For the last 14 years the main instrument of monetary policy has been the creation of many more pounds by the Bank of England to buy up government debts. This has occurred under Labour, Coalition and Conservative governments. No opposition has ever opposed it or any part of it. The Bank has now created a massive £975bn of new money to buy bonds. This swamps the sums we normally debate around budgets.
Some MPs ignorantly say they do not challenge this because it is the actions of an independent Central Bank. If they read the documents they would discover that the Chancellor has to approve and sign off every pound so created. More importantly he is also required to take all the risk on the bonds, indemnifying the Bank of England against any losses, as the sums involved are large in relation to the size of the Bank and its capital. The fact that taxpayers are now the proud owners of £975bn of bonds liable for losses via the Treasury should you would have thought concentrate the minds of MPs and lead to debate.
Some MPs say they did not need to debate it because they agreed with the policy. Now, however, many MPs are angry about the high levels of inflation we are currently experiencing. They should re examine their past support for the money printing which is one of the reasons we now have the inflation we are experiencing. It seemed clear to me and few others last year that the Bank and Treasury were continuing with more money printing than was sensible well into the recovery. I did back the money printing in 2020 as a necessary part of the offset to the deeply damaging economic impact of lockdowns .
Today Parliament needs to consider how it should handle these issues in future, given the problem of inflation from past Treasury/Bank monetary policy. How much money will taxpayers lose on the bonds that have been bought? As interest rates go up, so the value of the bonds held usually goes down. Does that matter? The deal the Treasury gave the Bank means there will be no trouble for the Bank, as in addition to the guarantees there is the promise of top up capital if ever the Bank’s free capital falls too low.
In these conditions it is difficult to see why so many MPs including the Opposition think the Bank is independent. They also need to ponder the significant power the government has when it comes time to choose a new Governor.
The MPC and the current Chancellor added £200bn to QE in March 2020, £100bn in June 2020 and £150bn in November 2020, with payments under each programme spread out over the months that followed through to end 2021.
May 26, 2022
Sir J
Simple answer: how many of your parliamentary colleagues could actually contribute to such a topic of debate?
I think you’d be talking to yourself in the chamber…
May 26, 2022
Sir J, Pete W,
Expanding on Peter’s point, as he says MPs don’t understand the consequences. It is also much easier and initially popular to spend money and throw cash at the populace. The ultimate pain is a long way down the line and is generally someone else’s problem.
As to central bank independence. The majority of these bodies are staffed with sheeple who suffer group -think and have no real world experience. Look at the Fed: 12 people all of whom are CB careerists, academics & one management consultancy. Where are the people who worked in the real economy?
May 26, 2022
Spot on. Of intellectual depth there is little. Like Boris, soundbite and run. I see, despite the BS talking about breaking the power of the unions, he wants to spaff 5% on rail unions because once again he is a spendthrift and a coward.
They, to a person, only want to spend money, the more the merrier and QE is that magic tree that gives them it, in their uneducated mind, without pain.
May 26, 2022
Also Peter, how many really care! Few !!!
May 26, 2022
Today I think many readers will be thinking more about Boris Johnson and his reaction to the Sue Gray report.
He will continue to front it out. There has been some discord within Conservative ranks but no signs yet of an effective campaign to remove him.
May 26, 2022
@Peter Wood
Maybe the link below will help ?
https://www.weforum.org/agenda/2014/11/a-beginners-guide-to-quantitative-easing/
May 26, 2022
Agreed.
May 26, 2022
You’re forgetting Steve Baker MP FRSA who favours the Austrian School and has long argued for sound money and against the monetary inflation of the Government. I’d be interested to hear from Sir John what he thinks of the Austrian School and, as a believer in free markets rather than central planning, why the price of money should be planned centrally rather than left to the market. The USA’s founding fathers well knew the dangers of a central bank and tried to ensure it didn’t come to pass. By distorting the market signal in the price of money, the central bank creates the boom and bust of the business cycle.
May 26, 2022
Perhaps the Commons lacks common sense.
May 26, 2022
Increasingly looking like a sleeping on the job Chamber.
May 26, 2022
They don’t teach about budgets and inflation in PPE economics. Just that government spending is good private enterprise is bad.
May 26, 2022
Agreed about £30,000 per household in the UK, plus the bank of England is headed up by someone whom while at the FCA gave us 39.9% one size for all personal bank overdraft rates. The man is unfit to run his own piggy bank.
