Creating too much money

It is becoming more popular to criticise the Bank of England. Michael Gove has recently added his lashing to that from Jacob Rees-Mogg. There is now a strand of criticism which regards the end July announcement of more Quantitative Easing and the further cut in interest rates as an unwise move.

Most commentators and politicians are still hung up on the idea that the Bank is independent. They clearly do not read the formal letters that go between the Chancellor and the Bank which put beyond doubt the fact that the Chancellor signs off all QE, and the government sets the targets the Bank has to hit when it chooses interest rates. Nor are we or they privy to the endless discussions that go on between Treasury officials and Bank officials day by day, or from time to time the private conversations of Governor and Chancellor.The strong agreement over a set of wrong short term forecasts for the economy this year between the Bank and Treasury implies some joint working, not just coincidence of error.

The joint decision to create up to £170,000,000,000 of extra new money was strange. Money and credit had started to accelerate before this decision was taken. Over a month had passed since the people decided to leave the EU, with no falls in consumer spending, general economic output or house prices, despite the Bank’s negative predictions of an immediate collapse of confidence.

The Bank advised and the government decided to print up to £170 billion and spend it on a mixture of second hand government bonds, second hand company bonds and cheap loans to banks. It was part of a concerted effort to get the interest rate down further, which it did, and presumably also to get the pound down more, which it also did. It is difficult see how the Bank could have thought this policy would be good for the pound, given the large numbers of extra pounds they decided to create.

At a time when the USA is contemplating further rate rises, deliberately putting our rates below those of the USA was an invitation to people to switch their money into dollars. Creating more of anything is usually a way of lowering its price. Monetary policy since June 23rd has helped fuel further gains in share and bond prices and some parts of the property market. It will also lead to higher shop prices for certain imports which the Bank as custodian of the need to keep inflation down should worry about. The pound now looks very cheap and could do with a helping hand from the Bank. Ruling out further rate cuts and QE would help, as surely even the Bank cannot think any more is justified.


  1. Lifelogic
    October 26, 2016

    Indeed the fall in the pound is not just related to Brexit. It is also due to low interest rates, money printing and the very many incompetent and anti-business and investment decisions take so far by Theresa May’s lefty government. HS2, Hinkley, runway dithering, gender pay reporting, quarterly tax reporting, workers and customers forced on to boards.

    Now there is even the hugely dangerous proposal to kill what remains of a free press by lumping both sides legal costs on to the publisher, regardless of the outcome of the action being discussed.

    All Osborne’s bonkers tax law changes are tending to make me dispose of my UK investments and move them elsewhere. Let us hope we get some sense from remainer Hammond in four weeks time, but the signs so far are not good at all. Oh for some proper Tories, sound money, low simple taxes, no vanity projects, relaxed planning, cheap energy, freedom, a bonfire of red tape and far smaller and more efficient government.

  2. Mark B
    October 26, 2016

    Good morning.

    As they say, “follow the money.” ie Who got the money and how did they gain from it ?

    £170bn is a lot of money to lose on a bet. 😉

    1. Hope
      October 26, 2016

      JR, you have pointed out before that every one of Carney’s predictions/rules have failed. He was going to raise interest rates based on employment figures, he has still failed to act. This is about silent project fear to get us to change our minds r be as close to the EU as possible i.e. Associated membership as planned in the five presidents report. This about conditioning our minds for their so called soft Brexit.

      We need change from the Leave campaign to make it happen. We voted to leave in its entirety. If they want to call it hard Brexit so be it.

  3. Leslie Singleton
    October 26, 2016

    Dear John–What I can’t understand is what the MPC are doing in all this, I remarked some time back here that Carney just appeared to give voice as if (and this may be) he had the MPC in his pocket and you replied that he did have the backing of the MPC. I cannot fathom how that can be. I can understand the Government having effective control over Carney (in any event the Bank never did get anything more than operational control, right?) but I am as I say having trouble working out how the MPC virtually unanimously gets persuaded to make such daft decisions. I had thought that they and they alone made the interest rate decisions but I find it hard to believe that the MPC back with scarcely a peep what is going on with our monetary policy. And, Dear John, reading the bit in your piece today about what’s good for the pound I am puzzled as to what the Bank is even trying to do. Seems to me obvious that on any basis interest rates should go up and quickly. Screw the computer models. Of course, having just dropped rates they cannot so soon after raise them. SNAFU.

    1. zorro
      October 26, 2016

      Just north of £500bn as I predicted would happen before end 2016 some years ago now. I wonder why?


      1. Denis Cooper
        October 26, 2016

        I think I remember you making that prediction!

        1. zorro
          October 26, 2016

          And I also said with a majority Tory government implementing it too!


    2. Sir Joe Soap
      October 26, 2016

      Carney’s over-arching imperative post June 23rd was to get the pound down to $1.20 in order to prove his credibility. The QE was about saving face, too, as this was the only way he could do a volte face about the doom mongering for the economy. Now he has predicted inflation above target, so he will do his best to meet that, too.

      The problem with pointing out their errors, Mr Redwood, is that they will make even more effort to ensure their gloomiest predictions come true, and thereby prove you wrong.

      Of course w e should have interest rates edging up to 2-3% now. It is crazy to let the Pound slip this low. We will have over-heating in engineering and manufacturing, and inflation in imported goods prices. Overseas investors will snap up bargains here. It’s plain to see.

    3. Lifelogic
      October 26, 2016

      What is good for the pound?

