Why QE, low interest rates and volatility are an explosive mix
for the markets   Critics of quantitative easing (QE)—whereby
central banks push down interest rates and buy up safe assets to
stimulate flagging economies—have long worried about the
possible unintended consequences. The point of QE is to push
down the yields on safe assets like government bonds so that
investors put their money in riskier assets where it can do more
economic work; the worry is that too much money in risky assets
could blow up in investors’ faces.  Now, even Federal Reserve
chairman Ben Bernanke is hinting at asset bubbles, saying the
Fed is “watching particularly closely for instances of ‘reaching
for yield’ and other forms of excessive risk-taking, which may
affect asset prices and their relationships with fundamentals.”
But here’s the problem: It’s hard to know what “excessive risk-
taking” would look like these days, because the central banks’
involvement in the markets is distorting the usual ways risk is
measured. Volatilit