Don’t tell Parliament we are printing money

The government is in a muddle with its policy of “quantitative easing” – printing or creating money.

It wanted us to believe this was a policy of the “independent” Monetary Policy Committee. Hence they enacted the charade of the MPC writing to the Chancellor and the government responding. In a moment of inconsistency the Chancellor yesterday announced the policy on the media and sought to defend and explain it. Clearly he is in full knowledge of it and has given it his blessing. It therefore becomes his policy, whatever the truth about who first thought it should be adopted from within the MPC and the government. He dropped the old pretence that these are matters under independent control which we leave to the Bank and do not comment on.

I am glad he did seek to explain it and defend it. It is a big step to take and one which the senior elected official needs to be happy with and needs to defend. Why then did my colleagues get a brush off in the Commons when they rightly asked for a government debate? Have we now got to such an undemocratic pass in this country that a government creating or printing the large sum of £75 billion does not have to announce it first to the Commons in a statement and then allow a debate? Shouldn’t a democratic government want to explain it to those paid by the taxpayer to approve or criticise these decisions? Once again I am driven to the world of the web to make my points.

Every Thursday the government holds a so called “topical debate” without a vote to require most MPs to be present . If they chose genuinely topical matters that could be a good thing. Instead they usually choose the government’s spin topic of the week. They do not let the Opposition ever choose their preferred topic. Yesterday should have been a debate on the economy and money. Of course it wasn’t. The Opposition asked me to speak in a full day Economy debate to be scheduled in Opposition time next Tuesday . I willingly said I would. Subsequently I was told the Chancellor was not available to take part, so the debate has had to be postponed.

So, like the rest of you, my opportunity to understand the government’s approach to all this was confined to watching Miss Cooper ( alias Mrs Balls) on Newsnight. She may have gone home thinking she had triumphed. She had put across the government’s highly political spin line. They say that the crisis is global, that they made no mistakes, that Gordon Brown is leading the world out of the crisis, that the Conservatives want to do nothing, and the Conservatives have opposed the very measures they are taking which will alleviate and then solve the problem. One of their dwindling number of supporters has put this all eloquently in a recent posting on this site.

If she did think this I fear she is much mistaken. Their points about the Conservatives are simply untrue. The Conservatives have proposed various actions, and have not voted against government measures which they think might help.

What I think we wanted to hear from Miss Cooper was something different. We wanted a serious tone, an admission that mistakes have been made by this government in the conduct of monetary policy, fiscal policy and banking regulation, and a better explanation of what quantitative easing means and how it might make things better. I do not think most viewers will have warmed to Labour as a result of her partisan performance.

Some think quantitative easing will have little impact. On the first day of its formal announcement bond markets did not respond greatly, and sterling remained mercifully unmoved. The Japanese who tried this found in their circumstances it did not work. Nor did it trigger inflation.

Some think quantitative easing marks our adoption of a Weimar or Zimbabwean approach to monetary management, fearing that addiction to it could eventually trigger a major inflationary problem. Government should remember that on its chosen measure inflation is still at 3%, and there are still price increases a plenty to come though from last year’s big fall in the pound.

Some think this will prove to be the right sized stimulus that could help turn the corner.

Miss Cooper seems to belong to the try everything school. She did not claim last night this policy is the magic missing ingredient. She may be adopting a monetarist policy, designed by people she used to condemn regularly as part of her ideological mantra, but she has not been completely bowled over by their claims. She said it was just another measure in a long laundry list of initiatives. As the Opposition pointed out this week, several of last year’s initiatives still have not got beyond the press release and planning stage.

So what do I think of all this? I think the government should realise that doing everything is not necessarily the right answer. I think inflating the deficit massively, spending huge sums on subsidising very large banks, and undertaking monetary easing increases the risks substantially. The government is overflexing the national credit card and national financial credibility.

The main problem that is different this time round is the state of the banks. The government should concentrate on making the banks heal themselves, instead of shovelling obscene sums into them. They should await the results of lower interest rates. They should stop savaging savers at a time when savers are needed in a country which has collectively borrowed too much. If you are going to print some money, you need to have a prudent course for future public finances. The government has not merely divorced Prudence but is holding a drink and drugs party on her grave.

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58 Comments

  1. Johnny Norfolk
    Posted March 6, 2009 at 7:32 am | Permalink

    This money printing is to keep the government afloat. With interest rates so low and the current tax levels so high, unemploymen growing, firms going bust. how can the government not cut its spending.

    We need a complete change of philosophy. The government needs to shrink and money returned to the people. Its the same for the EU. They are spending far to much on stupid things.

    In short we need a Mrs Thatcher, she was correct and Labour is wrong.

  2. Kit
    Posted March 6, 2009 at 7:38 am | Permalink

    Do they honestly think printing £75b will fix this? Or is this the first of many installments.

    What is truly terrifying is that there is no evidence that QE works. It only lives in the imagination of some Keynesian macro-economists; the same macro-economists who didn’t see this crisis coming.

    • StevenL
      Posted March 6, 2009 at 1:10 pm | Permalink

      Wasn’t it Friedman that reckoned governments should just concentrate on controlling the money supply and let the market determine where it is spent?

      I’m not for one minute suggesting that this government doesn’t have Keynesian tendancies, but I would hardly say that the form of QE advocated by Mervyn King last night was ‘Keynesian’.

      He seemed to say that he was going to just buy gilts and corporate bonds through the market from funds and private investors. I can’t see that this will make much difference to demand.

