End money printing today

Will the MPC make honest people of us at last? With inflation well over 3% and rising it is high time they said “No” to more easy money for a government awash with too much debt and wasting far too much money. They should grasp that recovery requires a private sector, export and savings led recovery. That in turn requires a government spending sensibly and gaining us some better value for money. Someone today on the radio said he could not see how QE led to inflation. He should try looking at how the government overpays for all too many things and how it also slaps extra taxes on which drives prices up further.

The MPC’s boom and bust and attempted boom roller coaster ride has done us great harm. They have encouraged or allowed a government to debauch the national accounts and run up horrendous debts. Today they could start to do the right thing, start to get the UK back onto a prudent and well managed path. They also need to have words with the FSA and Bank over why credit is now so lop sided in our economy, and why the UK’s state banks cannot and will not help small business.


  1. Norman
    February 4, 2010

    I heard similar sentiments from an expert brought on to the radio this morning, if I recall he was a shadow member of the MPC, whatever that is. He also said that inflation is nothing to worry about as inflation only becomes a problem when there is a vicious wage-price increase circle and as wages aren't rising there is no problem.

    This is good news? Wages are staying the same while prices are rising, and these are the people in charge of money supply.

    I fully expect the presses to be cranked up again today – Mr Brown so far has shown no evidence that he can contain his penchant for spending vast amounts of other peoples money.

    1. waramess
      February 4, 2010

      There has been a view amongst some economists that inflation is (a function of) a general increase in prices. Less popular but more succinct is that inflation is an expansion of the money supply.

      It is interesting to note that prior to the present recession there was no general increase in prices even though there was a huge expansion in the money supply.

      Cheap Chinese goods were cited as one of the principal reasons.

      More importantly we had huge bubbles building up as a result of the increased money supply. Housing was but one example.

      QE will cause inflation even though it might not be apparent in a general rise in prices or of Unions chasing higher wages.

      I'll bet that rampant inflation once again comes and bites them up the bum before they even think about reversing QE and by that time it will be too late.

  2. Colin D.
    February 4, 2010

    Re "someone today on the radio", the answer could be vested interests versus common sense. The latter is in short supply these days. One's very instincts decree that QE must, sooner or later, result in inflation.

  3. Javelin
    February 4, 2010


    the reason banks don't help small business (and I work at an investment bank – so this is from the horses mouth) is that I work for a business. And as a business I look at the UK economy, I look at the red-tape and taxes and I think … I'm going to invest my money else where. If your typical small business was a financial instrument with all the over heads and taxes then nobody would buy it.

    1. Mark K
      February 4, 2010

      You are right, as a medium business owner (£10M annual turnover, of which £8m is exports) I have recently decided to move our company out of the UK. If we move out of the UK to Ireland or even Holland, my after tax personal income will increase by more than 150% -it's a no-brainer.

      1. alan jutson
        February 4, 2010

        Mark K

        Just out of interest.

        Are you physically moving the business to Ireland, or just registering a holding Company in Ireland.

        Reason for asking, we have a family member who is looking to possibly do the same with their Company (similar turnover).

        Any help (sources of info etc) or comment appreciated.

        Thanks in anticipation.

  4. Kevin Peat
    February 4, 2010

    I'd have thought the concept of QE leading to inflation was a simple one. Print more money and each note becomes worth less.

    Perhaps the chap was alluding to the fact that it has not surfaced on the high street yet. Well it has, actually. In quality and weight of goods.

    Off topic. I am so dismayed. This really needs to be corrected:


    This is so misleading. Reporters are stating "Improved monitoring by social workers and better communication between health visitors, doctors and police are said to have led to the fall."

    Doubt-less the social workers, health visitors, doctors and the police are allowing this misconception to be spread. The simple reason why violent child deaths have fallen 40% since 1975 is that parents no longer let kids out of their sight. We have lost faith in the authorities to protect our kids – and ourselves for that matter.

  5. waramess
    February 4, 2010

    "Today they could start to do the right thing, start to get the UK back onto a prudent and well managed path"

    You are being far to optimistic I fear. So far as I am aware there is no sign of movement in the economy other than that generated by QE and, with no underlying growth how can these morons even contemplate a prudent recovery.

    We need to see industrial growth, banks lending money and people spending money before anyone can look forward with optimism. I have little doubt the government can see QE has failed to work and that we now face a slide back into recession.

