Who authorised £50,000,000,000 more?

£50,000,000,000 is a lot of money. Yesterday taxpayers were told they would spending that much on buying up some more financial instruments to help the banking system.

£50,000,000,000 is more than this year’s departmental spending on “children schools and families”. It is considerably more than the Transport, Home Office, FCO, International development,Energy and Climate Change, Business, Environment and Culture and Media and Sport budgets put together (Budget book p 241). Parliament exists to vote on spending and to cross examine Ministers about their priorities with our money. It is there to question them on the efficacy of their spending. Yesterday we remained locked out from Parliament, which remained silent as this money was announced.

The public witnessed a contradictory presentation of the extra spending. A junior Treasury Minister fielded media interviews, telling us that this was a decision of the Bank of England. If it were truly a decision of the Bank, why then didn’t a Bank spokesman come on to explain it? The Minister was of course not telling us the truth. The Bank only had permission to spend an extra £25 billion. All quantitative easing money has to be approved by Ministers, who should therefore have the courage of their convictions and do the job of explaining and defending it.

The Chancellor himself must have been involved in the decision. He needed to sign a letter authorising an extra £25,000,000,000 of quantitative easing. He had personally authorised the first £150,000,000,000 and had told Parliament about it after the event.

The media interviews I saw failed to ask the important questions about this policy. Had Parliament been engaged we could have asked the following:

1. Why have you changed your mind about much quantitative easing is needed?
2. How long should we allow for QE to work? Aren’t there lags?
3. Why hasn’t QE led to more lending as the Bank at first implied it would?
4. Why does the FSA demand banks be more cautious and lend less when you want them to lend more?
5. Do you now have a money supply target? If so, what is it? If not, what is QE all about?
6.Why are you sure this has no inflationary consequences? For how long do you expect inflation to be below target?
7. How will you bring QE to an end?
8. What do you think will happen to interest rates on mortgages and loans to companies when you start selling off all these bonds taxpayers have bought?
9. Doesn’t requiring the Bank to be pessimistic about our prospects to justify this extra spending undermine the green shoots?
10. Is buying bank shares, dodgy loans and bonds the biggest poison pill ever bequeathed to a new government?

Yesterday the government must have been fully involved in this important decision. The immediate consequence was to cause the Bank to issue gloomy spin, offsetting several weeks of bullish spin which was talking things up. We need a clear explanation of why they are doing this and how they will judge its success. If they are now conventional monetarists, they should set a monetary target and seek to hit it. If they looked as if they knew what they were doing it would help instil more confidence more quickly.

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23 Comments

  1. backofanenvelope
    Posted August 7, 2009 at 6:37 am | Permalink

    “If they looked as if they knew what they were doing it would help instil more confidence more quickly.”

    But they don’t know what they are doing, do they?

    • Demetrius
      Posted August 7, 2009 at 12:22 pm | Permalink

      In part they do. A good deal of this tranche of money will find its way offshore to bolster the capital reserves of some of the dodgier banks activities, and into various Trusts belonging to people with extensive connections to the government of one sort or another. The government hopes that some will find its way into pensions funds, who can be required to buy government stock, and enough equities to keep the FTSE afloat, and of course, the London property market. You and I wil be doing the paying.

      • Waramess
        Posted August 8, 2009 at 9:38 am | Permalink

        There is currently 161 billion standing in the bank’s reserve accounts with the Bank of England.

        No wonder QE is having no effect, the proceeds are all going into accounts with the Bof E, and all the hocus pocus talk wheeled out by the politicians can not obscure plain facts.

        I would be very interested to be enlightened by someone why, if QE is supposed to stimulate spending, it is best done this way and not through tax cuts?

        Yes, if we want to play this stupid game, print the money for the government to spend on their usual commitments and cut taxes that would otherwise be raised for that purpose.

    • Adrian Peirson
      Posted August 8, 2009 at 3:08 pm | Permalink

      They know exactlywhat they are doing, the EU cannot have a strong independant Britain off it’s shores.
      It wouldn’t surprise me if we are turnd into an Offshore penal colony for the EU.
      Oh and hundreds of Nuclear Power stations to power the EU, that whay if there are any mishaps, the effect on the EU Mainland is lessened.
      None of this is down to stupidity, what is going on is beyond stupidity, therefore it is all by design.
      Britain is being destroyed deliberately.

      • StevenL
        Posted August 8, 2009 at 11:29 pm | Permalink

        “It wouldn’t surprise me if we are turnd into an Offshore penal colony for the EU.”

        You mean like the French villain tries to do in ‘Johnny English’? Where do you get these ideas from?

  2. alan jutson
    Posted August 7, 2009 at 6:53 am | Permalink

    John

    You must have realised by now that this Government doesn’t do Parliament, it just does as it likes.

    Answering questions, no no, we just read statements.

    Sadly this is what can happen when one Party has an overall majority, and then sticks two fingers up to debate.

    We hope that we only have another 10 months of this Dictatorship.