      I’m no economist, but I got the impression that Friedman was thinking along the lines of increasing the money supply at times of debt deflation in order to stimulate demand. This policy is not another example the government’s ‘neo-Keynsian’ tinkering, this is a new and worrying form of ‘neo-monetarism’ if you ask me.

      • adam
        Posted March 7, 2009 at 1:33 pm | Permalink

        Monetarism was supposed to be about controlling the money supply. They gave up on it once they realised just how much damage that would do to a debt based economy. They felt it wasn’t feasible, but the contraction monetarism created enabled the largest period of sustained growth in our history, something Gordon has taken the credit for.

  3. Ian Jones
    Posted March 6, 2009 at 7:39 am | Permalink

    Great post although I am still concerned that not enough attention is going on what this printed money is being spent on! Government gilts!!!! No wonder the Govt wants to keep it quiet, it is silently printing more money so it can spend it.
    This is why the debt market didnt move because they know that the 150bn is lined up to cover the 150bn the Govt will borrow this year.

    In other words the printed money will not free up the banks, it will not get the credit markets moving it will just bail out a Govt which is up to its neck in red ink.

    Gordon’s next trick will be to emulate Obama and deliver a huge socialist spending Budget in April…..

    • Andrew Forbes
      Posted March 6, 2009 at 3:56 pm | Permalink

      One would almost suspect this is a deliberate time bomb for the next parliament. This year we have low interest rates and a flood of cheap money. This will be inflationary, with a time lag, so that the next govt (presumably Conservative) will have to slash spending and raise interest rates. I am imagining the howls of Shadow Chancellor Ed Balls “the Tories are killing the people with high interest rates and spending cuts; the pound is plummeting under this Tory govt”.

      It’s like cancer. The Labour doctor is declining to administer chemo to the patient. But next year a different doctor will have to administer far more severe chemo to cure a much bigger tumour. The Labour party is gambling that the patient will grateful this year for not inflicting the pain.

  4. alan jutson
    Posted March 6, 2009 at 8:08 am | Permalink

    Surely you are not surprised by the Governments actions, they have had 11 years in which to develop the art of spin, and refusal to answer clearly any reasonable questions put to them.
    The sad fact is that some of the media have swallowed it, we no longer seem to live in a Democracy.
    We have an elected Dictatorship which with the majority it has in Parliament, can do what it likes, unless its own members take up the challenge and refuse to co-operate.

    Interesting to read Frank Fields article in todays Telegraph on unemployment and the new deal today.
    One of the few Labour members who has some vision, and the courage to speak out.
    What a shame he was sidelined early on when Labour first took office.

  5. Blank Xavier
    Posted March 6, 2009 at 8:30 am | Permalink

    I don’t get it.

    There is a given amount of wealth in the economy. This is the value of all things; pots and pans, houses, cars, baby food, commerical property, the national supply of bubblegum – you name it.

    There is also a given amount of currency in the economy. This is paper and coins and numbers in bank accounts, which in and of themselves are valueless, but are accepted by everyone as *representing* value.

    If you increase the amount of currency you do not actually increase the amount of wealth.

    Banks are currently are not lending because they don’t have enough wealth to do so – they have too many debts to worry about. Banks own a certain amount of wealth – mortgages, properties, investments, etc. Increasing the amount of currency makes absolutely no difference to the amount of wealth banks own. As such, it can have absolutely no influence whatsoever on lending.

    • adam
      Posted March 7, 2009 at 1:38 pm | Permalink

      The banks lend on a fractional reserve system. They need paper currency reserves to extend loans. Increasing the supply of paper would in theory help reflate the system. This might be the motivation behind it.

      • Blank Xavier
        Posted March 8, 2009 at 10:48 am | Permalink

        I still don’t get it!

        Fractional banking still *doesn’t create any new wealth*. All it does is create more *money*.

        Say I lend the bank 100 pounds. The bank then keeps that 100 pounds and lends out 400 pounds. The amount of *wealth* is exactly the same as it ever was – simply the amount of *money* has increased. The people who borrow that 400 pounds are not borrowing from 400 pounds of real wealth – they are all borrowing from that same original real 100 pounds of real wealth.

        • adam
          Posted March 9, 2009 at 3:52 am | Permalink

          I agree you do not increase the amount of wealth, by your definition of it.
          My point is that the aim might be to put more paper cash in the system which the banks use as reserve to loan out (electronic) money. The result of doing this then would be to help get the banks lending again.

      • Blank Xavier
        Posted March 9, 2009 at 6:53 am | Permalink

        Adam wrote:
        > I agree you do not increase the amount of wealth, by your
        > definition of it.

        > My point is that the aim might be to put more paper cash in the
        > system which the banks use as reserve to loan out (electronic)
        > money. The result of doing this then would be to help get the
        > banks lending again.

        Yes – but the thing is; if currency is a representation of wealth and the amount of wealth hasn’t changed, then increasing the amount of currency simply dilutes the value of currency. *So you haven’t actually increased real wealth lending*. How could you? there’s no more real wealth. And it’s *real lending* which is what matters.

        The total currency face value of lending has increased but the actual amount of *wealth* being lent (which is what matters) has not changed. So it’s a pointless exercise.

        • adam
          Posted March 9, 2009 at 10:05 pm | Permalink

          Well you might be right. Sounds like you know more about this stuff than me.

  6. Robin
    Posted March 6, 2009 at 9:03 am | Permalink

    Blaming the lenders for this crisis is like blaming the obesity crisis on Jamie oliver for making such delicious food.

