By Dan Atkinson
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During the past three years, the Bank of England has conjured £325 billion out of thin air, equivalent to more than 20 per cent of the economy’s entire annual output.
On Thursday, it is widely expected to wish some more into existence, maybe £25 billion, maybe £50 billion.
In for a penny, in for tens of billions more pounds. Whatever.
In for a penny: On Thursday, the Bank of England is widely expected to wish some more money into existence, maybe £25 billion, maybe £50 billion
All of this is supposed to stimulate the economy. But the funny thing is that the only reason that the quantitative easing (QE) scheme continues to enjoy such widespread support is that it has yet to work.
Look at it this way. Had all this made-up money immediately hit the economy (true, it was created in stages, but we are talking about general principles) and acted like a sugar-rush to demand, there would immediately have been an extra £20 chasing every £100 worth of goods.
And you do not need to be a far-out monetarist to figure out that this must lead to inflation. Actually, we have plenty of inflation anyway, but not of a scale sufficient to persuade the Bank to switch off the printing press.
Far from it. Those whom former Labour Chancellor Hugh Gaitskell witheringly described as ‘the people who really understand it, the top people’ want to let those presses roll on and on.
Given the past record of the top people (pro-exchange rate mechanism, pro-Britain in the euro) this ought to have the alarm bells ringing.
As should any thigh-slapping bout of ‘why-didn’t-we-do-this-before?’ breaking the previous economic rules.
And we have been here previously, in the ‘dash for growth’ in the early Seventies. Interest rates were held artificially low, taxes were cut and the public finances swung into the red. More pounds sterling were created between 1970 and 1974 than in the 1,200 years from the reign of King Offa to 1970.
As with QE, the establishment cheered the policy to the rafters. After the hugely expansionary 1972 Budget, The Times wondered whether Ministers may even have been too timid.
Just a few fruitcake MPs on the left and right and a couple of obviously dotty bishops questioned this orgy of money creation. Only after the event, when the annual inflation rate approached 30 per cent in the summer of 1975, did it emerge that ‘everyone’ had always known it would end in tears.
The only thing keeping QE in play is that the vast sums of money being created are being hoarded, not spent.
That suggests they are not getting into the hands of society’s poorer members, who need to spend more of each new pound to maintain a British standard of living.
Which, in turn, suggests that the moment this happens, the dam will burst and the huge reservoir of fantasy money will overwhelm us all.
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John S.....So where did the BOE get the money? They are printng new money to buy to old debt......Osborne said it best when he said QE was a sign of a failed Goverment, I wonder if 'Just call me Dave' stands behind this statement today.
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The only way that money's ever going to be seen never mind spent is if you give it direct to the people themselves. It is the taxpayers money after all.
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QE is asset purchasing. The B of E does NOT give money away - it BUYS assets such as government gilts from banks and other institutions. As for using it to pay off the national debt, that is quite literally "printing money" and the UK's credit rating would immediately plummet. (The B of E is, to some degree, buying government debt but it's still government debt.) QE is being used to increase the M4 money supply, i.e. the amount of money in circulation, which is over £2TRILLION but has FALLEN by around 15% in the past couple of years.It has fallen because banks and other institutions have been buying..... assets such as government gilts! QE is putting money back into circulation that has previously been taken out.
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Why not give every family or adult over the age of 18 say £10k on a 10 year fixed bond at say 1.5% A.P.R fixed for life. That would then enter and stimulate an entire economy and also give the chance for families to reduce debt owed to banks or financial institution. Money sitting on balance sheets in Canary Wharf is not very useful and wont stimulate a broken economy. Either that or the BoE lends directly from it's HQ and misses out the banks altogether. Banks are holding this money at an artifical A.P.R waiting for the BoE base rate to rise. Then watch what will happen we will be flooded with offers of high credit again. Does anybody remember back between 2000-2005 every advert on T.V was for a mortgage/Personal loan or a credit card. Once these adverts return we will be somewhat on our way to a recovery.
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Quite right SteveH, let's try a different approach. Giving the 'cash' to the banks seems to have produced precisely nothing. Give the money to me and it has a far better chance of entering the real economy.
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Money printing ,is not necessarily bad ,it just depends on the reason . The present Capitalist system relies on the printing of money ,as a crude control on the financial well being of the economy ,a bit like recessions ,but the opposite. My assumption is the government cant pay its bills ,cannot borrow from the banks as they have maxed out their available funds ,(some friendly ,others ,not as friendly ) ,so its back to the old faithful money printing sort of scam. No government will tell you the absolute truth ,because the electorate does not like to hear bad news,and there are lots of snake oil salesmen out there ready to solve their problems super fast.
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Why not use QE to repay the national debt and give everyone a tax cut?
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