As we feared, the wise men at the Bank of England have decided that what our ailing economy needs is another dose of QE.
I was about to blog the event, but it’s hard to match the eloquence of Daniel Hannan’s latest post:
According to the BBC, the Bank of England has decided to ‘inject a further £75 billion into the economy’. Who knew it was that easy? I mean, why not inject £500 billion? Or a trillion? According to the BBC’s logic, it would surely make us the wealthiest nation on Earth.
I can’t believe I’m having to write this, but nothing new will be manufactured, invented or developed as the result of this monetary splurge, no services offered, no businesses founded. Rather, the money already in circulation – the money in your bank account, in your purse, under your mattress – will be worth less. The government, in other words, is helping itself to your savings – and, in doing so, is damaging productivity, disincentivising work and weakening the competitiveness of the British economy.
These themes will be familiar to regular Cobden Centre readers, as will his conclusion:
It’s a paradox. If I were to print counterfeit £20 notes and buy goods with them, I’d be perpetrating a fraud: I’d be buying something of real value with something I had magicked out of thin air. Yet when a central bank does the same thing, the half-educated economists who dominate our universities and television stations nod approvingly and mumble cliches about ‘boosting demand’.
You can’t keep boosting demand without producing anything, for Heaven’s sake. That’s what got us into this mess.
We’ll post more on this latest act of folly in due course, but in the meantime Steve Baker has posted a warning straight from Human Action:
Am I correct in concluding that this money printing exercise is the equivalent of about £1000 for each person in the UK? If this policy is based on Keynesian economics, and the intention is to get funding to small businesses, wouldn’t it be consistent with Keynes to give each person in the country £1000 and leave it to them to spend it. The money would probably find its way to the SMEs, who are supposed to be the beneficiaries, a lot quicker than through the banks?
Personally, after following your website and ZeroHedge, I wish the BoE would stop printing money and raise interest rates. That would benefit me, a person who relies on his savings for most of his income, and allow me to spend on more than the necessities of life.
Of course the previous round of £200bn clearly worked, so let’s do it again with £75bn…
What will it take to get a popular movement to end the madness? A few protests on Threadneedle Street might help focus minds…
The early recipients of this funny money will be the winners in this latest round of QE. As planned by design!
The rest of us will see rapid erosion of our savings and income through inflation once this cash is in general circulation.
The outcome of this latest decision to pump more cash into the economy will not be known for another 6 months or so. It really is just a question of the severity of this action ranging from bad, very bad, disastrous or catastrophic.
I was extremely irritated by the BBC’s description of QE. Effectively they (and indeed many journalists) describe it as “money printing”, period, full stop, end of. That causes numerous instances of hyperventilation and apoplexy amongst the economically less literate.
In the last round of QE, all they QE’d was Gilts. I.e. they swapped on form of central bank liability for another. Given that Gilts are accepted in the City in lieu of cash, the swap is little more than swapping one £20 note for two £10 notes. Also, in the case of a Gilt with only a few months to go to maturity, what’s the difference between £X and a promise to pay £X in a few months? Not much.
In the recently announced round of QE I gather they’ll be QEing a fair amount of commercial bonds. That will have a bigger effect pound for pound. But any idea that a pound’s worth of QE equals a pounds worth of plain straightforward money printing is nonsense.
“In the last round of QE, all they QE’d was Gilts. I.e. they swapped on form of central bank liability for another”
Ralph, gilts are purchased with newly minted money that gets placed as reserves lodged at the central bank. This means money out of nothing is put into the economy.
Toby, I had actually gathered that QE involves printing money and feeding it into the economy – as indeed are 90% of the population. After all, they’ve been told this often enough.
My point was that while feeding the above new money into the economy, QE involves WITHDRAWING an equal amount of something that is very near money, i.e. Gilts. Indeed, and coincidentally, someone made the point that Gilts should possibly be counted as money in the first comment after a blog post of mine a few hours ago. (The blog post had nothing to do with QE, incidentally) See:
http://ralphanomics.blogspot.com/2011/10/what-proportion-of-money-supply-is.html
Thus the net effect of QE is not obvious or simple. As for the idea that it will result in hyperinflation this time next week, which seems to be what some people are claiming, that is very over simple.
Ralph,
By that reasoning, would you say that the government expands the money supply every time it issues new gilts?
Ralph, if I went into a shop , say Tesco, with a gilt and tried to pay for my groceries, they would laugh at me!
Money is the final thing for which all goods and services exchange . If they can’t exchange , they are not money. Gilts are not money. They need to be redeemed and turned into money.