      Well it is not just the bank’s decisions that devalue the currency. The ones so far from the government show they are largely lefty, interventionist, anti-business purveyors of climate alarmism. They are clearly for expensive unreliable energy and for over priced bonkers vanity projects such as HS2 and Hinkley.

      It does not inspire confidence.

    4. acorn
      October 26, 2016

      Leslie. “Seems to me obvious that on any basis interest rates should go up and quickly”, you say. An increase in interest rates would encourage speculators to buy the pound and pull up its price.

      But, think about the Household debt that is still subject to variable interest rates. I haven’t checked recently but, the last time I looked, half of house mortgages are still based on variable interest rates. Hence, your proposal would put a large proportion of those mortgage loans, into the “sub-prime” category.

      1. Leslie Singleton
        October 27, 2016

        Dear Acorn–Cannot please everybody: a balance of some kind must be struck and that is very definitely what we do not have at present. The fact that property is going up so fast (Yes I realise there are other factors) indicates mortgages are too cheap. Besides, the borrowing side of the equation has done massively better than the savings side, and for too long, with savers in general gobsmacked by the punishing degree to which rates have been so artificially and extremely depressed. Anyway my point was that I would like to understand a lot better how essentially all members of the supposedly independent MPC find themselves able to vote in support of what I at least see as the obviously crazy status quo. Retired people who have saved are not going to spend their savings unless absolutely no choice because they are worried about maintaining balances best they can, given no way to top up with interest. If as many believe, certainly including me, rates have to rise and rapidly there will be a housing crash. I understand there are six times as many savers as borrowers. The housing ladder (pace Mrs Thatcher) is not the be all and end all apart perhaps from political reasons. Best I understand, Germany, which somehow gets by, doesn’t have such a thing. If people didn’t live to pay their mortgages, again they would spend more.

        1. acorn
          October 28, 2016

          Leslie, the government has no obligation to pay “interest” on its own money to anybody. It does it voluntarily with interest payments on Gilts and NS&I products; neither of which have anything to do with funding government operations. The government always spends its fiat currency before it taxes.

          Central Bank interest rates rise to slowdown all sectors of the UK economy by making Commercial Bank “credit” loans more expensive and consequently pay more interest on retail deposits in competition to attract such cash reserves. Loans create deposits that create the need for reserves, in that order.

  4. Lifelogic
    October 26, 2016

    Some government dope yesterday was championing the fact that Heathrow will be forced to ensure most people come to it by trains and buses. But why have this daft obligation? Often (especially with a family or groups) the car, taxi or minibus is the best and most efficient way to arrive at an airport. This despite the huge overcharging for airport car parking.

    Cars go directly, do not need to take convoluted connections at each end and often in fact use less energy, per person mile, than trains and buses do door to door anyway. They also run at all hours of the day and night are reliable and convenient for all the luggage needed. People can make their own decisions as to what is best for them, why do bossy fools in government always think they know best how people should travel?

    Some green blob person also said that the Heathrow decision exploded the Climate Change act. If only it did. Killing the climate change act is exactly what is needed. The act is absurdly expensive, job exporting, forces expensive and unreliable energy on customers and is clearly economic and even environmental lunacy.

    Why on earth did Cameron choose someone with such little party loyalty to be the candidate for Mayor of London? He could not even beat the very weak Labour candidate and now seem out to damage the Tories further.

    Gatwick first would have been the better & quicker way to go politically, both are needed anyway in the end. The tiny majority the Tories have (due to the incompetence of lefty, wet, tax borrow and waste EUphile Cameron) and won, mainly thanks to the dire Ed (stone) Milliband and the SNP, is being whittled away.

    There is little sign that May and Hammond are real Tories, perhaps we will get some fiscal and economic sanity from Hammond in four weeks but I rather doubt it.

  5. Margaret
    October 26, 2016

    We will have to get into the diamond market for both industrial use and personal use. Diamonds are not in a much demand as they used to be. Preston’s of Bolton either is closing or has closed . Zircon has taken over the cheap end of the market , but with more production and involvement in mining, the diamonds ‘ plenty would again make it more saleable.

  6. Margaret
    October 26, 2016

    Apple apparently has only 10 % of the phone market and its profits are going down although still the biggest company . Surely a sister company with new ideas here would be helpful and create products at the lower end of the market.

  7. Margaret
    October 26, 2016

    Electronic software for children with Autism focusing on repetition of emotion to task could be developed and sold to EU etc. There are millions of directions which would help our economy. We have migrants in the thousands in the EU who will need to integrate and will need educational software and hardware. Get on it UK now.

  8. Caterpillar
    October 26, 2016

    As well as the direct highlighting that the current macroeconomic policy is contestable, Dr Redwood’s Diary today makes me worry about two and a half other things:

    1a) A so called independent central bank and MPC could seems to be a means of having a major institution that is not easily held up to visible public scrutiny (a Chancellor announcing and defending monetary policy decisions to MPs in the Commons would be more publicly scrutinised.)
    1b) This continuation does not surprise me, that a move away from London centricity and power centres was only lip-service was sadly confirmed with the Heathrow decision.

    2) The creation of money in the economy will be left to the debt mechanism and no alternatives have or are being considered in official circles – the GFC is now nearly a decade old and the money creation remains the same old method.

  9. Iain Gill
    October 26, 2016

    Yes the public sector is creating too many other things too, work visas for one, intra company transfer visas for another, indefinite leave visas too, anyone would think the manifesto promises to reduce immigration were just a cynical lie to get elected.