    Far to many businesses have become credit-junkies and are now going into cold turkey.

    The Governments U-turn policy on lending is like their U-turn policy on Cannabis. They taken a liberal view of lending then when problems arise can’t make their mind up to criticise or encourage a more conservative view.

    This Government will fail to fix the credit-crisis for the same reason it will fail to fix the drug crisis or the obesity crisis – because it’s political soul can’t decide what is right and wrong, everything is relative and victims can’t take responsiblity.

    There will be no systemic solution, there will be no plan. Because a plan involves a sum of its parts. There will be no monetary-methadone, or shooting galleries, no clamp down on credit dealers, no suppliers being busted. This Government has no morals and no solution.

  7. Posted March 6, 2009 at 9:05 am | Permalink

    Hi John,
    I agree that this government appears hell-bent on driving us into the mire. Having said that, i also believe this is part of a long-established plan by Gordon Brown who, let’s face it, ‘demamded’ of Blair that he have control of the economy in exchange for letting him be the unopposed leader.

    In a blog post on December 11th called ‘The Brown-Crusader & his Juliet darling’ I explain more fully the very real reason Brown is stringing out this economic meltdown for his own benefit.

    I hope you take the time to read it http://tinyurl.com/c8dqep and maybe give me your response.

    Pete Moring

  8. Tony Makara
    Posted March 6, 2009 at 9:11 am | Permalink

    Quantitative Easing can only undermine Sterling and lead to imported inflation. As Mr Redwood’s article points out inflation is already building up in the system.

    Unfortunately many have now been lulled into a false sense of security, believing inflation not to be a problem, this is because they fail to factor in the effect on Sterling and Britain’s dangerous dependence on imports. The government’s response to the collapse in liquidity has been driven by panic and the usual search for a quick-fix.

    I should like to predict here and now that QE will not make a jot of difference, will not take us out of recession, and will only store up inflationary pressures and devalue Sterling.

  9. jeff todd
    Posted March 6, 2009 at 9:20 am | Permalink

    This is doomed to failure, a slow motion train wreck.

    While the BBC and Gov spinmeisters have been woffling about “uncharted territory”, it is not. NO country has ever made a success of printing money; Japan, Weimar, Zimbabwe etc etc

    If it was really that simple then world poverty would have vanished on the day the printing press (or photocopier) was invented.

    I fear that the Pound will be devalued internationally, imports will rise fuelling inflation and we face the danger of other countries asking for hard assets (gold – instead of monopoly money, just like France, the USA and the dollar in the sixties).

  10. Brian Tomkinson
    Posted March 6, 2009 at 9:25 am | Permalink

    Yvette Cooper is no different from her colleagues in putting the Labour spin message across at every opportunity. Philip Hammond, who was on Newsnight with her last night, is typical of many Conservative shadow ministers who appear on the media and seem incapable of dealing with this technique in a way which I have heard you do and adds to the knowledge of the listener.
    I increasingly sense that the Conservatives are not interested in an election this year presumably hoping that the end of the recession will be that much nearer. This is a worry for those of us for whom the departure of Labour can’t come soon enough and fear the further financial damage that will have been inflicted in fifteen months time.

  11. steadmancinques
    Posted March 6, 2009 at 9:55 am | Permalink

    If a snake oil salesman brandished a medicine which in one case (a Japanese patient) was shown to have had no measurable benefit, but no particular harmful side-effects either, but in every other case had hastened the demise of the sufferer, would you rush up to buy some?

  12. David Eyles
    Posted March 6, 2009 at 10:00 am | Permalink

    From my own point of view, it would be very useful if someone (JR?) was able to summarise the total expenditure and all sources of borrowings, such as PFI, along with potential liabilities in terms of risk, and then put them on a graph against GDP. Nowhere have I seen any graphical summary of the situation. It is all happening so fast, and the numbers are so huge, that people are no longer able to take in the significance.

    That way, we could see what the effect is of the almost daily increases in liability for the taxpayer. I suspect that we would see an exponential curve of terrifying numbers.

    Whilst this would involve time and commitment on your part if you were to do it, nevertheless published monthly, I am absolutely sure that it would whizz around the internet within minutes. In the end, even the BBC would have to take notice.

    Without diverting too much of your time, would it be feasible for you do this?

    Reply: I have regularly updated you on this on this blog

    • alan jutson
      Posted March 6, 2009 at 2:50 pm | Permalink

      David
      I suggested a similar type of simple comparison last week 1997 debt with 2009 debt.

      Whilst for JR and others who “are in the know” it is a very simple task to make and understand comparisons just by numbers.

      The General Population I believe simply find it difficult to quantify those figures if they are not in sensible, meaningful and easily understandable terms.

      With so many regular statements and spin about bail outs, guarantees, Gold sell offs, off sheet borrowing, PFi, benefit rises/cuts, Pension liabilities etc and the like, no running total is kept or shown (probably a deliberate Policy) even against what is regarded as the National income.

      In the US they keep a running total going (In New York) for Public Display on a large illuminated sign, the size of the National Debt which constantly changes upwards every millisecond.

      Unfortunately Politicians here very rarely think in basic terms, and so most of the General Public get lost in all of the detail and give up.

      Most of us could probably confuse most others by talking technical and in detail about our chosen proffession should we so choose to do, but if we want to succeed with our customers we refrain and keep to the basics unless requested to do otherwise.