    If they win the election the Tories will at best be spending all their time fighting fires, with little chance of pulling the economy out of recession.

    The situation can be saved only by allowing the markets a free hand to deal with the problem and that will mean less regulation and less taxes.

    We must forget the cry of the socialists that the free market got us into this mess. It didn't. Crap monetary policy was the principle cause and we should do well to remember it.

  6. […] in Economics. Tagged: Economics, John Redwood, Quantitative Easing. Leave a Comment Well done, John Redwood: Someone today on the radio said he could not see how QE led to inflation. He should try looking at […]

  7. Tony
    February 4, 2010

    I was warning of the inflationary risks with QE when the policy started.

    I am a firm believer in taking our medicine when it was necessary. Once it is over, it is over.

    Successive Labour governments seem unable to learn that the cake is only so big and no matter how you cut the dam thing it won't feed any more people. If you borrow from somebody else's cake to increase the number of cake cutters then somewhere along the line you have to pay it back.

    You cannot magic money from thin air and the unprecedented ballooning of the public sector, with Homo-sexual Bricklayer Co-Ordinators and Lesbian Boy Scout Outreach Workers or whatever, is merely compounding the problems. It is a house of cards simply waiting for the collapse.

    Of course it will be those nasty Tories that have to do it……yet again.

  8. English Pensioner
    February 4, 2010

    The trouble is that the MPC was appointed by this government, and whilst they may flex their muscles occasionally in a pretence of independence, they are all government placemen and will do as the government wants. How one overcomes this, whatever party is in power, and ensures the MPC's true independence, will remain a problem.
    And anyone who suggests that QE doesn't lead to inflation should go and take a good look at the decline of Rhodesia into present day Zimbabwe where they have just printed money to pay their supporters.

  9. Stronghold Barricade
    February 4, 2010

    The MPC’s boom and bust and attempted boom roller coaster ride has done us great harm.

    Then why is "call me Dave" saying he will continue with the same structure and target?

    Are you saying that the conservatives might destroy the triumvirate and also change the inflation figure to the one that actually does include house prices to avoid the kind of asset bubbles that occured under Bliar/Brown?

    So what is the party disctinction?

  10. Cityunslicker
    February 4, 2010

    The way you put this John makes it sound as if QE was not the answer at all. The way to achieve your path would have been to allow a mcuh steeper fall in Sterling.

    Perhaps this will happen anyway, in which case QE will have proved to be a total waste of time. I am not sure I agree re inflation though, which is a backwards looking indicator. None of the City economists think we will get it, they have been wrong before, but rarely all at once. Where is the wage growth to come from? Where is the pent up demand?

    Reply: The point is we now have inflaiton – it may well subside later this year as wages should start to falter or fall in the public sector after the election.

  11. Steve Cox
    February 4, 2010

    I completely agree, John. Plus a 0.5% increase in base rate would help shore up the badly sagging pound and start the battle against inflation, which will only be a longer and harder fight the later it is left. The so-called 'deflation hawks' (aka 'misguided incompetents') on the MPC, in the media and in professional positions should all be hanging their heads in shame for what they have allowed this wretched government to get away with.

  12. Steve Baker
    February 4, 2010

    "The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.”

    — Hayek, 1974 Nobel Prize Lecture

    In other words, hold tight.

  13. Ian Michie
    February 4, 2010

    Greetings John,

    The lagging inflation that always comes when socialists start the printing presses could turn out to be a tsunami of "brown" stuff to really hammer the savers & the few remaining economically active taxpayers in Great Britain.

    The fiscal lunacy of the Prime Minister – placing the yet unborn British taxpayers in a spiral of inter-generational debt – should be his enduring political legacy.

    And yet, unfortunately, there is no credible Conservative answer or policies to deal with the immense & growing problems UK PLC has.

    When will the real Conservative Party stand up & insist on fiscal reality instead of short term pandering to the opinion polls, the Guardian & the BBC?

    I for one am not prepared to vote for Blue Labour – we could not afford another Parliamentary term of this fiscal lunacy.

    Best regards

  14. Ian Jones
    February 4, 2010

    QE has changed the value of money in the UK. Its no longer credible to base investment and savings decisions on a stable pound. The QE policy is too easy and pain free for it not to be used again…. the genie is out of the bottle.

  15. Stuart Fairney
    February 4, 2010

    "Someone today on the radio said he could not see how QE led to inflation"

    I am honestly bewildered as to how one could conclude anything else? Surely even a cursory examination of a range of fiat currencies that were destroyed by hyperinflation caused by money printing would show it is so?

