Do we need to print this money?

Today we are told the Bank of England will create £2,000,000,000 to buy government bonds back from the people and institutions who had bought them. The reason given by the Monetary Policy Committee is that they need to create more money.

We need to ask why? If you take the last three months figures for money supply and express them as a an annual rate, the recent rate of money creation has been lively. The latest figures show notes and coin growing at 12.2% – that is literally printing money – and wider money including all our deposits in banks growing at 22.6%. Yes, 22.6%.

It is true that in August 2008 notes and coin was only growing at 2.7%, and a year ago wider money was growing in single figures. It is a pity the Chancellor was unwilling to come to the Commons to explain why he has given the MPC permission to go ahead with this experiment, and why he has been silent on how much money he wants to create. If 22.6% is not a fast enough growth rate, can he tell us what growth rate he does want? I guess, given the sums involved, he wants to boost the money growth rate above 30%, which would certainly be racy.

The hope of the scheme is that this extra money will be spent on home produced goods and services, bringing factories back into use and leading to more people having jobs. Unfortunately it can also go elsewhere. It can go into pushing up prices, it can be spent on more imported goods and services, it can linger in bank tills and book entries and go nowhere as the broken banks throw an extended fit of caution after their past excesses.

The government is doing it in the spirit of “we will do whatever it takes”, and this is just one of many initiatives. I think it is dangerous to be putting so much at risk in the banks and running such a huge borrowing requirement at the same time. The pound is taking another pounding on the back of the government’s risky gambles. It means we are getting poorer by the day, as our money buys us less and less from the world market. Expect more price increases in the shops as the lower pound works it way through.


  1. Ian Jones
    March 11, 2009

    As far as I can see all it has done is lead to a short term flow of money INTO Govt debt as the BoE says it will buy at any price. Therefore speculators are driving up the price by buying gilts with the knowledge the bank will buy it at a higher price. This money is not going into the economy, its chasing assets on a short term basis.

    It has resulted in other long term debt yields falling as one assumes others gamble that the money from the gilt sales feeds through into other assets. The question is what happens when the BoE taps go into reverse? Interest rates rocket up.

    We are well and truly back to Stop/Go economics… another one of McBroons claims up in smoke.

  2. Blank Xavier
    March 11, 2009

    JR wrote:
    > 22.6%.

    Well that explains the devaluation of the pound.

    The economy has realised there have been significant losses of actual, real wealth in the banking sector, while at the same time, we have 22.6% more currency then before.

    Naturally, each unit of currency is worth less.

    I was quite annoyed just recently! I converted quite a lot of euros to sterling at 1.12 – last Friday, after the BoE/CEB made their rate cuts (and the BoE announced printing) and the market was stable.

    Over the weekend the Government goes and buys Lloyds! pound is now at 1.085. That’s quite a bit of free money I missed out on!

    Well. I say free. It’s *your* money. That’s what devaluation is all about.

  3. Alfred T Mahan
    March 11, 2009

    The money’s going nowhere near British businesses or even consumers – overseas depositors are withdrawing funds at a record rate. According to the Independent on Saturday, about $597Bn was withdrawn in the last quarter of 2008 alone. this is apparently ten times the normal rate and represents 15% of all the monies held by overseas depositors.

    It’s no wonder the bailouts are failing – the more the government panics and puts money in, the more people are spooked and withdraw it. Jim Rogers and others say the UK economy is finished; there’s no risk premium attached to holding sterling; the government refuses to cut expenditure and get a grip – what possible reason is there to hold the currency, especially in cash?

    This is a race to the bottom and the market is winning.

    This is the Independent article:

  4. rugfish
    March 11, 2009

    I’d expect any businessperson with a clue, who is currently struggling with their bank over overdraft facilities or loan repayments, would simply increase their money floats (retaining cash in hand), and by-passing the bank, because it would otherwise eat up the businesses cash flow by laying it off on loan repayments or reduction of the overdraft.

    “Sticking it under the mattress”, is generally what happens in a business struggling to stay afloat, and individuals will often do it too for much the same reasons.

