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Quantitative easing and buying toxic debt – will it work?

This note looks at the recent ramping up of the policy response to the global financial crisis, notably the shift to quantitative easing by several central banks and the US plan to remove bad debts from US banks’ balance sheets and the securities markets. The key points are as follows:

- The move to ‘quantitative easing‘ and US efforts to remove toxic debt from banks add to confidence of a global economic recovery from later this year and through 2010 and hence are positive moves for shares.

- Past banking crises tell us bad debts must be removed from banks’ balance sheets to get a decent recovery. The US bank plan is not risk free, but US authorities seem to be pulling out all the stops to make it work.

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