Aren't they free to do what they like with that cheap money? They can short the stock market as well as many other things. There's no requirement to long the market.
OP is saying the govt only buys which keeps underpinning the market higher.
On the other hand QE allows the market forces to do what it likes with the cash which will more easily balance.
Shorting a stock would remove cash from the system which is essentially the opposite of QE. To short a stock the short seller first "borrows" the stock from another stock holder and then sells that stock on the open market. In most cases the investor who the stock is borrowed from won't even be aware that his stock has been loaned out to a short seller.
The effect is that there are now two individuals who believe that they own the same share. From the perspective of the market the short seller has effectively created shares out of thin air, sold the shares and is now sitting on the cash.
When a central bank is the one shorting the market the effect is to pull cash onto it's balance sheet which removes it from the economy which is deflationary.
Interesting idea though! One that I hadn't considered as a tool for central banks to constrain inflation.
I don't know the exact reason why all banks and central banks are long stocks and not short right now, and I'm sure they will change their position when they think it's worth it, but currently QE money has a big correlation with the stock market.
Shorting might be an option for the retail investor but I doubt it's so simple when your dealing with the amounts of a large bank. Banks usually borrow stocks and then sell them back (in order to short) and finding a counterparty for that might be very costly.
> QE and the banks buying stocks is the same thing:
No they most certainly are not. QE puts money into the economy. People can then use that money to buy stocks or short stocks, they can also use that money to do things like travel, purchase a new house or put a kid through school, etc. It can be viewed as a market neutral strategy in terms of buy vs sell pressure on the stock markets.
Now this can cause the stock market to rise through "organic" growth from increased consumption leading to increased corporate profits.
On the other hand the government buying stocks only puts pressure on the buying side of the equations, causing the market to move up.
They both may cause the markets in general to rise, but in terms of market dynamics they are not the same thing:)