      Please John can the Conservatives present the Finacial position in a very basic and clear manner, which most of the Population could understand, you then may get some of them to listen to the arguments you make, because they can then relate to it, and the penny may at last drop, as to what a mess this lot have got us in.

      On another point perhaps the BBC should be told in no uncertain terms, that if they do not provide a PUBLIC SERVICE with UNBIASED and BALANCED REPORTING reporting, then they will not get any PUBLIC MONEY should you get into Government.

      Reply: yes, I agree a debt clock would be good, probably expressed as so much per head. The Conservative advert about the baby born with Gordon’s debt was I thought effective and needs to be repeated. On my current estimate public debt and liability per head is now around £75,000

      • alan jutson
        Posted March 6, 2009 at 6:25 pm | Permalink

        Could I suggest a Grand total first, then a cost per head, just to drive the message home.

    • David Eyles
      Posted March 6, 2009 at 11:06 pm | Permalink

      Yes, but not graphically and not showing the total compared with, say, 1997 as the base year.

  13. Posted March 6, 2009 at 10:04 am | Permalink

    If the Opposition are not allowed to hold Parliament to account, if the Chancellor can dodge questions about the economy, and if both the Home and Foreign Secretary can refuse to appear in front of Select Committees who might ask them difficult questions, it is no wonder that voters feel disillusioned with politics.

  14. tim holden
    Posted March 6, 2009 at 10:15 am | Permalink

    Some months ago my business applied for an SFLG loan. These loans have fairly strict criteria and the application was framed in that context. A short time after the application was submitted, we were informed that the loan would be submitted in the context of the new government scheme.

    My bank was not able to inform us as to whether the criteria for the loan had altered. They were not able to inform us even as to when there could be a reasonable expectation that the application could be processed. They were, however, able to present us with a new pile of documents to submit together with the requirement (predictably enough) for further information that had never been needed under the previous scheme.

    As it is now evident that the announced scheme is not yet introduced, and that apparently the old scheme is no longer in use, the result is a drying-up of much needed funds, and the overall effect is that the situation has been made worse than it was before. The criticism of the “Do Nothing Party” is a compliment when the alternative is the “Make Things Worse Party”.

    If numerous initiatives are instigated to deal with a problem, then it is essential to co-ordinate and sequence the measures as well as to measure their effect before moving to the next step. Lack of cohesion and hypocritical blustering, panic and ineptitude, inability to do anything effectively take us to the simpler solution. Print money, grab what we can, and lie with conviction. Unfortunately businesses cannot resort to printing money – I wish we could.

  15. Posted March 6, 2009 at 10:28 am | Permalink

    Government is going to pains to tell us that; “The Bank of England is independent and it has taken this decision” in respect to its decision to print lots of money under a policy of Quantitative Easing (QE). Yvette Cooper, Treasury Secretary on Newsnight late last night almost hung on the words as she expressed clearly that QE was not a government decision.

    Simultaneously Labour colleague Douglas Alexander, Labour’s strategist and International Trade Secretary under Lord Know it all Mandelson said “The governor of the Bank of England decided today”…etc”, in another Labour line which is so obviously seeking to position the government as ‘blameless’ if or more likely when, QE fails to work.

    Yvette Cooper was also at pains to give us all a warning that unless other countries act in the same way, then it will have little or less value, and Douglas Alexander emphasised that “The Bank of England is responsible for monetary policy but government sets the parameters”.

    Talk about trying to dig yourselves out of a hole you dug for others!

    Let’s get this right. The Bank of England was given authority from Chancellor Alistair Darling to use quantitative easing. Mervyn King wrote to ask for this, Darling agreed. The government is responsible, and there is no way on this earth that Mervyn King is running our country alone.

    In every way possible, the government has adopted Keynesian policies to tackle the financial crisis. It has directly intervened in the economy in doing so and it alone has taken these decisions. It alone therefore is responsible and it cannot be allowed to assume the ‘glory’ for “saving the world…….. er, banks” if it is simultaneously telling us it is not responsible and it’s all The Bank of England’s fault.

    What is Brown doing asking world leaders to agree a global package and global reform, global rules and even a global bankers remuneration deal, if HE is not responsible?

    Is Obama responsible for his stimulus package?
    Was he “just lucky” that the Federal Reserve just happened to lower interest rates simultaneously with the UK and Europe following a meeting of bankers back in November at the invitation of George W Bush?

    I find it amusing here to see Labour trying to wriggle off the hook of responsibility over decisions it has taken on our economy, and hope that others see it too.

    If the plan works, I doubt I’ll be looking at an election of Mervyn King as Prime Minister, but I can almost guarantee to see Gordon Brown, Alistair Darling, Yvette Cooper, Lord know it all Mandelson, Douglas Alexander, Ed Balls, and that prat Miliband & Co, all up on their feet for the Labour family snapshots with smiles on their faces and shouting “We did it”.

    This Slippery Sid approach coupled with a denial of any mention they could be responsible for having ‘removed’ the Bank of England’s oversight of banking is about as low as you can get.

    In the words of Sir Elton John, sorry seems to be the hardest word for Labour ministers!

    Also, where does this leave the UK Govt with it’s Global Plan of co-operation?

    Why would a firm in Europe, struggling to survive without access to loans, not ask why a UK firm is able to compete at an advantage when we’re supposed not to be taking protectionist actions alone?

    In that respect, the government has some explaining to do surely when it says we should avoid protectionism, gives our jobs away and then provides businesses with the very means to compete ‘unfairly’?