    Only wikipedia I know, but this is a surprisingly long list

    Care to name and shame the incredulous radio culprit?

  16. BillyB
    February 4, 2010

    Will the MPC be one of the quangos in the Tory hit list John ?

    Reply: No, it is not

  17. Brian Tomkinson
    February 4, 2010

    The MPC is just another arm of government despite the illusion of independence. They will do what the government directs them to do. QE has been all about creating money for Brown to squander. Why is this not illegal? At least your party now seems to be prepared to throw away that cloak of deception by announcing that the details of their fiscal policy will have to be co-ordinated with the BoE.

  18. Neil Craig
    February 4, 2010

    The "independent" MPC has to write to the Chancellor if they fail to hit their 2% or under inflation target. Has this rule been ended or is it just that the media don't report it. A one sentence answer should suffice:

    Because Gordon & you told us to let the money supply rip & though officially independent, a necessity if we are to stop inflation, we are actually as independent as a left sock.

  19. A.Sedgwick
    February 4, 2010

    With economist buffoons suggesting QE is not inflationary I repeat my much used phrase "we ain't seen nothing yet". DC nailed Brown in PMQs with good factual questions and without QE Brown would have to have called an election last year as the gilt market dried up. He is a convert to electoral reform as a hung parliament continues to be a distinct possibility and his avuncular treatment of Clegg is becoming totally transparent.
    QE was the means by which Brown saved his premiership and probably the Labour Party, absolutely nothing to do with the good of the country. The BOE involvement is purely a rubber stamp.

  20. Giles
    February 4, 2010

    Sorry, Stuart and others, your 'cursory look' is misleading you:

    – multiplying reserves does not add to broad money, which is still weak, if bank lending is contracting

    – multiplying broad money can lead to non-goods inflation.

    Look at Japan. We are not in Zimbabwe, and most of the inflation 'spike' is nothing to do with QE, but just about (a) the VAT cut the year before (base effect) (b) the currency weakness that predated QE and (c) the ending of the VAT cut. With wage growth so low, it is hard to see where the demand side of inflation will come from.

    This is quite disappointing for such a bright fellow as JR.

    Reply: Japan illustrates that massive fiscal and monetary expansions may not trigger good growth of the productive economy. In Japan they did not lead to inflaiton. In the UK we have high and rising inflation by world standards this quarter, and the QE is not going to reflate the private sector economy, so why do it?QE just enables the government to waste more money.

    1. Stuart Fairney
      February 4, 2010

      Bank lending is not contracting; it is merely tighter in the real economy. The banks are buying gilts (ie government loan instruments) with the money and thus the government is hoovering up all the credit in the economy out of the productive sector and into non-jobs. So QE has funded various government activites pre-election. We know they employ millions of people and enter into many contracts for goods and services, thus reserves become broad money and so the distinction you refer to is wholly arbitrary unless the reserves were locked into bank vaults never to see the light of day again. We know this is not the case.

      So for Darling to complain about banks not lending is, shall we say, somewhat misleading.

    2. Sally C.
      February 4, 2010

      You could argue that apart from worrying CPI and RPI figures, we also have an 'invisible ' inflation in the housing market. If the B of E had not cut interest rates to their lowest level ever, the housing market would have suffered a much worse decline. Instead, it is being supported at an artificially high level by the Bank of England. Re QE, you could argue that it is all about controlling the cost of the government's debt as well as providing a ready buyer for that debt (the B of E) at the controlled price level. Any other benefit is just a bonus for the government. The reason Greece is in such trouble is that they cannot expect the ECB to bail them out in the same way. They really are at the mercy of the markets until some deal gets done to save them.

  21. Greychatter
    February 4, 2010

    The “Common Sense” thing for most ordinary people would be for money to be pumped into the bottom of the cycle and allowed to circulate up through business and to the banks.

    Instead “C.S.” has evaporated along with the Billions of Q.E. into the coffers of the banks and bankers with no benefit to those who pay the taxes.

  22. JimF
    February 4, 2010

    Yes, QE printing approximately equals the deficit, so simplistically the printed money goes to finance it. But given that the Tories aren't given to making "swingeing cuts", and that George Osborne seems dead against interest rate increases, the circle isn't being squared here without more printed money, is it? Or am I missing something obvious?