  10. Jerry
    October 26, 2016

    “It is becoming more popular to criticise the Bank of England. Michael Gove has recently added his lashing to that from Jacob Rees-Mogg.”

    Well quite a far reaching opening comment but not backed up by any evidence, other than the usual criticisms from eurosceptics on the right of your own party (who seem to dislike the current Governor and the notional independence of the BoE more than they do QE). So were is the LibDem or Labour names in criticism, what about the NI MPs, Welsh & Scottish parties or from UKIP; what about criticisms from the commercial and retail banks or industry & commerce?

    If there is any wider criticisms of the BoE, or more precisely how QE, it is how QE is being used, but that is far more a criticism of past and current government policy – which might yet change come the Autumn statement next month.

    As for the problems with the GBP, that is the fault of Brexit, not wider BoE policy, otherwise why was the GBP strong (although nervous) right up to the night of 23rd June and the first signs that the UK had voted for Brexit.

  11. Narrow Shoulders
    October 26, 2016

    Low interest rates long ago ceased to be a confidence boost for the economy.

    Today ZIRP merely props up the housing market and encourages investment in assets rather than cash.

    Time for a new direction I feel.

    As for creating money why not just print the debt and stop having to pay interest. The broad money is already in existence so printing it with additional capital holding conditions for banks’ reserves will be no more inflationary.

  12. Ian Wragg
    October 26, 2016

    Carnage is hostage to Gideon and regardless of the Brexit vote he was determined to print money and reduce interest rates.
    He is still singing from Osbourns hymn sheet.
    Determined to crash the pound to fulfill his prophecy.
    The man should be sacked and interest rates put up to 2% immediately.

    1. Anonymous
      October 26, 2016

      Sacked ? Imprisoned !

  13. alan jutson
    October 26, 2016

    Increase the amount of money and lower its value.

    This has been the lesson for centuries, so why are people surprised when the pound has slipped in value.

    Cannot say lessons will be learnt this time, just poor judgement from a poor forecast, unless of course they wanted the pound to lose value, and did not want to go zero or negative (for depositors) with interest rates.

    Looks like project fear worked with Mr Carney and his ilk.

    But what do I know, I had to work for my money before I retired, now that effort has been devalued.

  14. Dave Amdrews
    October 26, 2016

    The ease with which the BoE creates money and those it distributes it to is in juxtaposition with the difficulty the likes of us have in obtaining it and the ease with which government and others relieve us of it.

    1. Denis Cooper
      October 26, 2016

      When QE is restricted to the purchase of gilts the new money passes from the Bank to the Treasury via the gilts market, and it is then used to help pay the government’s numerous bills. Like, paying old age pensions and social security benefits, running hospitals and schools, etc etc etc.

      When QE is expanded to the purchase of private sector assets such as corporate bonds then that is a different matter.

  15. Ken Moore
    October 26, 2016

    Brexit is being used as a ‘catch all’ excuse for all ills of the economy.
    The recent interest rate cut has further deepened the deficit in pension provision.
    The politicians and BOE see it as an excuse for wholesale blame shifting.

    The economy is in no fit shape to deal with an interest rate rise thanks to gross incompetence – the levels of debt and the state of the current account deficit are too dire.

    The 2007 banking crash was just the start – the cracks have been papered over since by rigging the markets but this is just storing up greater trouble and buying the political class a little time.

    ‘Laissez Faire’ regulation and the British obsession with ‘neo liberal economics’ in which strategic assets are sold off to foreign ‘investors’ has been a disaster. Debt has skyrocketted and growth sluggish. Each asset sold of to pay for todays overspending creates a future outflow of capital – the British economy is in a death spiral and our leaders are either lying to us or in denial……

  16. Kryptonite
    October 26, 2016

    On the surface of it there does not appear to be anyone in the Cabinet with the background enabling a challenge to the Chancellor and BoE Governor except Greg Clark, Amber Rudd, Andrea Leadsom, Sajid Javid and Justine Greening. Even some of those could be blinded by science in a protracted diatribe. Some or all of them may like Zimbabwean money printing though if not I guess they could resort to a UKIP-style altercation.But then that would never happen as they are proper politicians not people right out of a comic book.

    1. Tad Davison
      October 26, 2016

      That’s why I think John ought to have a seat at the Cabinet table. According to a survey conducted a little while ago, some 90% of all MPs didn’t know how the financial system worked. That is a worrying statistic even if it is remotely true or anywhere near. Little wonder we get some awful legislation.

      I have been watching Professor Steve Keen on YouTube in recent days, and he’s an interesting bloke with the ability to question the status quo and offer alternatives. Well worth a look.


      1. Mitchel
        October 27, 2016

        I’ve long found Prof Keen interesting to listen to.

    2. Jerry
      October 26, 2016

      @Kryptonite; Stop confusing Marxist theory with Keynesian economic theory!

      1. APL
        October 28, 2016

        Jerry: “Stop confusing Marxist theory with Keynesian economic theory!”

        Why, they are both rubbish.

    3. Qubus
      October 26, 2016

      Maybe Andrea Leadsom, Sajid Javid and Justine Greening, but the others don’t have a clue.

    4. Peter Martin
      October 27, 2016

      @ Kryptonite,

      “Some or all of them may like Zimbabwean money printing..”

      I’ve visited quite a few countries on my travels although must admit that I’ve never been to Zimbabwe. But I have noticed that everywhere I go, the money that comes out of ATM machines is actually printed. No-0ne uses gold coins any longer. Even in Switzerland and Germany.