  16. Posted March 6, 2009 at 10:32 am | Permalink

    The immortal words of Sibyl Fawlty come to mind when addressing a builder who had made errors of judgement.

    “I’ve seen better organised things than you running around barnyards with their heads cut off.”

    Or am I being too kind?

  17. Blank Xavier
    Posted March 6, 2009 at 10:49 am | Permalink

    Also – with regard to inflation/deflation; I understand that creating currency leads to inflation. The value of a unit of currency is the total wealth in the economy divided by the total amount of currency, so increasing the amount of currency reduces the per unit wealth value of each unit of currency and since the face value is unchanged, this forces the currency prices of all goods and services to rise.

    But the *currency value* of goods and services is utterly, utterly meaingless. It’s the *real wealth value* of these things which matters.

    You could have deflation of the real cost of goods and services falling even while you have currency value *inflation*.

    Seeing the real wealth cost of goods and services fall is a good thing – competition causes it all the time. This is not a problem.

    Right now, currency value deflation is occuring because the amount of wealth in the economy is falling. This means each unit of currency is worth more.

    If you want to prevent currency value deflation when the amount of real wealth is falling, you need to reduce the amount of currency.

    But why do it? this ought to make absolutely no difference whatsoever to anything, because the amount of currency makes no difference to the amount of real wealth.

    There is one effect it will have, however – it seems to me loans do not adjust their real wealth value as currency value changes occur. So although the prices of goods and services simply adjust themselves to the changes in real wealth value of a unit of currency, *loans do not*. So here, inflation and deflation act to transfer real wealth – inflation transfers wealth from the lender to the borrower, deflation acts to transfer wealth from the borrower to the lender.

    Again, though, no actual creation or destruction of real wealth has occurred.

    So all in all, I don’t get it. I can see no benefit of creating money. I can only see a harm, whereby it becomes harder to discern real price changes because inflation is putting noise into the picture.

    So I for one am not surprised it had no impact in Japan.

  18. Stuart Turner
    Posted March 6, 2009 at 10:53 am | Permalink

    Not only did we have the announcement of quantitative easing, but also a further interest rate cut to 0.5%, this alone could cause a flight of capital from sterling to other currencies, further weakening our currency with all the inflationary implications that this entails.

    What interest rate would you like to see adopted to prevent this from happening?

    Reply2% rate plus better control of public finances and reform of the public sector banks

  19. Lola
    Posted March 6, 2009 at 11:00 am | Permalink

    Democracy eh? Pah! Who needs it? It’s so yesterday.

  20. Posted March 6, 2009 at 11:41 am | Permalink

    It’s like, they are getting ready for Red Nose Day, but the joke is on us.
    Printing money has never been the answer!

  21. John Bowman
    Posted March 6, 2009 at 11:42 am | Permalink

    I live in France which is a beat behind the UK in terms of the economic mess, which nonetheless threatens to be every bit as bad, potentially worse, yet here we have no house-price bubble, no personal debt mountain, no bank disasters (yet) although the French banks have ingested some of the sub-prime toxins, banks are strictly regulated, the same usual cautious lending is taking place, a manufacturing base no larger than the UK – in fact slightly less – and of course huge public debt and bloated public sector has been a way of life for the French Republic for decades.

    So if the factors which are attributed to causing the UK’s problems are not evident in France, or for that matter Germany, what is causing the problem in those two Countries?

    What common factor is it that so far seems not to have been identified or reported?

    It seems however that the ECB is following in the UK’s footsteps, reducing interest rates and has not “ruled out” (code for it will) printing more money, so if the problems are different, will the same treatment work?

    Reply: France has different problems. It has to live with a dear currency, and the collapse of export markets.

  22. Publius
    Posted March 6, 2009 at 12:09 pm | Permalink

    I keep reading that one intention of this QE is to get the inflation rate “back up to” the target of 2%. Yet the inflation rate is already *above* 2%, and food inflation, as reported yesterday, has gone up to 9%.

    It is becoming increasingly evident to me that the deliberately hidden intention is to inflate the debt away. This will be politically popular with the feckless… and to hell with the prudent.

    And all this is couched in the context, and language, of restoring TRUST. I ask you!

  23. DrB
    Posted March 6, 2009 at 12:38 pm | Permalink

    As a humble physician I greatly value this site for it’s common and indeed not so common sense.In my ignorance I find QE deeply troubling, particularly as without exchange controls I cannot see how banks can be prevented from transfering the eased cash overseas where they may feel the lending opportunities are better. Are we potentially just generating cash for our competitors?

    • StevenL
      Posted March 6, 2009 at 1:30 pm | Permalink

      That’s kind of what I reckon, not so much generating cash for our competitors, but pushing more cash into the financial system via managed funds and wealthy individual investors. I assumed they would swap the new money for gilts and bonds on the books of their new banks and push them to lend it out in the domestic market to consumers and businesses. From watching Mervyn King last night I got the impression they were just going to purchase them in the market.

      If the government buys gilts it is not really putting that much new money into the system, just reducing it’s debts. If they buy corporate bonds they can hold them or sell them to support the coffers and new money will enter the system via pension funds and wealthy individuals.

      I can’t see how this will support consumer demand. It will surely only help businesses get new or cheaper finance if the investors use the money to buy new or existing bond issuances. If they use it buy shares in Coca Cola how does this help demand for anyhting other than shares in Coca Cola?

  24. Posted March 6, 2009 at 12:40 pm | Permalink

    Have we now got to such an undemocratic pass in this country that a government creating or printing the large sum of £75 billion does not have to announce it first to the Commons in a statement and then allow a debate?

