Robert PestonBusiness editor
History will decide whether our era of unprecedented money creation and low interest rates - in the US, UK, eurozone and Japan - has taken us back from the brink of economic ruin, or has pumped up dangerous new bubbles, or has been a bit of both.
The final verdict may well be that it was a dangerous price worth paying, to avoid even deeper recessions than those we suffered as a consequence of the financial crisis of 2007-8.
But we will not know the price until all that exceptional monetary stimulus has been unwound.
Perhaps we will experience a massive blow to our prosperity as economic activity, flows of funds and asset prices adjust to more normal levels of interest rates in an overwhelming avalanche.
Or possibly and more benignly, the underlying momentum of economic activity will offset the headwinds from money becoming more expensive again.
Central bankers' stated ambition - including Mark Carney in the UK, and President Obama's nominee to be chairman of the US Federal Reserve, Janet Yellen - is not to apply even a touch to the monetary brakes until the locomotive of economic growth is hurtling down the tracks. This is what they've both been saying in the last few hours.
Goodness only know if they'll have that ability to freewheel. As they look down the track, they see no sign of dangerous incipient inflation, which would force them to slow the train down. But there are some who fearthey see only what they want to see.
Which is probably a slightly unsettling thought for this time of the morning. Sorry.
But at this juncture, we can take stock of what economists would call the distributional impact of quantitative easing - or money creation through the purchase by central banks of debt - and of policy interest rates being as close to zero as they've ever been.
And, as luck would have it, this analysis of the winners and losers in the era of ultra cheap money has been done and published this morning by the McKinsey Global Institute (it should be taken with a pinch of salt, since it is hard to adjust for what else has been going on in the global economy).
The big winners, to the tune of $1.6 trillion by the end of 2012, were the governments of the US, the UK and eurozone, from the reduced costs of servicing their debts and from the increased profits made by the their respective central banks (who magically create money to buy government debts which pay them interest).
The point is that from 2007 to 2012, the average interest rate paid by the UK government on all its debts fell from 5.1% to 3.2%. That represents a massive saving, at a time when it has been borrowing more and more and more.
The cumulative estimated benefit for the UK government alone, including central bank profits, is $170bn or around £105bn.
Perhaps more surprising is that McKinsey believes that households have been significant losers from cheap money. I say that may be surprising because one motive for quantitative easing was to ease the pain and financial stress for those millions of people who had borrowed far more than was prudent in the boom years.
However McKinsey looks at the whole picture of household financial assets, including pension fund savings, life policies, and other forms of long-term savings. And on this basis, households in the US and Europe are net savers, rather then net borrowers. So when interest rates fall to exceptionally low levels, in the round they are losers.
How much have they lost? Well McKinsey says that from 2007 to 2012, the cumulative net loss of interest income for American households was $360bn, compared with a cumulative net loss of $160bn for eurozone citizens and $110bn (£70bn) for British people.
It is important to stress, however, that these bald numbers gloss over some very important differences for different categories of people.
The young have been beneficiaries of quantitative easing, because they tend to be net borrowers.
And some would say that's only fair, given that the impact of an economic disaster caused by the older generation has been felt most acutely by younger people unable to get jobs.
What is also striking is that if you strip out the impact of lower interest rates on pension funds and insurance reserves, the impact on households shrinks dramatically. So the cost for UK households excluding those long-term savings would be just $15bn over the past five years.
In other words, quantitative easing raided the savings of those who had been prudently putting money aside for decades to tide us over a short-term disaster - which may or may not have been sensible.
There are three other striking McKinsey conclusions:
- Big companies have gained to the tune of $710bn in the US, UK and eurozone from a cut in the cost of servicing their debts.
- US banks have been winners, as they have been able to widen the gap between what they charge for loans and what they pay to borrow. But eurozone banks have seen a shrinking in that gap, and have therefore been losers from cheap money. UK banks have been modest net losers, on McKinsey's analysis.
- Possibly the biggest losers have been insurance companies, which have been unable to earn as much on their investments as they are obliged to pay to long-term savers. McKinsey worries that many of these would be driven out of business, that "their survival would be threatened", if the epoch of low interest rates continues for several more years.
Now all of that is to focus on the impact of low interest rates on the net income of households, governments and businesses. But there has also, of course, been an effect on the price of assets.
McKinsey estimates that the value of sovereign and corporate bonds in the US, UK and eurozone has been boosted by $16 trillion between 2007-12, and that house prices in just the US and UK may have been 15% higher than would otherwise have been the case.
By contrast, it doesn't think stock markets have benefited from quantitative easing (although not everyone would agree).
So here's an interesting question - is the important effect today on households' spending decisions the increase in their perceived wealth caused by quantitative easing's boost to house prices and other assets?
Possibly.
Which is why an abrupt end to quantitative easing is so troubling for those who fear the economic recovery is a long way from being entrenched.
PS: McKinsey confirms the fears of governments of some emerging economies that a sharp return to pricier money in the US and Europe would be painful for them.
It points out that, in a search for better returns, international investors invested $264bn in the bonds of emerging markets in 2012, up from $92bn in 2007.
So, if those investors started to see better rates of return in the old world, some of these emerging economies would struggle to borrow and refinance their debts.
McKinsey highlights Turkey, South Africa, Indonesia and several Eastern European economies as vulnerable.
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