A sign board displays Toronto Stock Exchange (TSX) stock information in Toronto.Mark Blinch/Reuters
There's a case worth considering for just a few months more of a smallish dose of quantitative easing, as James Bullard, the president of the Federal Reserve Bank of St. Louis, proposed last Thursday.
Mr. Bullard is worried about the low level of inflation expectations, thinking that they could have disinflationary, or even deflationary, effects. Not everyone agrees, and at present Mr. Bullard is not on the Federal Reserve's policy committee – the Federal Open Market Committee – which actually decides these things.
QE is the closest thing to creating money out of nothing; since 2008, the injections of paper have been vast. It works directly through the financial markets, so that its imminent ending, scheduled for this month, has had much to do with the recent stock-market correction – and so it's also a major factor in the decline of Canadian share prices; most conspicuously to Canadians, natural-resources share prices.
Of course, the increasing awareness of the growing supply of oil and gas is a very important factor, too – as is the deceleration of economic growth in China.
The word "correction" is not a euphemism for "crash." Nor should it signify something bad. If the prices of shares are unsustainably high, and even in a sense subsidized, it is indeed "correct" for there to be lower, more realistic prices of stocks (and bonds).
The chief economist of the Bank of England, Andrew Haldane, echoed Mr. Bullard on Friday, in effect saying that there should be no mad rush to raise interest rates. Nonetheless, Mr. Bullard is talking about a difference of months, not years. QE is a medication. It's not good to over-medicate, or to medicate for too long.
Still, a more gradual correction would be less painful.