    Just because Alistair “thinks” pumping money into the system will lead to more spending, doesn’t necessarily mean he is right. If people choose NOT to spend, there’s little or nothing he can do about it, and if people and businesses avoid banking their cash in large amounts, then he’s up a proverbial gum tree.

    I might go along and draw mine out too unless he comes up with a reason soon for me to leave it there.

    Clearly, our government and members of the MPC, including our “I have nothing to do with their decision making” Prime Minister, would perhaps do well to talk to people who run businesses and listen to people who save money, before rolling out the UK’s money printers under this ‘NuMugabe’ policy.

  5. Stuart Fairney
    March 11, 2009

    With a much expanded money supply, almost zero interest rates and (as you say) obviously imported inflation as the foreign value of the pound has collapsed, isn’t the danger of deflation marginal? Isn’t this just a dragon conjured up to justify printing money? (the last bastion of the economically incompetent)

    Isn’t the desperately real danger now serious ionflation coming our way in a year or two? I don’t expect Weimar Republic style inflation, but the previous Labour government, (from memory) gave us around 23% at a peak in 1976. I will have a small wager (not in sterling) with anyone who cares to bet that this current round exceeds that within three years.

    SF does not give financial advice, but isn’t now the time to close the bank account and dump any sterling exposure for either utility companies, or commodities, or Swiss Francs or Gold or property again (its starting to look cheap to me) or anything but the devaluing, soon to be inflating, diluting currency under Mr Brown’s control?

  6. Will Jones
    March 11, 2009

    Great blog John!

    In this age of presentation and spin, it seems the government aren’t prepared to tell people to face up to their excesses and suck up the pain of a recession that’s been in the pipeline for years. Over-borrowing in whatever form is a risk. But these days the recession has to be softened, re-packaged and presented differently for a society that’s isn’t grown-up enough to copewith real-world problems.

    The quantity of money spent on this recession certainly puts the tiny costs of black Wednesday into context. The negative connotations of that incident live on, despite the massive scale of this governments mis-management of the economy.

    A final question: why is no-one calling “quantitative easing” simply “de-valuation”? That’s what it is, plain and simple. No doubt another symptom of the spin culture of the Bliar/Clown governments?

  7. Brian Tomkinson
    March 11, 2009

    Many of us wouldn’t claim to be financial experts but by application of common sense and remembering hurtful past experiences have not been surprised by much of the current lamentable state of affairs. Excessive borrowing and lending was inevitably going to end in tears. Persuading a well performing bank such as Lloyd’s to take over a badly performing bank in the midst of a banking crisis was going to destroy value in Lloyd’s and result in one very large badly performing bank dependant on government support. Printing money, calling it quantitative easing to pretend it is something sophisticated, will result in runaway inflation and in this case for those who have implemented it any other result will be failure, as they see this as their way of inflating their way out of the mess they have created.

  8. Deborah
    March 11, 2009

    Truly scary figures – strangely not mentioned in the press.
    Thanks for explaining what is going on.

  9. The Economic Voice
    March 11, 2009

    It seems that the only reason we need to print money is to keep the illusion of good governance alive for a little longer by delaying the inevitable. Or maybe in the hope of ‘easing’ us through what is now becoming a depression.

  10. oldrightie
    March 11, 2009

    “It means we are getting poorer by the day, as our money buys us less and less from the world market.”

    I wonder if the warnings about this dangerous policy will, during an election campaign, be from Labour, “We had no idea, no one did, that printing money would be so disastrous, world wide. It all began with The American Dollar presses”?

    Or some other form of “Not me Guv”.

    March 11, 2009

    The amount (of our money) that Lloyds have magnanimously agreed to lend (to folks like us) – £28bn over 2 years – seems underwhelming after all this effort involving huge amounts (of our money again) and government effort (funded by us).

    £11bn pa to business and £3bn pa for home loans – surely the old Halifax would have loaned much more than this?
    Do we know how Lloyds total lending compares with yesteryear?

    Like most contributors here we don’t see a lending splurge being anything like the answer but can we compare apples with apples rather than being spun into apathy by the sheer size of all the numbers being bandied about!