      I suppose if printed money can work well enough for those countries it can work well enough for the UK too. We just need to create just enough to keep the economy going at close to full capacity but not too much which would create too much inflation.

      1. APL
        October 28, 2016

        Peter Martin: ” We just need to create just enough to keep the economy going at close to full capacity”

        “To keep the economy going”! It’s not money or notes or Gold that keeps the economy going. It the benefit someone gets from doing useful work. That benefit is reviled these days as profit.

        You could print as many notes as you could possibly stack side by side from lands end to John ‘o Groats and give sixty million inhabitants of these islands an equal share.

        Do you think doing that would “keep the economy” going at full capacity”?

        Peter Martin: “No-0ne uses gold coins any longer. Even in Switzerland and Germany. ”

        There will be a reason for that, the smallest denomination gold coin the half sovereign, is worth something like £150 in todays sterling notes, given that most transactions are considerably below that value, it’s probably not practicable.

        But even the regular coins the banks circulate, their worth is so low that dealing with coinage is a loss making part of banking. But then, what isn’t a loss making part of banking these day except charging 20% for a loan and paying 2% interest on deposits.

        1. Peter Martin
          October 31, 2016


          The GDP of the UK is approx £2.1 trillion. So it needs £2.1 trillion of spending to keep it going. If we want growth then it has to be more.

          ” It’s not money…that keeps the economy going. It the benefit someone gets from doing useful work. That benefit is reviled these days as profit.

          It has to be both. There’s no point, at least in our type of economy, employers and workers doing useful work if they don’t have paying customers for that work. There has to be enough money circulating to create the profits and the wages.

          1. APL
            November 1, 2016

            Peter Martin: “So it needs £2.1 trillion of spending to keep it going.”

            Let’s take your assertion at face value.

            There is £2.1 trillion circulating in the economy today ( ‘to keep it going’ ).

            Let’s imagine the government prints ( or injects ) another £2.1T into the economy tomorrow. Presto!! We’re all twice as rich! What a good idea.

            Except, what really happens? The GDP as measured in yesterdays £ sterling is £2.1T, but today you’ve injected another £2.1T, so the GDP of the economy is now £4.2T, Wow, that was easy.

            In reality, the economy isn’t any larger, people aren’t any wealthier, you’ve just halved the value of the accepted medium of exchange and conveniently, the ‘yard stick’ used to measure the economy.

            Into the bargain, destroyed the livelihood of pensioners. You know, the most vulnerable the lefties always claim to advocate for.

            Peter Martin: “There’s no point, at least in our type of economy, employers and workers doing useful work if they don’t have paying customers for that work.”

            The problem with your analysis is that it assumes the money is destroyed, and needs to be replaced. It isn’t of course, it’s just a convenient medium of exchange. What you are actually trading when you hand your money over to another in exchange for some-thing, is your accumulated surplus of your ‘useful work’.

            When you ‘print’ or QE, what you are actually doing is destroying the value of that accumulated surplus.

  17. Bob
    October 26, 2016

    Mr Hammond needs to answer for his actions to undermine the value of our currency. The pound had already dropped to £1.30 after June 23rd, but it would appear to the cynical observer that it wasn’t sufficient devaluation t0 cause the price increases needed to properly punish the voters for defying the government.

    Mr Hammond’s appointment as Chancellor also brings into question Mrs May’s true motives in her choice of Brexit Cabinet members, especially in the light of the leaked recording yesterday of her speech to a secret audience with investment bankers before the referendum.

  18. Denis Cooper
    October 26, 2016

    At least we don’t have to worry too much about gilts as well as sterling, the Bank (or the Treasury?) has limited foreign currency reserves to prop up sterling but can create effectively unlimited sums of sterling to prop up gilts. So I wouldn’t rule it out just yet.

    1. StevenL
      October 26, 2016

      They can create every single bid in the entire market in gilts for gilts if they want to – even if nobody else wants to buy the gilts or the pound, the good old BofE can just make as many pounds as it wants to and buy up all the gilts HMT issue.

      Of course at this point the numbers would just be academic and bottles of scotch would be the new medium of exchange for the masses.

    2. Peter Martin
      October 27, 2016


      I’d say if you want to worry yourself about the financial situation ( unnecessarily in my view) you shouldn’t make a distinction between gilts and cash(Pounds sterling).

      Gilts are IOUs (usually with some small interest) issued by the Treasury. Pounds are IOUs issued by the not-so-independent BoE. So sometimes Govt exchanges pounds for gilts. And other times it exchanges gilts for pounds. Does it really matter that much at a time when interest on gilts is ultra low?

      Surprisingly, cash or the monetary base isn’t counted as part of the so-called National Debt, whereas gilts are. I presume this is for historical reasons. At one time cash would have been backed up by gold reserves held by the BoE, but now that it isn’t, wouldn’t it seem reasonable to count all that as debt too?

      As it is we could theoretically eliminate our National Debt, simply by replacing all bond IOUs with cash IOUs. But that doesn’t make any sense at all. Or am I missing something?

  19. Antisthenes
    October 26, 2016

    QE and low interest rates may appear to work especially to stave of major recessions but the long term effects will be negative. To do it at all is bad but to do it to correct a non existing economic crisis is folly of the worst kind. Our thinking on monetary and interest policies is wrong.

    It rewards failure thus penalising the successful new and existing enterprises and individuals. As the clamour at times of economic crises always is for ways to be found to lend those being starved of money attests. Some of the failure to be fair is not initially caused by those directly involved but by government interventions and/or policies. If government got it’s regulatory and policing policies right in the first place in most cases not being involved in them at all fewer failures would occur. In effect taxpayers are paying for governments mistakes.

