Considering the purpose of the quantitative easing that we see in Japan and the credit easing policy here in the US, what is the risk of banks investing that money in foreign economies rather than increasing lending to homeowners and businesses?
Is this an actual concern of the Fed, or is capital flight not a possible consequence of QE here in the states? Also, if this were to happen, what other options would there be to address capital flight?
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Well to be honest with you, there isn't really a 'great' foreign economy right now. Everyone in the region of Europe is feeling the squeeze of austerity, and with the sequester currently going into effect, we won't really expect our industry to be too strong either. China is actually slowing down a little bit, believe it or not.
So yes, instead of a liquidity trap, we could see capital go to other places. I'm just not very sure where it would wind up.
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