  12. mike stallard
    March 11, 2009

    Yes, the markets have noticed (see above). Yes, our host has noticed the 22.6% devaluation. I am sure that other governments have noticed too as have people (like me) who have some savings.
    In the background are a lot of people in Trades Unions. Do you think they cannot smell money? Do you think that all those new government employees are not sitting there coveting? Do you not think that a million Librarians, Teachers, Policemen, Firemen, court officials, binmen and cemetery officers are aware that a lot of money is theirs for the taking?
    Rich people, too stand to gain. You may have heard how much Doctors are now paid. Or politicians? Or members of Banks? What about Lawyers? Or Senior Administrators? Are they going to sit on their hands?
    Mr Brown is financed almost entirely by the Unions.
    And he is – what was it? – particularly relaxed about the rich?
    We not only face inflation, dear friends, but also a wave of strikes that will put James Callaghan in the shade.

  13. rugfish
    March 11, 2009

    I think it’s staggering to note that whilst the Bank of International Settlements, WARNED of systemic risk of contagion, as long ago as 2001, that Gordon Brown still did not act, still says it surprised the world, still says it’s a global problem, still says it emanated in America, and still says it has nothing to do with him, despite he was Chancellor at the time when this report was given :-

    It defies any credible argument could exist that he is not culpable, and for him to say it was a “good idea”, to remove the Bank of England’s oversight whilst at the same time giving it to a bunch of numbskulls (the FSA), he is at odds with plain commonsense, AND he has no excuses to make that he couldn’t have known, AND he cannot say he’s put it right some 8 YEARS LATER, when he peddles along on the same bicycle of incompetence with the very same institutions and authorities in place which led to the systemic contagion.

    Why isn’t ‘someone’ able to remove this man!

  14. Derek
    March 11, 2009

    Interesting figures on M0 expansion. Securicor senior management commented they were hauling a lot more cash around. This was rubbished by the Treasury.

    Like the Starbucks CEO, they discovered the government aren’t interested in reality based evidence and prefer to turn to the ONS to produce something more to their liking.

  15. chris southern
    March 11, 2009

    the guy is a hoon, he is only interested in sorting out the balance sheets of the treasury, to save his own face of course.
    He is destroying the economy, it’s global remeber people, we HAVE to trade with the world seeing as we don’t grow enough food or PRODUCE enough basic goods.

    he isn’t going to cause riots of discontent, they will be food riots, especialy with the new CAP regs desighned to screw africa again being readied!


  16. Budgie
    March 11, 2009


    Very interesting money supply figures. Is there any chance of you posting a graph of money supply (broad and narrow), CPI and RPI vs time for the last 10 years? Or directing us to your source? Thanks.

    Reply: The Bank of England site sets out the money figures.

  17. Andrew Lilico
    March 11, 2009


    I don’t think you’re quite right here. The Bank of England’s inflation report of February 2009 shows adjusted broad money growing at under 4% (versus an 8-10% figure being compatible with the 2% inflation target) – see Chart 1.2.

    Less relevantly, the seasonally adjusted Feb 2009 Notes and Coin 12 month growth rate was 8.3% – see

    The reality is that the broad money supply is not expanding nearly fast enough and indeed would probably shortly contract without the quantitative easing action underway. Of course you might still want to argue against QE nonetheless, but your arguments should be based on correct facts.

    Reply:You are using seasonally adjusted figures calculated in a different way. I have explained the basis of the figures I am showing, which are not wrong, just another way of looking at the same data.The figures I have used highlights the recent acceleration. You also need to remember that according to the government’s RPI figure there is no inflation, so you have to be careful with official versions of figures using official adjustments.

    1. Andrew Lilico
      March 11, 2009

      I think your reply related to the notes and coin figure – you were quoting the three-month figure. Fine. I’m happy to accept that (I probably shouldn’t even have brought it up).