May 26, 2022
Probably , because ,like the PM ( and possibly the Chancellor as well) they do not have any understanding of or interest in economics
May 26, 2022
‘they do not have any understanding of or interest in economics’.
you could have left out ‘or interest in’.
May 26, 2022
Boris has a bad reputation for finance a total spendthrift we are told by our newspapers, however, Sunak got a first-class degree from Oxford in PPE (E=Economics), he went on to Stanford as a Fulbright scholar, you don’t get that if you’re not bright.
Wiki says “On 26 September, Sunak was said to have opposed a second lockdown with the threat of his resignation, due to what he saw as the dire economic consequences it would have and the responsibility he would have to suffer for that.”
However, “Sunak was the first Chancellor to raise the corporation tax rate since Healey in 1974.”
May 26, 2022
The Chancellor only understands numbers on a spreadsheet;he has no experience of a real economy.
Sirius Report(@siriusreport-the first twitter feed I read every morning-it’s the best compiler of uncomfortable truths!)earlier this week:
“Financialisation of western economies has meant that governments and their entourage of advisors,policymakers,economists,etc have forgotten why a loaf of bread is important and what it takes to produce one.Their grip on reality has been consumed by living in and embracing an illusion.”
Meanwhile,the new world order continues to take shape-Kazakhstan,Saudi Arabia,Argentina,Egypt,Indonesia,Nigeria,Senegal,UAE are joining BRICS as dialogue partners.Greece has signed up for the gas-rubles scheme this week(and is refusing to comply with sanctions on transporting Russian oil-Greek ships are the biggest transporters of Russian oil)and delegates from 90+ countries will be attending the St Petersburg International Economic Summit next month.
May 26, 2022
Excessive money printing is an act of State politics. It is pure, undiluted power and represents a threat to democracy as it allows the State to preserve its powers without reference to the people. This power is openly abused.
We need competition in this area whether that be bitcoin or some other form of monetary exchange that prevents the abuse of currency by politicians and parties desperate to preserve the status quo and their grip on the privileges of power
Politicians and bureaucrats who continually call for more and more spending have ulterior motives and cannot be trusted. They’re not humanitarians, they’re politicians and they act politically
May 26, 2022
Central banks are collaborating to kill off crypto-currency. Raising interest rates – re-establishing value in the currency, might do it.
If they can’t tax and control it, we can’t have it.
May 26, 2022
+many
Oh…that’s so interesting!
Never occurred to me.
It’s why kings debased the coinage ( rather than to help the country) more dosh for their Ukraines and Iraqs and just pure power! The Field of the Cloth of Gold… global stage strutting.
Since Blair governments have done thing that would have been unthinkable and have reversed the accepted moralities of governance and life in general.
So much pain and suffering.
May 26, 2022
It’s not Bitcoin, that’s for sure – that’s just another form of Tulip mania.
As the world moves back to a mercantile era, ‘trade’ will once more be based on exchange of tangibles, such as commodities, manufactured products & added-value services, rather than just promissory notes. The problem for us being that the ‘locals’ are no longer going to trade their labour, silk & coffee for a few glass beads. So we better learn how to make things others need & want again and start eliminating our trade deficits….
May 26, 2022
In that it causes asset inflation, making property ownership ever more difficult for ordinary people it is financial repression, certainly.
May 26, 2022
Plenty of homes available in Cardiff and Nottingham at affordable prices.
May 26, 2022
Allister Heath today is surely right:- “Tory Britain faces extinction at the hands of a radical hard-Left alliance. If the Government fails to change course, it will lose the next election to parties that will devastate the UK.”
Surely we have suffered with quite enough Socialism from Blair, Brown, Cameron, May, Boris and tax borrow and piss down the drain Sunak?
Still some good news “Inspectors to root out ‘Mickey Mouse’ degrees” but looking into only eight universities? Even Oxbridge has plenty of Mickey Mouse degrees! Just kill all the soft loans other than for a few specialist subjects medicine, real economics, engineering, physics, maths. No real reason why subject like history, english, politics, gender studies… need to cost anything like £9k PA anyway with modern technology, recorded lectures and the likes. More night schools, on the job day release skill training and similar please. No one should really be going to university with less than say three Bs at A level. They should either resit or train for a needed job skill building, roofing, electricians, gas fitters…
May 26, 2022
‘If the Government fails to change course, it will lose the next election to parties that will devastate the UK.”’
