A very expansionary monetary policy eliminates the information content of market prices, which is a serious problem

A market economy is effective inter alia because equilibrium prices in the markets provide all necessary information on the supply and demand situation and on the level of risk. However, the highly expansionary monetary policies have eliminated this information content of prices in financial markets, given the effect of abundant liquidity on equilibrium prices. Accordingly: Long-term interest rates no longer react to fiscal deficits or expected inflation; Credit spreads no longer react to an expected rise in corporate defaults; Share prices no longer react to expectations for growth or earnings. The disappearance of the information content of equilibrium prices in financial markets has serious macroeconomic effects: it weakens potential growth by leading to an inefficient allocation of savings.