    The problem stems from too much government. Planning and control from those who are not directly involved in the demand and supply chain always disrupts that chain that then causes harm to both producers and consumers. Why we follow the example of socialists is one of life’s mysteries but our progressives convince us we should. Not just in economic planning but in the planning of all other aspects of our society.

    We forget that it is those who are most effected are the ones to who should decide what is best for them not those who believe they know best. Information and advice we need being controlled and manipulated we do not. The BoE should not be deciding how money is supplied and at what rate. Those who needed it can decide that and if they get it wrong and fail then they will fall by the way side and it will be used by others who will make better use of it. That way major busts need ever to occur it will just be a matter of a few failures with many more successes. A few will lose out but the majority will not. There are always winners and losers and that is a small price to pay for not everyone periodically being a major loser.

  20. Gerry Dorrian
    October 26, 2016

    Our money’s value shifts up and down in the first place because we, like most of the world, operate a fiat currency, and the house of cards is wobbling.

    1. eeyore
      October 26, 2016

      Gold itself becomes a fiat currency when the purity of the coinage is at the mercy of a rapacious and dishonourable government. All that is ever needed for honest money is political will. For 300 years HMG maintained the pound unmolested, despite enormous temptations, and received a magnificent payback in prosperity from which we still profit.

      We who have lived all our lives with inflation can hardly imagine the security our ancestors felt when they contemplated their beautiful, bombproof guineas and sovereigns.

  21. brian
    October 26, 2016

    The Governor of The Bank is trying his best to help a pretty feckless nation. He has limited opportunity to defend himself against politicians’ hectoring and should be allowed to get on with the tasks allotted to him.

    1. Denis Cooper
      October 26, 2016

      That’s what Parliament agreed through the Bank of England Act 1998, with the Section 19 proviso that under “extreme economic circumstances” the Treasury could invoke reserve powers to suspend the Bank’s operational independence and give it directions on monetary policy, subject to the consent of Parliament.

      But apparently so far there have never been economic circumstances sufficiently extreme for that to be invoked, or rather three successive Chancellors have chosen to interfere through back channels rather than openly and legally.

      Reply Mr Darling effectively overrode (rightly) to get rates down in the crisis.

    2. Deborah Clark
      October 26, 2016

      “Trying his best”. Poor thing.
      I expect more than effort from the very well paid Governor of the Bank of England. I expect competence. When his best isn’t good enough, he should leave (or be removed).

  22. ThriftyPuss
    October 26, 2016

    I cannot recall the previous Bank of England Governor repeating it his “duty” “responsibility” “mandate” to “alert” “inform” “tell” “warn” about the “dangers the British people face”
    Perhaps the previous governor was a bit shy. Very few could name him. I guess printing a whole lot of money and using it building a paper tiger economy makes a whole lot of noise.

  23. acorn
    October 26, 2016

    The consolidated Treasury and Bank of England, won’t actually create £170 billion more of its “Units of Account” that we call money – MMT calls it vertical money or the fiscal asset). Increasing Quantitative Easing (QE) by £60 billion, does not increase the amount of vertical money (fiscal assets) in the economy. The BoE is just swapping government Gilts and Treasuries, back into the original Treasury “Units of Account”, that bought the Gilts (saving certificates for the private sector), originally. Those Units of Account the Treasury created previosly, every time it spends, are called “reserves”.

    The BoE can LEND like any other Bank. That is, supply credit – MMT calls it horizontal money. It has a very small capital base to lever up into loans; but, as the government owns the BoE and has an unlimited pit full of its own FIAT Units of Account, the BoE ain’t ever going broke in its own currency. That’s the beauty of being owned by the currency issuer; the Treasury. The rest of us are currency users.

    The BoE may BUY £10 billion of private sector debt / assets; but the BoE can’t increase the net fiscal assets in the economy to do it, because it is not the sovereign currency issuer. The Treasury has to fund the BoE outright purchases of private sector assets.

    This is where the smoke and mirrors will turn up. The possible £100 billion Term Funding Scheme, will no doubt use the Funding for Lending Scheme tricks that the Debt Management Office created, to make sure that none of the above turns up as a government budget deficit for the Chancellor.

    The bottom line is that if the government got its Treasury to run a bigger deficit; spend more of its Units of Account, into the economy, none of the above “monetary policy antics, would have been necessary at all. 😉

  24. Steve Cox
    October 26, 2016

    British economists all seem to be very keen on devaluing the pound as much as possible, and unfortunately our policy makers have the same herd mentality, evidently believing that conventional economic theory is still fully applicable (even though it’s clear that many basic theorems and tenets no longer work) so a lower currency will provide a massive stimulus to British industry as well as curing our huge current account deficit. But as the song goes, it ain’t necessarily so.

    Our experience after 2008 when the pound dropped sharply showed that trashing the currency no longer works very effectively at stimulating British exports. The reasons for this are well known (by everybody except the dismal scientists, it seems). The end result is that savers are further beggared, pension funds are further hamstrung and endangered, and real pay rises will become a fond memory as inflation begins to bite again. Is the (almost-certainly modest) improvement in exports really worth the pain caused to so many ordinary people?