    YES!

  25. chris southern
    Posted March 6, 2009 at 1:04 pm | Permalink

    We haven’t had democracy in this country for a while now.
    The oligarchy cares not for parliment as that would stand in it’s way and prevent further asset stripping of UKPLC.

    Just make sure that all the ballots and records are kept safe in the next general election and not “misplaced” like happenend in various scottish elections.
    as this lot won’t want to leave, not at least by the whim of the “little” people.

  26. Brigham
    Posted March 6, 2009 at 3:47 pm | Permalink

    This money-printing without parliamentary debate is just another addition to the “bee in my bonnet” about lack of democracy. Couldn’t Cameron be persuaded to write to the Queen asking her to dissolve Parliament. Even if nothing came of it, it would show how disgusted he is with this dictatorial lot.
    If something is not done soon I wouldn’t be suprised if we don’t get some sort of revolution.

  27. Robert
    Posted March 6, 2009 at 4:39 pm | Permalink

    In an earlier post on this blog, I quoted Margarget Thatcher on Hayek. Here I attach a quote from Hayek, written during the Great Depression. It is astonishing how accurately it describes the perilous path being taken by Brown & Co. (The quote is taken from an article by Thomas E. Woods http://www.amconmag.com/article/2009/mar/09/00012/ . I urge you all to read it.)

    Hayek’s quote: “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. …

    “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection—a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end. … It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.”

  28. Robin
    Posted March 6, 2009 at 4:57 pm | Permalink

    Cameron’s future role is pretty much determined now – he has to improve public sector efficiency in the same way Thatcher improved private sector efficiency. He has to do this because the public sector is crippling the UK in the same way that the private sector crippled the economy in the 1970s. Cameron must take on the civil servants in the same way Thatcher took on the unions. Before he comes to power he must take a symbolic stance against the civil servants in the same way Blair took a stand against Old Labour. He must draw the lines.

  29. Eleanor
    Posted March 6, 2009 at 5:15 pm | Permalink

    Call me stupid but I am just scared. I was born in the early thirties in the East End and remember it well. My father rolled cigarettes from fag ends that we children picked up in the streets and that was just one of the indignities that I care to recall at present. This present Depression can only be worse than anything that I can remember.

    Be very afraid!

  30. Adrian Peirson
    Posted March 6, 2009 at 6:13 pm | Permalink

    Here’s how you get it :-

    The Global Banks are the real Power, this is why real decisions are made in Secret Bilderberg Meetings attended by people like Osborne, Brown, Blair, King etc.

    Westminster is a charade, especially the despatch box, ( you sense that already, so few real mistakes under such pressure )

    They are stealing the nations wealth upwards into their vaults so that you and I are debt enslaved to them and the can usher in their New Neo Fuedalistic World Order.

    It’s really quite simple, you are looking for logic, legality and morality in all of this, there is None, there is only theft, fraud, despotism, Tyranny hidden by linguistics ( spin ) but you refuse to accept this simply because this cannot be happening, not in Britain, But it is.

    You must wake up from this trance that the world you live in worls according to the laws of fair liberty and freedom, it does not, and has not for a very long time.

    It is theft, lies, deceipt and tyranny.

    http://www.youtube.com/user/campaignforliberty

  31. Matthew Reynolds
    Posted March 6, 2009 at 7:20 pm | Permalink

    This policy is mad ! What we should do is cut out the £100 billion p/a of waste as uncovered by the Tax Payers Alliance ! You could slash corporate taxes to a 10% flat rate and balance the books.

    A zero budget deficit and a competitive tax system could hardly make things worse since a damaging business tax policy and soaring public borrowing have helped make things worse !

    Phasing these policies in over four or five years is the kind of agenda that will restore growth & stability in the UK economy as surely the evidence suggests ?

  32. Alan Wheatley
    Posted March 6, 2009 at 7:57 pm | Permalink

    I work and socialise in what might loosely be call the “Classic Car” world. I have a classic car that needs a lot of work to put it back on the road, and am in the fortunate position of having the capital available to spend on this project. Speaking to friends and contacts it seems that all businesses in this sector are busy.

    Some of the work requires a specialist, of which there are not that many in the whole country. Having enquired of more than a dozen, all tell me they have plenty of work in hand and could not start on my car for several months, in some cases not for a year.

    From this I conclude two things. Firstly it is pleasing to find a sector of British private industry that is busy. Secondly that a good many people, like me, think that at least some of my money, previously “lent” to the banks and the like, would be better off invested in my old classic where it will be safe and offers the prospect of a better return should I ever want to sell it.

    Of course, there is a limit to how long such activities can be sustained. But every little helps, so I believe somebody says.

  33. Socrates
    Posted March 6, 2009 at 9:04 pm | Permalink

    What’s £150bn between friends? – how long will it be before some socialist stalwarts point out that this “free” money could be used to pay for a gamut of good causes. After all, why go through all the pain of raising taxes when you can print your way into popularity! Then again, why stop at £150bn – the sky’s the limit.

    It would be interesting to know how much they have debased our currency but it seems impossible to get at any sensible figures about money supply. Any answers?

