The Risks of Quantitative Easing?
QE is not without its share of risks. In fact, it is a highly controversial issue because of the specific risks involved.
1. Central banks may actually lose money on their purchases. This results in an increased burden for tax payers. Whether that burden comes immediately, or in the future, the central banks will recover their losses at the tax payers' expense.
2. Devaluation of currency is a distinct possibility. While some would argue that this is a "the sky is falling" argument, there is precedence for the argument, recent precedence. With the Federal Reserve pumping $85 billion (yes with a "B") into the economy each month, it's not as far-fetched as some would have the public believe).
3. It could destabilize, rather than repair, the economy. This is always the risk when outside forces begin working to manipulate the economy. The longer interest rates hover near zero, the lower confidence, globally, in the economy grows.
Unintended consequences can sometimes hurt just as much as the damage to the economy the central banks were attempting to repair. Another potential, yet significant side effect of this manipulation is that inflation could rise.
This is particular problematic if too much money is distributed into the economy too quickly. Suddenly there's an increase in demand for products that offer a limited supply. This causes prices of these goods, products, and services to increase.
Ultimately, quantitative easing is great in theory. In practice, however, the risks far outweigh the rewards of long-term QE. Moderation is the key and this should be a last-ditch effort to salvage the economy rather than the first play.