    And as for the current account deficit, all the commentators like to blame it on us British peasants’ taste for imported goods, whereas in fact around one-third of it is entirely due to two things: the £13 billion a year that we send to Brussels and the £12 billion that we lavish on foreign aid. We’re not even as savvy as the French to insist legally that our aid is spent on British goods. And as for us peons and our taste for BMW’s and French champagne and Italian clothes, well what if people decide that they like these goods so much that they will suffer the price increases and continue to buy them, and instead cut back on purchases of British-made goods? Nobody can say that won’t happen, apart from our economist friends who are wrong about pretty much everything else, believing that the ‘old’ economics is valid.

    The BoE and government – not to mention all the economists preaching the devaluation gospel – need a new paradigm like productivity improvement, not never-ending devaluation. Trashing your currency isn’t a path to Nirvana, just ask the citizens of Harare.

  25. Bert Young
    October 26, 2016

    Firstly I do not believe that Hammond is the right man for the Chancellor’s job . Secondly the gaffs that Carney has made did nothing to support the credibility of this country . Thirdly the grip of the Treasury is not good for the development of sensible administration – its power has always been spread around the Civil Service .

    Creating “paper” money without justification simply prolongs the agony of getting things better . All debt has to be repaid and there is no point in deluding ourselves . We now need someone of the skills and credibility to steer us through the mess that has been created – any Suggestions ?.

    1. Narrow shoulders
      October 26, 2016

      Print the debt and pay it off insisting that banks keep large ratios of the released money as cash in their reserves. The can be allowed to release the cash gradually as their other reserves grow.

      Subsequently run balanced budgets

  26. Mitchel
    October 26, 2016

    “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency.By a continuing process of inflation,governments can confiscate,secretly and unobserved,an important part of the wealth of their citizens.By this method they not only confiscate but they confiscate arbitrarily:and while this process impoverishes actually enriches some.The sight of this arbitrary re-arrangement of riches strikes not only at security but also at confidence in the equity of the existing distribution of wealth.

    Those to whom the system brings windfalls beyond their deserts and even beyond their expectations or desires become profiteers who are the object of the hatred of the bourgeoisie whom the inflation has impoverished,not less than the proletariat.As the inflation proceeds and the real value of the currency fluctuates wildly from month to month all permanent relations between debtors and creditors which form the ultimate foundation of capitalism,become so utterly disordered as to be almost meaningless and the process of wealth-getting degenerates into a gamble and a lottery.

    Lenin was certainly right.There is no subtler,no surer means of overturning the existing basis of society than to debauch the currency.The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose”

    That was John Maynard Keynes in 1919’s “Economic Consequences of the Peace”.It was true then;it is true now.Technocrats like Carney and his backers from Big Finance and Big Corporations are not free market capitalists;they represent the corporate equivalent of bolshevism.We may not have the inflation in retail prices yet but we have the effects of it in house prices and private pensions.

  27. Richard1
    October 26, 2016

    We are in an absurd position where the weak pound is the main evidence cited to demonstrate the adverse economic effects of Brexit, yet official policy could not be more calculated to weaken the pound, presumably therefore undermining confidence. It is difficult to avoid the conclusion that this is self-justifying policy so Mr Carney (who seems a little petulant) and unnamed Treasury bods can say ‘we told you so’.

    Meanwhile what on Earth is Liam Fox doing? Today we hear that Australia have been advised that any pre-Brexit negotiations (NB negotiations not signed deals) with the UK would be ‘illegal’ (Q: under what law?). The trade policy part of the govt which is the domain of Fox and Davis seems to be chaotic – they have no clue what they are doing. The effect of this mess on confidence will be much worse than Mr Carney’s QE. The Government needs to make the position clear – either the UK can or it cannot initiate trade negotiations pre-Brexit. If not then the speedier Brexit comes the better, if it requires the agreement of the EU it should be traded against agreement of the UK to stay uout of future-EU planning and discussions before we leave.

    But clarity and leadership are needed urgently.

    1. forthurst
      October 26, 2016

      “The trade policy part of the govt which is the domain of Fox and Davis seems to be chaotic – they have no clue what they are doing.”

      They’re on a learning curve but, so, more importantly is the civil service which for the last forty years has been engaged in transfering EU law into English law, administering those laws to the detriment of the nation and advising ministers on what they can’t do because it is against the laws they have helped to place on the statute book.

      Becoming an independent nation has both challenges and opportunities; some citizens of recently independent nations rue the loss of English rule: the English will certainly be better off under our own rule as well.

    2. Mark Watson
      October 26, 2016

      To be fair I think what they are saying in public (ie what the EU are hearing) and what they are doing in private with the Aussie and others is very different.

  28. Gary
    October 26, 2016

    The only thing worse than a govt having control over the money supply is having a private monopoly with control over the money supply. On the one hand you have a bunch of career politicians with a penchant for monetary bribes to the electorate to secure re-election, and on the other a bunch of greedy self enrichers with sole control of the money. Put them in joint control of the money and you have even a bigger disaster.

    Money should be of fixed quantity of non-counterfeitable units and only divisible down into fractions to “expand” the supply when the free market demands more or aggregated up when the free market demands less money.

    A bunch of charlatans, who always profess to know more than the market does, and who always know better how to spend the money that you have earned should be driven out of the control of the money supply. Usurers who have a monopoly to print money for essentially nothing and without risk to themselves, and to lend it to you and I for repayment of interest + principle through hard work , with all the risk on you, should be driven out of the business. That is debt slavery. That is the definition of usury, risk-less and costless creation of money for interest that the debtor must slave away to repay. NOT that cute little decoy definition pushed by the usurers themselves ,that usury is “paying too much interest”.

    Either we change this system voluntarily now or it will be changed by involuntary imposition later, by collapse of the entire system. By the mathematics of the exponential function.

