Wokingham News

On Wednesday 11th we were 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. This is the first of several such visits to the printing presses, with a target to create an extra £75 billion in the first instance.

We need to ask why? If you take the last three months figures for money supply and express them as 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.

I support action to get the economy moving again, and to help businesses through the recession. The danger is this government is juts plunging us all ever deeper into common debt. These are bills we will all be liable to repay in the years ahead.

1 Comment

  1. oldrightie
    March 30, 2009

    The FTSE certainly don’t like it. I have this vision of Brown dancing manically round a pyre, laughing madly and heaping more notes on the flames. The pyre is The UK economy.

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