  34. Posted March 6, 2009 at 10:11 pm | Permalink

    JR writes:

    “Every Thursday the government holds a so called “topical debate” without a vote to require most MPs to be present . If they chose genuinely topical matters that could be a good thing. Instead they usually choose the government’s spin topic of the week. They do not let the Opposition ever choose their preferred topic. Yesterday should have been a debate on the economy and money. Of course it wasn’t. The Opposition asked me to speak in a full day Economy debate to be scheduled in Opposition time next Tuesday . I willingly said I would. Subsequently I was told the Chancellor was not available to take part, so the debate has had to be postponed”.

    JHL writes in response:

    Accepting that there is a economic crisis and that it is an important topic worthy of debate. However, don’t go burying your head in the sand on this one…

    As you are probably aware, the European Election takes place on 4 June 2009. Under EU law, all EU citizens can vote in this election. EU citizens are those who reside within a Member State of the EU. Convicted prisoners are EU citizens. The government’s view is that convicted prisoners are disenfranchised by virtue of s.3 of the Representation of the People Act 1983. However, this statue is incompatible with EU law, which the convicted prisoners rely upon as superior authority. The UK cannot get around Matthews v UK, which decided that those citizens in Gibraltar are members of the EU. The UK passed legislation to implement the ECtHR’s decision.

    60,000+ citizens of the EU being denied the vote by the governments failure to legislate. If prisoners launched claims for damages, the bill to the taxpayers could be anywhere between £60M and £120M. At this economic time, it beggars belief that the government thinks the taxpayer will welcome this extra burden.

    In Hirst v UK (No2):

    “42. The applicant adopted the terms of the Chamber judgment,
    submitting that the Government’s allegation that it would require the radical revision of the laws of many Contracting States was misconceived as the judgment was based on the specific situation in the United Kingdom and directed at a blanket disenfranchisement of convicted persons which arose
    not out of a reasoned and properly justified decision following thorough debate but out of adherence to historical tradition”.

    The government’s consultation exercise was designed to stall and stifle debate in Parliament on this topical issue. Almost 5 years is too long not to debate this topic.

  35. Posted March 6, 2009 at 10:46 pm | Permalink

    I believe that the recovery has to be led from the private sector.
    I run a small 3 person company doing pumbing and heatiing work in the domestic marketplace. The HMRC is killing me in this awful quarter, tax DOES have to be taxing!!! Especially after more than 10 years of a labour government. I am getting hit with income tax, contractor tax (20% off my labour before I see the money) and a Value Added Tax bill. The HMRC has extracted £14K in the last two months. Due to the dramatic fall off in business in 2009, now I cannot pay wages because of the tax take.
    Even the silver generation have stopped fixing up their homes now that the interest rate has dropped so low on their savings.
    The government has got too large in our little overcrowded island. The labour public sector is way, way out of control. Government interference at all levels of public office has ensured that market fundamentals are no longer working, oversupply of doctors should mean a lower priced doctors, but no it means a higher saleries. Council leaders, bankers and polititions awarding themselves hugh saleries and bonuses and expenses. Publically funded broadcasters awarding huge saleries to people like Johnathan Ross, whilst the independant broadcasters are going to the wall. No wonder the BBC are so labour centric, all with a view to keeping them sweet so they can keep their outdated funding model in the rapidely changing media World.
    Water companies, energy companies and local authorities often have more than doubled their fees in the past 10 years, all in a decade of supposedly low inflation.
    I have always been in the private sector, in the Conservative years, this was the best place to be, now under labour, I can see I should have gone over to the other side. We have a lot of un-winding to do in the public sector after the labour lot exit at the next election.
    To get this country back to being a economic powerhouse we have a lot of stripping out to do.

  36. Posted March 6, 2009 at 11:02 pm | Permalink

    Whoops, hit the wrong key! To finish, I want to say the printing of money will pour salt on the wounds of everyone with savings right now.
    QE will send more and more people away from the pound and to safe havens like gold, which does no economic recovery any favours. Buying Gold looks like the best bet to the individual right now.
    QE largely based on buying government debt is a distinct mark of desparation. Then again most of us are desparate to see the back of our economic miracle worker, Mr Brown and his Darling.

  37. mike stallard
    Posted March 7, 2009 at 12:16 am | Permalink

    As I travel round the Far East to Australia and Bangkok, I do not see any form of price inflation, house prices falling, or large numbers of people on the dole who were not there before. In fact it seems pretty much the same to me as it was a year or two ago.
    Why? If the crisis is global, then, surely, it ought to be global?
    I suspect that America and China are in a difficult relationship. We English (and how long will we be allowed to call ourselves that?) are caught up in the American bubble.
    The government is behaving very dangerously in screwing down the safety valves.
    First of all, it does not allow democratic discussion. This means that its thinking can be slovenly in a crisis. It also makes people who have not had their say very, very angry.
    Secondly, it means that ignorant tinkering can make the downturn a lot worse.
    75 billion, let me remind you is 10 billion pounds more that was spent in 2008 on the repayment of government debt together with the defence budget in a time of war in two theatres.
    And it isfar too little to make any difference to the banks or to the economy.

  38. Derek
    Posted March 7, 2009 at 3:17 am | Permalink

    Since Gordon’s started printing money perhaps he could borrow a catchy sound bite from Obama. ‘Change we can’t believe in’.

