed:
https://twitter.com/mims/statuses/899550805732335616
An elegant exit strategy from a policy which is yielding diminishing returns. Tweet Embed:
https://twitter.com/mims/statuses/899555963107250176
QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on.

The ECB scaled back its bond purchases by €20 billion (£18.2 billion) a month in April, fuelling speculation it is planning on exiting its QE stimulus program. As the FT article notes, the central bank is starting to run out of government bonds to buy.

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