  29. Mark
    October 26, 2016

    Mr Carney has once again claimed that he is the fount of all wisdom about running the country, and that mere politicians should bow to his superiority. It’s really time he was shown the door. We have had far more sensible analysis from Mervyn King, who could probably be persuaded out of retirement to take over next week until a more permanent appointment can be made.

    Perhaps Mr Carney as a Canadian will find that the ECB considers he is just the ticket to solve their problems. We should wish him on them.

  30. Denis Cooper
    October 26, 2016

    I’m sure we’re all deeply shocked by today’s revelation that Theresa May repeated some standard, pretty conventional, Remain arguments before the referendum:

    “Leaked recording shows Theresa May is ‘ignoring her own warnings’ on Brexit”

    Well, that’s as may be, she was always openly in favour of staying in the EU and it’s not exactly a surprise that she should have put forward those well-worn arguments on that side of the debate, such as it was; the important thing now is that she is not ignoring the judgement of the British people on the different arguments that were presented to them during the referendum campaign, which is what the Guardian wishes to do.

    1. stred
      October 26, 2016

      We have Eural in a dress. Politicians with flexible beliefs who are good at presentation and speech making, believed by the masses and who are in the job because they really like being prime minister.

      It will be necessary to watch and predict every move.

      etc ed

    2. acorn
      October 26, 2016

      Denis, give me your odds on a “Hard Brexit” actually occurring. I can get 4 to 1 against, sur la continuité, that is, 20% chance of a Hard Brexit. All the best acorn.

    3. Mark
      October 26, 2016

      I’m sure she was very polite in not drawing attention to the calamitous consequences of the actions of her hosts with respect to Greece.

  31. David Lister
    October 26, 2016

    ” ..The strong agreement over a set of wrong short term forecasts for the economy this year .. ”

    I’m not certain which forecast you are referring to. But its worth recalling that the economic forecasts of lower growth, and/or recession, were based on no-intervention from the bank and I understand an assumption that Article 50 would have been triggered immediately.

    The £:$ fell from 1.49 to 1.32, immediately before and after the referendum an immediate drop of 13% because traders anticipate a future weakening of the economy. This was prior to any intervention from the BoE. It could be argued their intervention is what stabilised the market.

    The more recent latter falls of the £ are directly related to the hard-brexit statements made during and immediately after the Conservative Conference. There is a stronger correlation that the £ is more of a hostage to political events than to interventions made by the BoE.

    It seems that the thrust of your argument is to blame the BoE for the unfolding collapse in the value of the £ without recognising this is all brought about by Brexit and a recognition of external political influence.

    The BoE are between a rock and a hard-place. If they hadn’t intervened and the economy went into recession, would you be still be praising them for non-intervention?

    1. libertarian
      October 27, 2016

      David Lister

      Oh dear poor excuse you are wrong. Every commentator has put that myth to bed over the last couple of days. The forecasts od dire consequences and crashing economy was all predicated on the immediate after effect of a leave vote. Read Andrew Neil, read Guido, read the Treasury who have all shown this to be the case.

      The recent large fall in the pound was actually a flash crash, nothing to do with Brexit at all. The lowering of interest rates and printing more money was not a solution but a cause, the BoE just plain got it wrong….again.

      If you think the BoE lowering interest rates is responsible for the massive job creation, various large corporates moving their European HQ’s to London , the growth of the economy and massive inward investment since June 23rd then you are seriously deluded .

      Classic IYI

      1. David Lister
        October 27, 2016

        £: $ = 1.22 today. Before the referendum it was 1.49

        Not a flash in the pan unfortunately. As a result, the rest of your post makes no sense.

  32. fedupsoutherner
    October 26, 2016

    All this manipulation seems to be done to frighten the public into thinking they have done the wrong thing in voting to leave. I am fed up with the likes of people in the banks threatening to leave the UK when it is the UK and our money that bailed them out. We should ask for it all back before they go. Every day there is something new and sinister being cooked up by the establishment and it seems they will go to the ends of the earth to show us how wrong we are. Stuff them! Sack them all and get some people in that want to do the best for this country instead of trying to ruin it.

    1. graham1946
      October 26, 2016

      Threatening to leave? Where will they go?

      UK Corporation Tax 20% – soon to be 15% I reckon
      Germany : 29.72%
      France – 33.3%
      Italy – 31.4%
      Spain – 25%
      Luxembourg 29.2%
      USA – 40%

      That’s before we leave and stop paying in our 10 billion, which they need to make up somewhere.

      There are a few countries with lower tax rates than us, but there is not much in the way of infrastructure for banking and trading.

      They told us all this when we wouldn’t join the Euro – they’re still here. It’s all hot air as you say to try to frighten us. They are just trying to get the government to bail them out and it looks like it is succeeding – no doubt there will be many under the counter deals done by our clueless politicians, but not for the SME’s who employ most of the workforce and provide most of the taxes.

      1. Jerry
        October 27, 2016

        @graham1946; “Threatening to leave? Where will [banks and businesses] go?

        Eire perhaps?…

        Corporation Tax at 12.5%, on the same time-zone as London, English being the predominate language and the infrastructure for banking and trading that you talk about, which has been in existence for years, with many international companies & corporations having taken advantage.

        1. graham1946
          October 27, 2016

          Its not like London which has been developing since the big bang 30 years ago, otherwise they’d be there. It’s o.k. as a registered base for some like Amazon, to dodge taxes but big time trading? – do me a favour – Canary Wharf is many times bigger than Eire for that.

