The phenomenon of quantitative easing (QE) has become a critical discussion point in global economics, particularly when examining how different regions such as the United States, Europe, and Japan have diverged in their approach and resulting outcomes.

Initially, Japan was the first to explore the realms of QE back in 2001 as a response to decades of economic stagnation and deflationary pressuresThis approach was momentarily paused in 2006, only to be reinstated in 2010 and further enhanced in 2013 with quantitative qualitative easing (QQE). As Japan embraced negative interest rates and yield curve control (YCC) in subsequent years, the United States faced a different situation during the financial crisis of 2008, which led to several rounds of QE as the Federal Reserve sought to mitigate the effects of the subprime mortgage disaster on a global scale

Meanwhile, Europe followed suit, implementing QE in 2015 after introducing negative interest rates the previous yearThis chronological introduction of QE across these regions starkly showcases the responses to economic adversity that each faced.

Importantly, the results of these policies have not been uniformIn fact, the efficacy of the United States' approach to QE has noticeably outshone the performances of Europe and Japan

When the Federal Reserve first initiated QE, skepticism loomed regarding the potential devaluation of the dollar and the instigation of inflation within domestic bordersInterestingly, the outcome diverged from expectations, as the dollar's standing on the international stage improved, a fact underscored by the International Monetary Fund's (IMF) reassessment of the Special Drawing Rights (SDRs) currency basket in 2015 and again in 2022, showing an increased proportion of the dollar while the weights of the euro, yen, and pound decreased significantly, particularly the euro, which saw an 8.09 percentage point drop.

Examining real economic performance reveals a parallel narrative

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Between 2004 and 2008, the annual average growth rates were 2.43% for the US, 2.08% for the Eurozone, 1.95% for Germany, and a mere 1.13% for JapanMoving to the subsequent time frame of 2009-2023, average growth rates showed a disappointing 1.15% for the Eurozone and even lower figures for JapanOn the contrary, the US continued to see a healthy expansion of 2.21% per yearThe post-pandemic recovery has diverged further as the US economy rebounded more swiftly to pre-pandemic levels compared to Europe and Japan, underscoring a persistent lead in economic recovery.

In nominal GDP terms, the United States' dominance is even more starkly illustratedIn 2008, nominal GDP figures indicated that the Eurozone, Germany, and Japan, represented 94.8%, 25.8%, and 34.6% of the US's nominal GDP, respectivelyFast forward to 2023, and those figures have dropped dramatically to 56.6%, 16.3%, and 15.2%. If we trace back to the initiation of QE in Japan, the decline in Japan's nominal GDP is even more pronounced, showcasing a stark shift in economic power dynamics.

Another element affecting these disparities lies within the structural differences of financing mechanisms across these economies.

Statistical reports indicate that in 2013, global direct financing accounted for 55.8% of overall financing sources, with indirect financing comprising 44.2%. However, these figures mask the drastic differences in the financial structures of the respective economies

The US system illustrates a robust preference for direct financing, accounting for 78.1%, whereas the Eurozone favors indirect financing more heavilyThese differences significantly impact the effectiveness with which monetary policy can be transmitted through the financial systems, leading to complex outcomes when comparing their QE implementations.

Understanding the mechanics of QE is crucial hereAs Bernanke explained, QE effectively reduces the supply of safe assets like government bonds and mortgage-backed securitiesThis reduction forces investors to look for higher yielding assets, thereby elevating prices across stocks and corporate bonds while lowering long-term interest ratesIn the US, following the implementations of QE, long-term interest rates have notably declined, yet the transmission through the banking sector has presented challenges

Despite growing the monetary base at a rate surpassing historical norms from 2008 to 2023, bank loans across that same period grew at a significantly slower pace

Furthermore, the effects of these policies have elicited a pronounced wealth effect within the US, overshadowing those seen in both Europe and Japan.

From early 2009 to the end of 2023, the S&P/CS Home Price Index surged by 105%, while the S&P 500 soared by an astonishing 428%. This disproportionate response in the equity markets reveals stark contrasts when compared to Japan and GermanyThe increase in wealth through securities holdings contributed significantly more to American households than was evident in Japan or Germany during the same period, with the latter two seeing a much larger share of their financial assets remaining in cash and deposits rather than investments in the equity markets.

Consequently, the health of household balance sheets has greatly improved in the US, contrasting with the financial vulnerabilities evident in Japan and Germany