I think the present Government is doing a fine job in devastating the UK without help from others.
May 26, 2022
+many
Heath is so right.
That’s why I am sooo angry with them. They will hand us over lock, stock and starving barrel to commies who will finish us off!
And there was/is no need to do that. They did not have to pander to the Left.
Except that Johnson et al are probably very much in sympathy with it.
@everbeenhad!
May 26, 2022
I fully agree with your views on University degrees and the alternatives.
The Conservatives, or those masquerading as such, are doing a damn fine job of the continuation of devastating the nation and not just on the economic front.
May 26, 2022
I think the universities dishing out the Mickey Mouse degrees should have to pay back the tuition fee element of unpaid student loans. That would sharpen their focus on value.
I also think it’s good that history is taught in schools, which means qualified people to teach it. That’s provided the history isn’t taught through socialist-tinted spectacles.
May 26, 2022
Lifelogic,
The nature of industry today is such that few firms take on apprentices.
They would rather somebody else does the training and then poach the fully trained individual, or bring the staff in from overseas, or outsource the work abroad.
May 26, 2022
That’s right, you’re a mug if you train anyone, as all you do is provide qualified staff to companies that don’t bother.
Plus, if we are to supplement the deficit in education, why shouldn’t we be paid for it like the schools are?
May 26, 2022
LL, few of the people who currently study for soft ‘degrees’ would be suitable for training as an electrician or gas fitter.
May 26, 2022
Good morning.
I think it would be good to look across the pond and see what is happening there, politically, and compare it to our own situation.
It seems the Democrats may lose both Houses and force the President to reign in spending. Alas here in the UK, we have a political class who, through a combination of safe seats and general arrogance plus ignorance (of economic matters) tend to ignore excessive spending, at least until it is too late. And I fear, it is too late.
You really need to cut spending as well, but can’t / won’t. So the problem is just going to persist.
May 26, 2022
Because we have a Red Socialist Party; a Yellow Socialist Party; and a Blue Socialist Party. With, thanks to the FPTP voting system, and disproportionate number of the Tartan Socialist Party.
Until we have a Party in Parliament which isn’t Socialist (or Green) there will be no debate.
May 27, 2022
Unfortunately, that cannot happen under FPTP. The nearest we got to it was Nigel Farage but he was defeated with no seats, having got more votes than other parties who did get seats.
May 26, 2022
The ability of the government to manipulate the “independent” BoE to do exactly what they want (print money) is the only possible explanation for why they appointed Andrew Bailey to run it. He had – let me be polite – an undistinguished spell running the FCA previously.
I was surprised to see the inflation rate in Switzerland is currently 2.5% – something to ponder for those who claim UK’s inflation is due to world energy and food prices.
May 26, 2022
Yes well…the calibre of MPs has declined shockingly since the selection procedure veered more towards gender ( whatever that is) and ethnicity. And wokery.
Imagine if, since the 1960s, only men of JR’s sense and ability had become MPs, sanity had reigned and the education system and civil service had fared similarly.
What a very different country this would have been!
No clowns.
May 26, 2022
Certainly on the opposition benches there can be very few MPs who have the faintest understanding of or knowledge about these issues.
Another day, another fatuous leftist policy from Boris Johnson. Today, it is reported, the Labour windfall tax. Groan.
May 26, 2022
Perhaps you could find out if when the new money was being printed (at the time of Covid) there was present in the room a cake? If there was, MPs, the media and others will start obsessing.
May 26, 2022
Agreed, we seem to be living in a parallel universe where actions and consequences have been separated. The funny money printing presses can roll and roll and there will never be a reckoning, and even when the consequences do make an appearance the collective delusion is such they will blame them on anything other than their own actions.
Today it is being trailed that the bloated State, even though it is taking record levels of taxation from us , has to raid the profits of oil companies to hand out more goodies , no thought that there should be more than enough tax money already collected to cover the needs of the population, and if not it is proof of the need to prune the expensive policy tastes of our political classes, but that isn’t to be . Like most of what afflicts us the origins are to be found in Westminster, like the consequences of the excessive lockdown, the excessive Green policies, the out of control asylum immigration, all made in SW1.
