What effect
has quantitative easing had on pension deficits of large UK companies? A recent study has suggested that the
final-salary pension shortfall of the top 350 companies in the UK has
quadrupled over the past year from £20 billion to £80 billion. The authors of the report suggest that this
increase is largely due to falling gilt yields, arising from the fact that the
Bank of England has bought a third of the gilt market through quantitative
easing. But this report ignores the
impact of quantitative easing on equities and other real assets held by pension
funds. As highlighted in an earlier
post, quantitative easing may have helped sustain returns on real assets.
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.