  39. Steve Cox
    Posted March 7, 2009 at 5:43 am | Permalink

    Economists have been telling us for decades that it takes 18 months or more for the effect of interest rate changes to become apparent in the broader economy. If you look at the manner in which the BoE MPC has reduced interest rates this time, they started off rather timidly, with a 0.25% cut in December 2007. This delicate approach continued for the next 10 months, with the base rate only being cut by a cumulative total of only 0.75% by September 2008. Hardly a massive easing. The big base rate cuts started in October 2008, and in the five months between the first 0.5% rate cut and the latest one this week, the base rate has been hacked from 4.5% in October 2008 to just 0.5% now, a total of 4% in a very short space of time. And therein lies the deep inconsistency that troubles me so much about what many commentators are saying. In effect, the base rate cuts from December 2007 until September 2008 were merely fiddling around at the edges. The deep cuts since October 2008 have not even had six months to work their magic on the economy. So how can anybody conclude that “interest rate reductions are not working”? From all that the dismal scientists have told us since I was a student, we should have to wait some 18 months from NOW before we can truthfully conclude that rate cuts aren’t working.

    I’m afraid that I regard QE as a primarily politically-motivated action. Brown knows that without some pretty significant green shoots, he hasn’t got a snowball’s chance of his party being re-elected. But he also doesn’t have 18 months before the next election in which he can wait and see if interest rate cuts work. Hence the huge political pressure that has been applied on the BoE by the government to start the printing presses rolling now – long, long before we can see how the monetary easing to date has really panned out. If things do look better a year or 18 months down the road (and I for one have no confidence that they will), then how will we be able to tell if it was the delayed impact of the savage base rate cuts in the last five months that is beneficial to the economy, or if it was the effects of QE that did the trick, or even something else like a strong recovery in the US? We won’t be able to, is the simple answer. Given that, how will the BoE or anybody else know what to do if a sustained recovery does appear; should they cut back on QE, or should they start raising base rates, or a combination of these, or indeed something else? By starting QE before we have given interest rate cuts a chance to work, we have effectively thrown sand in our eyes. Very little is immediately clear in the murk of revised economic and financial indicators and statistics, but by starting with QE now, we are all becoming blind in a land where the one-eyed man thinks he’s the king.

  40. TomTom
    Posted March 7, 2009 at 6:30 am | Permalink

    It is alarming that Parliament is now treated as Charles I treated it – when seeking funds. It is truly amazing that the British Government can act like Vladimir Putin in forcing mergers such as Lloyds-HBOS and thereby bring private businesses under State control; or simply debase the currency – and Parliament is treated like a retirement home of the comatose while the troika of Brown-Mandelson and Vadera – run the finances of the nation rather like Eva Peron

  41. savonarola
    Posted March 7, 2009 at 7:23 am | Permalink

    This is my simplistic view of matters.

    UK economy was driven by consumer expenditure, say 70%.

    UK consumers employed leverage on an unprecedented scale for past decade – credit cards and home equity. Govt expanded its payroll based on tax receipts rising and economy expanding ad infinitum.

    UK savings ratio in 09/08 at -0.9%. Asia average 12%.

    UK average earnings rise by around 1% over this period. GDP growth averages close to 3%. Real sustainable growth just 1% balance created by debt personal and Govt.

    Why would low interest artes and printing money encourage a fearful public to spend instead of save. Until we have a few years at savings ratio of 6% the economy will stutter along.

    Politicians and King to his shame are playing politics and not sound economics with all this nonsense of flooding us with cash and low interest rates. Put rates up and get people saving is the logical solution.

    Reply: I broadly agree – the debt part of the growth was a bit lower than you suggest. The savings rate will rise this year despite the ridiculously low rates, because people will be forced into repaying debt which counts as savings.

    • adam
      Posted March 7, 2009 at 2:17 pm | Permalink

      But imagine the economic chaos in the short to medium term of some of that 70% consumption going into saving.
      That would help the country in the long term but it wouldnt help Gordon now.

  42. Posted March 7, 2009 at 9:15 am | Permalink

    Without any reference to parliament and in effect ripping up the European Directive which dictates no state interference, the British Government has today nationalised Lloyds TSB with a 63% controlling share in the mighty bank which has mighty problems. The significance of this decision has many political overtones and questions, which need answers from government. What is the new relationship between government and the bank. Does it intend to exercise control of its board. Who will head the bank to ensure the taxpayers interests are put first. How does this affect our relationship with the European Union. Under what authority did the government give itself the power to nationalise the banking industry. Who will pay for this and how. Will the government now say the Bank of England is independent. Will the government now use its muscle as state sponsor of this bank to make it lend to businesses and to individuals or will it continue to say we’re in a global free market and that the market will decide. Will the British Govt now take responsibility for failure of the banking industry and henceforth for its further decision making and will it still say “We saved the banks”?

    Reply: All very good questions. They gained the authority of Parliament in the famous 45 minutes debate on a Money resolution. I reported it on this site – 45 minutes to spend £1 trillion, when I and a few others opposed them and voted against.

  43. TCD
    Posted March 7, 2009 at 3:28 pm | Permalink

    What you don’t mention is that Osborne intends to vote in favour of this QE. Will you be allowed to vote against, or do you have to tow the line? My own feeling is that £75 billion will turn out to be a drop in the ocean, large as the sum already is. This will prompt further QE until the currency really collapses. Better not to start down this road at all. Can you give us an idea of the relative sizes of the various measures taken?
    Reply: there will be no vote on the QE.
    The QE at £75 billion is quite small compared with the £3 trillion at risk in the two big banks they have bought, or the £1 trillion bank rescue packages

  44. Roger Brady
    Posted March 15, 2009 at 8:31 am | Permalink

    In a wartime attempt to undermine the economy, huge quantities of sterling notes were printed in Germany for circulation in Britain. Will the present Government succeed with quantitative easing where the Nazis failed?

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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