Central banks lemmings of quantitative easing

The real sticking point for QE relates to traction. The US, where consumption accounts for the bulk of the shortfall in the post-crisis recovery, is a case in point. In an environment of excess debt and inadequate savings, wealth effects have done very little to ameliorate the balance sheet recession that clobbered US households when the property and credit bubbles burst. Indeed, annualized real consumption growth has averaged just 1.3 percent since early 2008. With the current recovery in real GDP on a trajectory of 2.3 percent annual growth - 2 percentage points below the norm of past cycles - it is tough to justify the widespread praise of QE.

Japan's massive QQE campaign has faced similar traction problems. After expanding its balance sheet to nearly 60 percent of GDP - double the size of the Fed's - the BOJ is finding that its campaign to end deflation is increasingly ineffective. Japan has lapsed back into recession, and the BOJ has just cut the inflation target for this year from 1.7 percent to 1 percent.

Finally, QE also disappoints in terms of time consistency. The Fed has long qualified its post-QE normalization strategy with a host of data-dependent conditions pertaining to the state of the economy and/or inflation risks. Moreover, it is now relying on ambiguous adjectives to provide guidance to financial markets, having recently shifted from stating that it would maintain low rates for a "considerable" time to pledging to be "patient" in determining when to raise rates.

In the QE era, monetary policy has lost any semblance of discipline and coherence. As ECB President Mario Draghi attempts to deliver on his nearly two-and-a-half-year-old commitment, the limits of his promise - like comparable assurances by the Fed and the BOJ - could become glaringly apparent. Like lemmings at the cliff's edge, central banks seem steeped in denial of the risks they face.

The author is a faculty member at Yale University and former chairman of Morgan Stanley Asia. Project Syndicate