  23. Giles
    February 4, 2010

    In reply to your kind reply: I follow the Richard Koo account of Japan, which is that given the scale of the balance sheet adjustments the corporate sector needed to make, fiscal policy helped compared to the counterfactual, which may have been a 10 year Depression. the QE was irrelevant, not inflationary, not expansionary.

    Our inflation this quarter has surprised on the upside, but may reflect the lagged consequences of our ability to devalue, which most of the compared-to peer group did not enjoy; and, as I said, tax changes. CPIY (sans tax changes) has a much more steady downward trend (Daniel Pimlott's FT article following the inflation figures is a good source).

    But I agree that QE has failed to do much POSITIVE, and that the government is the major beneficiary of it – to the tune of 10 billion, to be paid for by a future Conservative administration. I think you guys could be making a bigger fuss of that, though I can understand nervousness about treading over the Bank's line

  24. Lola
    February 4, 2010

    13:45 Post MPC meeting.

    Confuscian Curse – "May you get what you wish for".

    And you (and I) have.

    1. khoustello
      February 5, 2010

      Im wishing the bankers would do the honourable thing like that chap Roche? did in the Irish Republic.Then again theyre gutless weaklings.

  25. Tiresias
    February 4, 2010

    Expect high inflation now. It is the only we for us to cheat the people who lent us money to fund our spending binge. It's also a very useful extra tax, diverting money from the prudent to the imprudent.

  26. Javelin
    February 4, 2010

    My problem with QE is that is just plain stupid. In fact the more I think about it the more stupid it is.

    I work in the one bank that didn't screw up credit derivs – in credit derivs. Now in risk middle office management.

    The Goverment (says) it is trying to achieve loosennig of credit by buying back bonds. The problem with QE is once the banks get cash they are forced (by law) to invest in the "best" place, which is more often than not foreign soverign banks and equities (ie large entities) and not small companies.

    It would have been a lot better to give banks wedges of money to lend to small companies on a cheap basis (i.e negative interest rates).

    Even better – be more direct and simply cut their tax.

    QE is basically tax cuts for small businesses gone wrong.

  27. Mark
    February 4, 2010

    We have a decision – for now at least QE is suspended, doubtless because there's enough in the banker bonus tax pot to cover this month's spending. The markets are expecting QE to resume, because they only gave a small uptick on yields, and they read Cameron's wavy words at the weekend about consulting the BoE and have seen Osborne promise to continue with CPI based inflation targetting.

    Recently we have seen the Council of Mortgage Lenders express concern about the £300bn funding gap that will emerge when the special facilities and guarantees unwind – in effect an admission of more off balance sheet borrowing or QE by government to prop up property prices. This article

    draws heavily on a study by McKinsey (linked from the article), and shows just how parlous our position is, now overtaking Japan for indebtedness relative to GDP:

    The structure of our debt has evolved since these data:

    with government debt having grown dramatically even on the gilts in issue basis that they use, and scheduled to exceed 100% of GDP in under 5 years even on optimistic projections from the Treasury.

    The expectation is that the pressure will fall on households to reduce leverage – i.e. become less reliant on mortgages.

    Politicians of all stripes are reluctant to discuss this and its implications of sharply falling property prices – at least in real terms. Brown's attempts to ignite inflation are to try to permit the real terms fall without a nominal price fall. If that is the route, then we can expect mortgage rates of 10-15+% before too long, with real (as opposed to phony QE) financing of government debt being similar.

  28. Ex Liverpool rioter
    February 4, 2010

    "QE" is dead…….is it?
    Direct M4 Adjustments?

  29. khoustello
    February 5, 2010

    I tried to help with quantitive easing by printing counterfeit ten and twenty pound notes-and what thanks did I get for it?Twenty years.Thats the last time I help the chancellor of the exchequer!

  30. Concerned
    February 5, 2010

    John, would you support a constitutional requirement to balance the budget so we never again run up these ridiculous deficits that cause so much harm, except in cases of grave national emergencies i.e war. Deficits needs to be eliminated, it is unbelievable that Brown was running a deficit even during the good times. Governments needs to be constitutionally barred from running a deficit. There is currently a debate in the United States about a balanced budget amendment and I think we need one here.

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    February 25, 2010

    Money printing is a serious problem, and politicians always give into this temptation to quell short term financial problems and seem to not care about the future probably because they don't expect to see the repercussions of what they are doing.

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