      That does not affect the *main* point which is about the broad money figure. You are quoting the unadjusted M4 series, which the Bank of England has argued convincingly is not the relevant indicator of broad money growth (e.g. see the August 2008 Inflation Report) – it is distorted by intra-company transfers. It is the adjusted series that is relevant. This has averaged 8% growth since 1992 and is now growing at less than 4% (having been growing at above 14% in 2006).

      So broad money is not expanding rapidly, as your blog suggests. It is growing far too slowly and might even contract, and such a slow growth rate would certainly imply deflation within two years if left to itself. That is why the Bank has chosen quantitative easing. It is not trying to *expand* the money supply. It is trying to limit the extent to which it is *contracting*.

      1. chris southern
        March 11, 2009

        Andrew, it’s constant state intervention that caused the mess, it’s state intervention that is making it worse.
        and by putting more credit into the system (even though it is near the top of the pyramid) it is still “expanding” the credit within the system.

        if brown hadn’t slammed the brakes on and eased things down in a moderate fashion we wouldn’t have this “credit crisis” and the credit injection/gilt buy back wouldn’t have needed to happen.

      2. Tony E
        March 12, 2009

        Andrew, if the figures you are using reflect a more accurate longer term situation, what are the factors which are driving the pound to its current low value and what do you expect the effect to be when the money supply is loosened in this current round?

    2. Lola
      March 12, 2009

      Making lots of extra money is inflation. Price rises in goods and services are a result of inflation, not its cause.

  18. Adrian Peirson
    March 11, 2009

    It is all deliberate, Westminster is a charade, by collapsing world economies those who are the Real ruling elites hope to bring us to our knees, through hunger if necessary and usher in their New Neo Fuedalistic World Order.
    19 states in the US have now declared their independance of the New World Order Federal Government in the US.
    There are rising voices on the streets, in the Media and inside Congress that the PRIVATE Federal reserve, which operates to make profit from its Host, The US, must be scrapped and the Control of the Money supply returned where it should always have been, with Congress and the US Treasury.
    The International Banksters rule, not our Politicians, this is why Bilderberg meetings are held in Private, this is where the real decisions about world events are made.

  19. Alan Wheatley
    March 11, 2009

    If a bank would rather hold cash than gilts, then why can it not simply sell them on the open market?

    Is the government paying over the odds to by back gilts? I see Ian Jones’ post suggests it is.

    If a bank is holding gilts as part of the necessary assets it needs to hold (told it must hold?), then why does exchanging gilts for cash make it better placed to lend more?

    Reply:The government appears to want to drive certain long yeilds lower, and can influence the rates of interest for differing maturities by this reverse auction process.

  20. Man in a Shed
    March 11, 2009

    The government is buying its own debt, and yet we know that government are having more problems getting people to buy their debt.

    i assume they are buyin their debt back of UK institutions, but wanting to sell more of it to foreigners.

    Also we know that to pay for Gordon Brown election campaign “real help now[TM Labour party]” doing something vast amounts of cash must be borrowed, but doing so could be problematic. Is printing the money the back up option ?

    Any ideas ?

  21. Robert
    March 11, 2009

    The political debate is polarising. Some people continue to believe that, having led us into this mess, only the State can lead us out. Others, perhaps a majority on this website, believe this opposite. They believe that Mr Obama’s decision to quadruple the US deficit will be catastrophic. They believe the current borrowing, money-printingg and spending plans in the UK are insane. Who knows, maybe the situation will polarise far enough that the next election gives a proper choice between socialism and free markets.

    The following comes from an excellent article on how the US authorities under FDR prolonged rather than resolved the Great Depression and is remarkably prescient of the situation today (the url is:

    “Frustrated and angered that Roosevelt had so quickly and thoroughly abandoned the platform on which he was elected, Director of the Bureau of the Budget Lewis W. Douglas resigned after only one year on the job. At Harvard University in May 1935, Douglas made it plain that America was facing a momentous choice:

    ‘Will we choose to subject ourselves — this great country — to the despotism of bureaucracy, controlling our every act, destroying what equality we have attained, reducing us eventually to the condition of impoverished slaves of the state? Or will we cling to the liberties for which man has struggled for more than a thousand years? It is important to understand the magnitude of the issue before us. … If we do not elect to have a tyrannical, oppressive bureaucracy controlling our lives, destroying progress, depressing the standard of living … then should it not be the function of the Federal government under a democracy to limit its activities to those which a democracy may adequately deal, such for example as national defense, maintaining law and order, protecting life and property, preventing dishonesty, and … guarding the public against … vested special interests?’.”

