Larry Summers and others have wondered how much the US Treasury’s tilt towards easing undid the Fed’s program of quantitative easing, pointing out that the central bank stimulus was hampered by an uncoordinated and opportunistic change in issuance as longer yields fell.
If you are in the camp that QE only works through altering the relative demand and supplies of debt of different maturities – for example, that, hypothetically, QE could be replicated by the issuance of very short duration debt for the purchase of longer duration debt – then this is a big deal.
We might wonder if a single central bank/government can’t coordinate a combined reduction in the amount of long duration debt held in the private sector, what hope is there for the Eurozone? There, we have a single 19 member ECB policymaking committee, but 19 debt management functions, many acting on behalf of governments sorely short of funds.
How will the ECB stop member state debt management undoing QE?