    We can only hope that the next Government will be rather more honest with the people.

    £50,000,000,000 and I did not even pass go and collect my £200. Anyone got a get out of free jail card !!!!!

  3. Mick Anderson
    Posted August 7, 2009 at 6:59 am | Permalink

    Of course they know what they are doing. It’s just that everybody in the country except Mr Brown is far too stupid to understand any of this.

    In the unlikely event of the Government actually answering a question about these issues, they’re hardly going to quantify it with real numbers. That’s too much like giving ammunition the the enemy (anyone who isn’t in the bunker).

    It’s not about solving the problems that they created, only about trying to make political capital from whatever situation they find themselves in. No cost is too high to reach for the remote chance of Labour not losing the next election.

  4. Brian Tomkinson
    Posted August 7, 2009 at 7:45 am | Permalink

    Those making these decisions must be held to account now. It is simply unacceptable to print even more money with no questions asked. Why doesn’t George Osborne write an open letter to the Chancellor (published in the newspapers) demanding answers to your questions? If Darling is available to authorise the creation of an extra £25,000,000,000 he is available to explain why and answer questions of detail. Until someone explains a convincing alternative I shall believe that this is simply a cynical device to allow this dreadful government to finance its debt and carry on its profligate spending. This will be followed by a hefty dose of inflation to inflate away the government debt whilst impoverishing the prudent.

  5. Adam Collyer
    Posted August 7, 2009 at 8:01 am | Permalink

    I think we already know the answer to number 8. The government has absolutely no intention of selling off those government bonds ever.

    QE is designed to finance an unfinanceable government deficit.

    • Waramess
      Posted August 7, 2009 at 8:53 am | Permalink

      Quite agree and they do it at our expense by eventually leaving us with pounds devalued by inflation.

      It’s no more than a political game, they treat our hard earned money like confetti and, by their own admission, they have no idea of the consequences, and more importantly the unintended consequences of either QE or near zero interest rates.

      They don’t care because they know they won’t have to clear up the mess; just sit on the sidelines jeering whilst the Conservative administration struggle to make some sense of the economy

  6. Citizen Responsible
    Posted August 7, 2009 at 8:27 am | Permalink

    Good question Mr Redwood. I was stunned when they announced on the news another £50 billion of QE and there was no statement about this being the last of it. I struggle to understand the motives of this government. They always seem to reach for a temporary pain killer, trying to treat the effect instead of treating the cause. And all administered with a large dose of deceit.

  7. Acorn
    Posted August 7, 2009 at 9:00 am | Permalink

    The exchange of letters (Darling/King), on the expansion of QE is at:-

    http://www.bankofengland.co.uk/publications/news/2009/063.htm

    I have asked this question before on this site. Which Act of Parliament allows the “executive” to make this decision; without the agreement of said parliament? Does a Finance Act allow the executive to spend whatever it likes? What are Supply Bills for?

    TMO blogger is predicting QE will go to £300 billion; I hope he is exaggerating. Will we be dependant on the IMF or the BIS to put an end to all this, or just plain vanilla inflation?

    http://www.marketoracle.co.uk/Article12567.html

  8. oldrightie
    Posted August 7, 2009 at 9:17 am | Permalink

    I have been making the point for some time that the Government is broke yet has a cash flow requirement for The Public Service of enormous numbers, together with a benefit payments bill of rising debt to service. They really have run out of money and this printing of, soon to be, worthless money is to service the ever rising shortfals.
    IF they were to win the next election they would introduce controls virtually taking every persons money under their direct influence. (As opposed to the 60% already taken in taxes).
    As, most likely they will lose, all the nightmare and draconian efforts to rescue the ship of state will be theirs to carp, criticise and gloat over others’ misfortune. They are socialists. Nothing but total dominance is available to their mindset. EUSSR here we come, via bankruptcy.

  9. Martin Cole
    Posted August 7, 2009 at 9:40 am | Permalink

    The following is from the Telegraph report on the RBS results:

    “Approximately 70pc of the impairments and write-downs incurred in the first half – £5.25bn – are attributable to assets covered by the Asset Protection Scheme, the state-backed “toxic” debt insurance scheme, RBS said. The “APS remains essential to RBS to give us additional resilience during the time it will take to regain standalone strength”, the bank said.”

    As I have been commenting (apparently alone) to all the main media outlets since Parliament rose, the National Audit Office failed to sign off on the financial results of HM Treasury as Parliament had not approved the APS, yet here is more money going to RBS in what must surely be unlawful payments.

    Surely Parliament must be recalled to either halt or authorize these huge payments?

    The NAO report is online but was swamped by many other shocking reports only released as Parliament rose for the recess. Are no MPs concerned at this trashing of their status?

  10. Simon D
    Posted August 7, 2009 at 9:48 am | Permalink

    This sort of thing is the death knell of “democracy”. What is the point of electing MPs if they are not allowed to debate decisions of this magnitude and importance? Why was parliament not recalled? The fact that MPs are currently on a three month holiday during which such decisions are made by default is laughable.