  22. Bill
    March 11, 2009

    Pulling too many controls at once is risky, and then you’re not sure what’s working and what isn’t – there are so many variables and interaction of variables that I don’t think anyone has a clue.

    The Tories haven’t really “Shone” in getting their message across either. I suppose it’s difficult to call for public sector job cuts, reductions in council tax. It will frighten the bureaucracy.

    I don’t think many people on the street or in the pubs could pin down the Conservative party approach to this recession – if only the leadership of the party were as candid as Mr R

    But that’s a big problem as I – a non party member – see it. The Tory front bench are a bit too fluid, a bit too vague – lack candour.
    Maybe they think that the PM will just make a hash of it and it will be theirs by default, risky game as the economy may show some recovery before the election.

    I’m paying £145 (Times two with wife – I accepted before I knew I was paying) to see John Major at the Ted & Cecil (Or is it Bill and Ben club) No doubt he will enlighten us as to his thoughts.

  23. Blank Xavier
    March 11, 2009

    Hang on.

    The BoE is buying *Government debt* with this money?

    So isn’t that *exactly* the same as if the Government is printing money??

    Printing money is theft, pure and simple. There’s a certain amount of wealth in the economy and certain amount of currency. The value of one unit of currency is the amount of wealth divided by the amount of currency. Increase the amount of currency and the wealth value of one unit of currency is reduced.

    The BoE have just printed and given to the Government 75 billion pounds of new money. The value of each unit of currency is reduced accordingly. However, the Government is laughing, because although one unit of currency is worth less (so the rest of us are now poorer) the Government has just given itself 75 billion pounds of the stuff! 75 billion is worth less than it was but it’s still a huge pile of wealth – which has just been taken from everyone else by reducing the value of their currency.

    It’s *tax*, plain and simple, nothing more and nothing less.

    The economy is falling apart and the Government have extracted another 75 billion in tax. You know the amount of employment is directly in proportion to the amount of wealth in the economy?

    This is a disaster – the Government is screwing the economy, and for what? Governments are appalling with money – they waste it like crazy. That money would have done *FAR* more good staying in the economy – not to mention the simple ethics that other people worked long hours for that money AND IT BELONGS TO THEM. Their private property rights have been violated.

    And if you look over here;

    We see some of the worst news I’ve read in a long time. Massive, fundamental cuts in local justice budgets – the number of Magistrate courts in London maybe going from 30 to 8. The police being given increasing summary powers to simply issues fines (and what happens when you have, say, institutionalised racism? you can constest the fine, but is it worth the hassle? if you do and you’re found guilty, what court costs will you pay? will you risk loosing? what’s JUST about any of this?). The Government has a 600,000 million pounds annual budget and it doesn’t pay for justice. The Government has just taken another 75 billion out of the economy. *Where is that money going?*

    Labour are a catastrophe for individual freedom – political and economic – for liberty and for justice.

    1. Adrian Peirson
      March 12, 2009

      where is that money going, it is going the same place as our overseas aid goes, a little bit goes to where it’s needed, the Rest, well, my guess is there is a reason why offshore havens are allowed to exist.
      If people could only get it into their heads that wea re ruled by a bunch of Crooks, ( Mr Redwood and a few others excepted ) then everything would make a lot more sense, it will come to you eventually, the human mind is very good at putting jigsaws together and the more peices you have, the more it becomes apparent there is only one true picture of the world, and it is not very pleasant.

      1. jon
        May 5, 2009

        You’ve hit the nail on the head… but people will not see the truth for fear of what it means.