If only we had a Conservative Government
May 26, 2022
It was essential to support the economy through the pandemic, although the level of support now looks over generous, paying 80% of salaries was far too much when that equates to more than a basic rate taxpayer’s net income after Tax and NI. Judging by the amount of fraud, the business loan scheme was also way over generous and badly polices. This kind of support could only have been provided by printing money.
However, what proportion of the current level of inflation has that caused ?
I suspect it is very small. By far the greatest proportion is caused by the increase in commodity and fuel prices which puts up costs for every business and households. Taking even more money out of the economy by increasing interest rates in these circumstances seems just plain daft, given that we have a further hit to household bills coming in October.
At last we are to see an announcement today on further support for all households. i only hope that the Chancellor sets the level of support at 20% more than he really wants to so he can make it taxable and can reclaim up to half of it from high rate taxpayers without disadvantaging those on the basic rate. That would also give much needed increased help non-taxpayers as well.
May 26, 2022
The answer to your question Sir John is that most of the 650 MPs would rather debate how much of our money to give away, how we should refer to each others sex and which large, wasteful infrastructure projects we should commence.
These are “substantial” issues which Twitter and focus groups have deemed worthy of focus.
Too few of our modern politicos have enough experience know enough to realise what the country needs and opposing “growth generating” money printing is out of scope, there are not enough likes in it.
Opposing money printing by most people has only recently become a thing too – before when somehow it had not adversely affected inflation (other than house prices and assets) there was a deathly silence.
May 26, 2022
Perhaps the answer is that this is the worst House of Commons in my lifetime? If the plan is to destroy trust and faith in national sovereignty and democracy in order to supplant with a World government, its proponents must be pleased.
May 26, 2022
Respect to Sir John Redwood on this (and other things).
He’s one of very, very few politicians I would listen to on this subject. And a really serious one. (I don’t know much about economics, but I still think the more the government can do more to help the High Tech / Digital Industry, including entrepreneurs and young, smart kids who are coding – helping to turn the UK into Europe’s Silicon Valley and exploring lots of high quality brands to Europe and to the USA, Australia and the Far East – the better to help try and get us out of this financial mess and for other reasons).
Best.
May 26, 2022
People want to know why the money was printed in the first place and who for.
May 26, 2022
I have found no evidence that any MP, including JR, understands how the UK’s sovereign fiat currency accounting system actually works. Any debate in parliament would be even more pointless than PMQs.
For instance, did MPs debate the last APF Annual Report and Accounts 2020–21 ? Did any of them query the Statement of Comprehensive Income that shows it made a £56 billion loss on its Gilt holdings; leaving total assets down to £788 billion (the £975 billion headline figure is not mentioned anymore)? https://www.bankofengland.co.uk/-/media/boe/files/asset-purchase-facility/2021/annual-report%202021.pdf Also, the Quarterly Report at https://www.bankofengland.co.uk/asset-purchase-facility/2022/2022-q1
The public sector BoE, doesn’t have any capital of its own to BUY anything; but, it can make loans like any other Bank, 100% backed by the currency creating Treasury, that is never going to go broke in its own monopoly currency. QE and Gilt Reverse Repos, do not create loads of new currency supply into the economy. The BoE just swaps Gilts back into the Reserves (government spending) that bought them originally. The net total amount of the sterling currency, in all its forms, securities, reserves and cash notes, does not change by this process. A large part of what the 5,000 odd people do at the Treasury and the BoE, is smoke and mirrors for which there is no operational or real world economic requirement.
Reply I have been highlighting the Treasury guarantee and losses on the bonds
May 26, 2022
The decline in the purchasing power of a currency like the GBP or USD is driven by the growth in the money supply. What enables or drives Money supply growth.
You simply cant print energy or commodities from the ether. if you could the price would fall. So what changed big enough to cause large price increases in certain countries only.
Take a producer exporter economy like say Russia , has the price of oil or commodities increased in Russia. Or say Switzerland or Norway. Has its currency unit fallen or risen against a units of commodity?
You will produce nothing and own nothing and be owned by those that do, you probably wont like that.
Under present leadership we don’t have a democracy to speak of and neither does anyone else apart from the Swiss and maybe a few hold outs. We can but hope the US manages to retrieve its republic with a popular untainted representative vote of real populists who believe in democracy, and walk the talk.
May 27, 2022
acorn
Few here, and i include myself, fully understand economics. But what little many of us know is, if you print vast sums of money it creates inflation, and we have numerous examples to back that up.