    Meanwhile a supine media and BBC lets this important issue pass with hardly a mention.

    • Liz
      Posted August 7, 2009 at 1:10 pm | Permalink

      Dear Simon,
      It is pretty obvious by now that this Government does not believe in democracy in any shape or form. They get away with with these undemocratic actions bcause nobody challenges them – neither the opposition front benches nor most of the media. Because they get away with things they take even more power away from the electorate. How will a Conservative Government change this situation ? They have not said. It will be very tempting for them to carry on in this undemocratic way and the lack of fuss they are making now does not bode well.

      • Waramess
        Posted August 8, 2009 at 9:44 am | Permalink

        It certainly seems like it, doesn’t it? I for one would be interested to hear John Redwoods response to this post

  11. figurewizard
    Posted August 7, 2009 at 10:04 am | Permalink

    You cannot borrow your way out of debt at the best of times. When that borrowing is directed towards preserving the cuurent level of public expenditure (50% of GDP and counting), or even to increase it as Gordon Brown has so often claimed at recent PMQs, this becomes even less likely.

  12. Neil Craig
    Posted August 7, 2009 at 10:05 am | Permalink

    I appreciated the way the BBC News reported this as being necesary because nobody knew what had happened to the last £125 bn or what effect it had had. Sometimes I think I am living in a madhouse.

  13. oldtimer
    Posted August 7, 2009 at 10:13 am | Permalink

    The BofE pamphlet on QE says it is to keep inflation close to 2%. Yet my experience is that inflation on everyday spending is already above that rate – I do not believe the official inflation data is relevant to ordinary mortals. I conclude that it is for another reason – to fund HMG, which is unable to raise money any other way, and to give an impression of economic recovery ahead of the next election..

  14. Paul
    Posted August 7, 2009 at 12:06 pm | Permalink

    At a wild guess, this £25bn is required to prop up a gap in the current finances, so that His Brownship can drone on at PMQs about having balanced the books or some such fantasy.

    Socialism always fails when the money runs out (I think Mrs T said this first) ; when it fails there is no plan B or even thought of a rational discussion or planning, just running around in wild circles trying to desperately patch it up.

    Socialists cannot conceive that their plans do not work. They work from beliefs, “what is fair” and idealised positions not reality. They just cannot grasp that there is *no money left in the pot* (let alone the overspending) and cuts will have to be made.

    However badly their plans have failed (and can anyone think of a success ? Is there anything from 1997 to today worth keeping ?) there is always the excuse that they just need to do it a bit more and have a bit more money and everything will somehow work out.

  15. Mike Stallard
    Posted August 7, 2009 at 4:10 pm | Permalink

    Richard Adams on Labour List (He works for the Guardian:
    “So, in English: the two forces pulling on the economy are the beneficial effects of the stimulus (tax cuts, government spending, lower interest rates and a weaker pound), versus the deadweight of the banks still not lending and consumers and businesses still laden with debts. Which side wins out isn’t clear, but there won’t be any inflation for a while.”

    Notice from this statement:
    1. It is all the banks’ fault. (This could account for all the hoo ha over bonuses this week.)
    2. Government spending is a good thing in itself. (And has nothing to do at all in any way with QE).
    3. Inflation has been conquered for the moment at least.
    4. The economic stimulus has been provided by the brilliance of Gordon Brown and his team, irrespective of parliament, the Bank of England, etc. etc.
    5. Taxes have been reduced quite considerably. (Sez who?)
    6. The weak pound is a good thing, but inflation is conquered (see 3 above). (Isn’t the pound actually getting stronger?)

    And every single one of your questions still stands unanswered by the very people who ought to be discussing it, our elected representatives in parliament.

  16. Adrian Peirson
    Posted August 8, 2009 at 3:03 pm | Permalink

    It’s called enforced enslavement to the Communist State Machinery, they set up £100 Billion per year Non Jobs / Quangos, Bailout the Banks to the tune of £100 Billlion plus, the EU, let’s say another £50 Billion per annum.
    Oh and by the way, our children get to have this ‘Borrowed’ expenditure put on our their Tax bill.

    It’s enslavement pure and simple, most of these people we are paying for do nothing Positive or Productive for our society, their Job is Purely to enforce the states rules upon us and take our Money.

    What exactly do all these civil servants do.do they build cars, electronics, ships, do they farm or fish, no, they simple dream up rule to steal money from thise few in our society that do.
    Perhaps if we all were allowed to fish, farm, build something of value, something we could trade other nations with, we wouldn’t have suffered from a the effects of the World Banking Casinos wouldnt have been able to bring us to our Knees.
    But that was always the intention.

    Take off all regulations, allow Bankers to Gamble with our money, fraudulently then say, oohhh, Look Capitalism has failed, we need more Socialism.

    Capitalism hasn’t failed, in fact, we never had it.

    This extra £50 Billion is Theft from our children, at gunpoint no less by the Political elites.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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