  24. Anoneumouse
    March 11, 2009

    Mr Redwood, is quantative easing legal. The Bill of Rights is quite clear: “That levying money for or to the use of the Crown by pretence of prerogative, without grant of Parliament, for longer time, or in other manner than the same is or shall be granted, is illegal”.

    The English courts have held that a resolution of the executive or just one House of Parliament does not change the law.

    Stockdale v. Hansard (1839), 9 A. & E. 1, and Bowles v. Bank of England (No. 2) [1913] 1 Ch. 57.

    1. Adrian Peirson
      March 12, 2009

      Wow that’s interesting, and I have another question, since it is my beleif there is absolutely no need for Income tax, because we could print our currency rather than borrow it as we do, does this conflict with the slavery laws, which were abolished.

  25. Publius
    March 11, 2009

    I’m beginning to wonder whether there’s a conspiracy of silence in the media about rising food inflation (9%, up from 7.5%).

    I suspect this kind of inflation, which particularly hits the poor, does not chime with the “narrative” of all-pervasive deflation and the need to print money.

    But really, more needs to be made of this. What is going on, I fear, is a deliberate, and concealed, attempt to inflate the debts of the feckless away by making savers pay for it.

    1. Adrian Peirson
      March 12, 2009

      The media is mostly totally controlled, it is there to shape your reality.
      you are only alowed to see what ‘they’ want you to see.
      sometime though, it is hard keeping a lid on events, even for them.

      Sept 11th and the BBC Lost tapes

      July 7th

  26. TomTom
    March 11, 2009

    Irving Fisher left us with MV = PT and Brown has given us very high growth in M and P seems to be racing ahead whenever I buy food and energy so I guess it is V and T that are the root cause of the malaise.

    So if Velocity increases and Transactions then BRown thinks he can get elected – but with an 18 month lag on DCE he needs aquick-fix and so wants to over-egg the pudding. We end up in Jun 2010 with Brown getting dumped in Kircaldy and inflation destroying savings and fixed incomes.

    Brown is playing politics and has no eye to the long term but he will end up driving the long end of the yield curve steeply upwards as long Gilts become very expensive and banks are left to be funded on instant-access deposits

  27. Iain
    March 11, 2009

    Aren’t they just shuffling a pile of gilts certificates from a desk in the Treasury to a desk in the Bank of England whilst printing billions to pay for Government spending?

    For the Government has to sell £185 billion (according to the autumn pre budget report ).

    Meanwhile the Bank of England is doing a reverse auction and buying £75 billion, may be £150 billion with its quantitative easing.

    Sell £185 billion, buy £150 billion, net sell £35 billion. The other £150 billion they run off the presses to create funny money to pay for Government spending.

    I wonder if Civil Servants appreciate being paid with funny money hot off the presses?

  28. rik
    March 12, 2009

    I really do enjoy reading your blog. I am learning a great deal. It is a shame that your articles do not receive more prominence. Something I would like to see added. If you don’t mind me suggesting, is a list of news articles which for some obscure reason do not receive the attention they deserve. such as this one:

  29. Robin
    March 12, 2009

    Five years ago I was trading FX at RBC. Looking at the international figures on debt, currency imbalances, pensions, spending and jobs it felt very surreal “knowing” there was an economic Tsunami coming but not “feeling” it. The figures we unbelievable – but the figures were the figures. Because the wave wasnt about to hit the beach I didn’t feel the fear but I had to mentally push myself into believing it.

    I remember saying to the guy next to me this is going to end in a complete and utter f*ck up. It’s going to be the 1991 asset bubble being burst due an inflationary event (oil prices) leading to a crushing recession in the retail sector. It’s going to take longer to recover than to get into this mess because of the luxurious and inefficient public sector, hemmoraging jobs abroad, shrinking exports and a huge pension debt.

    I then predicted self-interest will become far more important. Standard of living would fall. Education would have to compete internationally. The Government would be forced to overhaul the civil service or go broke. It would be a time of hard decisions for 10 years. Our world view would change or be changed by reality.

    And you know what job I took later … looking after Credit Derivatives at the world’s local bank – which just goes to show its lucky I believed I was right and took this view.

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