A sovereign fiat currency can go broke. If your currency is considered junk, no one wants it. They will either want a currency they can trust or, something more tangible like gold. Look at what is happening over Russian oil and gas ? Russia needed to support its economy so, instead of asking for Petro-Dollars they have asked for Roubles and / or gold instead. As a consequence Russia will not go broke because it has something(s) to sell and wants it in its own currency. The UK on the other hand ???
May 26, 2022
Why?
Firstly because few MPs have the knowledge, experience or interest to discuss the issue.
Secondly because they all agree with the money printing.
It is the same with the communist driven climate change scam and Net Zero. There is no discussion even though it is leading us into poverty and capitulation.
Because all parties are in agreement over so many major issues it leaves nothing to discuss except partygate.
May 26, 2022
Off-topic, but final proof that we have a government of anti-British TRAITORS who are determined to destroy the Union. The government is going to legislate to make Irish an official language in Northern Ireland. In the name of God – WHY? How does this make Northern Ireland more British (as every Unionist desires)? It doesn’t. It achieves the very opposite. This is NOT a pro-Union measure. This is not requested by the Unionists. This is a demand from the nationalists – ie. the ones who want to destroy the Union. And the government – a Conservative and UNIONIST government, supposedly – is giving this to them. This is absolute treason. It is offensive in the extreme. I don’t see how any self-respecting and genuine Unionist can support this filthy Bill. My disgust and contempt for this government has gone up even more. I didn’t think it was possible, but this repulsive government of traitors have achieved it. Well done!
May 26, 2022
Is it Boris Johnson’s ambition to break up the UK? It seems like it. All part of the move to World government dictated by UN/WEF/WHO?
May 26, 2022
What, in practical terms, does this mean for each of us? I mean, it’s all well and good to say it represents about £30,000 per household, but how does this affect us as individuals?
And, my question whenever this subject comes up is always: Why doesn’t the Bank of England buy up all the secondary debt in the market? Why muck about with a mere £975 billion’s worth?
May 26, 2022
It’s curious, isn’t it?
The Tories have plucked far more fruit from the Magic Money Tree than they ever mockingly pointed out that Jeremy Corbyn’s plans required, haven’t they?
Or that previous Labour governments did?
May 26, 2022
As long as the State insists on running large annual borrowing requirements, it is difficult for the Bank of England to avoid money printing via excessively low interest rates and QE. Initially, the money generated by QE went into asset price inflation; now it is causing general price inflation. Yes, energy prices are increasing due to external shocks and global markets, but if this were not the case, other prices would increase at a greater rate. It is the total quantity of money that matters for inflation.
Let us concentrate our minds on measures to correct the current errors of policy. Top of the list is a need to reduce State expenditure relative to GDP in order to make room for growth, which will be driven – as usual – by the private sector. There is obviously room for reducing State employment if the public sector is curtailed. I would prefer it if this site listed a range of public sector expenditure reductions, necessary to make room for the private sector investment that will drive growth. Taking the low paid out of income tax and refusing to increase the Universal Credit cap should lead to more people seeking work and fewer people employed by the benefits offices.
May 26, 2022
How can anyone pretend that the Bank of England is independent when the Government unilaterally imposed an additional mandate to drive the U.K. economy to Net Zero by 2050?
The Bank has always struggled to meet its principal role, the reason why it exists, to hit the 2% inflation target. This was made much harder, and indeed sometimes utterly impossible, when it was also given a target for economic growth. It is generally accepted that in most stages of every economic cycle, there is a trade-off between these two outcome measures.
In last year’s budget, they were told to use monetary means to ensure that the U.K. economy achieves Net Zero by 2050. A target which is directly opposed to increasing economic growth.
Out-of-control was always going to be the inevitable consequence.
And now we have it.
May 26, 2022
Out-of-control inflation
May 26, 2022
and now 15 billion to save boris’s skin
May 26, 2022
My latest charity shop book.
Dan Brown Origin (2017)
It advocates the wonderful world of technocracy
via Human / AI amalgamation
Its an extremely tedious read but predictive
( like my posts )
May 26, 2022
Quite simply, they have protected themselves in various ways. I believe they dont have any skin in the game compared to the private sector , say nest pensioners who do not get generous tax backed pension based on terms not achievable in the private sector.
Perhaps if there was a painful correlation between MP(past and present) rewards and financial repression, negative real interest rates, we may see a better balance.