        2. libertarian
          October 27, 2016


          Yes English and English contract law are basis of banking law. However banking technology is the key driver and there are only 4 places in the world were that structure and its eco support system exists and only 2 places where clearing and support services infrastructure exist to handle the vast amount of transactions. Those 2 places are London & New York. There is not an iceberg in hell’s chance of the banking infrastructure moving to Dublin. In fact it isn’t going to move anywhere, even if they wanted it too. London is one of the worlds two main financial centres and will remain so. Banking is a global activity not a European one.

          1. Jerry
            October 28, 2016

            @libertarian; “Banking is a global activity not a European one.

            Exactly, nor is it London/New York centric any more. Banks are in LND and NY by tradition, that is the only reason, and as you said yourself the other week, much trading is automated these days – a server room can exist almost anywhere in the world these days providing there is a power source and the internet, whilst those other structure and eco support systems would move too (just as it happens in other industries). and that is the big risk, one bank moves and they all do.

            Anyway, I was replying to a comment about banks moving [1] and why it would not happen, I was merely pointing out one location that does not fit @graham1946’s drab assessment of high taxes etc, nor his, later, even more absurd comments about Eire!.

            [1] perhaps to Frankfurt, the most likely destination and one already penned in by eurosceptics as being a real threat to the well being of Canary Wharf, why else all the bile directed towards such talk if banking can only possibly exiost in either LND or NY?

  33. ian
    October 26, 2016

    They just want to buy back more of there own bond because they think the uk bond market is not stable and the only way to get bondholders to sell is lowering price of the pound, what they worried about is a bond run, as for price of shares and property going up that more to do with pound going down but london property market being a investment market prices have stop going up because they see the pound going down to 1 dollar to 1 pound but rest of the country property market will keep going up, the london buys will come back when they think the pound has gone down to the right level to start buying again.

    If you bought a 2 bedroom flat in london in 2011 at 310,000 on a mortgage at 3.25 per cent, so as the mortgage rate has gone down to now to 1.75 the value of the flat has gone up to 575.000 but if you buy now at 555.000 your interest maybe 1.75 but repayment have almost doubled so this new buyer needs interest rate to go down more to push the price up, so at 0.90 interest rate you might pay over 700.000 pounds but have bigger repayments, so it how you see it, the person who bought at 310.000 has the best deal as usual but when to sell and buy a house outside of london or move overseas, is it last year or wait for more bond buying to push down interest rates and the pound, the only thing to worry about is economy and inflation getting out of control and they forced to put up interest rates, then it all falls apart.
    If you look at US shares, they have been going up while dollar has been going up where as uk shares have been going up because the pound is falling and the same in the EU as investors switch to dollar investments, when most of the money has gone to the US then that the time to start worrying because the money will not stay there forever, in fact that will be seen as they turn to hit the rocks, so where to then.

  34. Lindsay McDougall
    October 26, 2016

    As I wrote at the time of the July measures, the interest rate cut and the extra QE were a quack remedy to a non-existent problem. They constituted the exact OPPOSITE of what was needed, and have been a major cause of the further fall in sterling. The markets know when inflation is coming; 5% within a year wouldn’t surprise me.

    Now that we know that Mr Hammond backed Mr Carney, it is clear what the situation is and what should be done. Either they are being deliberately malevolent, trying to bring about the Project Fear scenario in real time, or their heads are full of neo-Keynesian nonsense. Either way, they have both got to go.

  35. Well-read
    October 26, 2016

    Mr Robertson SNP MP in PM’s Questions today shows why he should never be allowed anywhere near a Defence role.
    He appeared to think it reprehensible that Spain refueled a flotilla of Russian warships.
    We are not at war with Russia, nor is Spain, nor is NATO as a whole or in part.
    It is a pity they were not refueled at a UK port so we could profit directly.

    The fact the ships were classified as military does not detract from maritime law and custom and humanitarian considerations that a request from a vessel requiring fuel must be honoured ; for, a denial of fuel renders the vessel and its crew in peril from weather, denies it the acquisition of food, water and medical assistance, and disallows it from moving away from possible accidental collisions.

    It is a much appreciated fact that throughout the Cold War NATO planes regularly refueled in Iceland on Russian aviation fuel. An examination of the growth of the Communist Party of Iceland may provide Mr Robertson with much needed knowledge. Of course he was too young to read and know about it at the time. Also too young, to know how Russian trawlers ( including ones used as spy ships ) around the time of his birth frequently off-loaded fish, were refueled, never boarded by our ( UK’s ) Custom Authorities; its Russian trawlermen never asked for passports or visas by anyone. He may be interested to know they enjoyed Scottish pubs and beer.

    Away from that, Russia as was pointed out at the time of his birth, by China, because it received vital supplies of titanium for its WMDs ( regularly ) from America.. Also three years prior to Mr Robertson’s advent into the world the British Embassy in the then called Peking was burned down by Red Guards and simultaneously ICI was building and continued to build a chemical installation in another part of China and its British workers sportingly demonstrated throughout the streets with Chinese people waving the little red book. ( Nothing stops business nor indeed necessary refueling.) ( photos can be seen in back issues of the paper English version of “Peking Review” printed and published in the People’s Republic of China
    It would be best for Scotland, for her security, if older heads championed the SNP, if at all.

  36. Spy
    October 26, 2016

    Mrs May corrected Mr Corbyn on his notion of the ins and outs of the Customs Union.Again, a very intelligent ( oh yes he is! ) and an accomplished person in the “elite” makes an incomprehensible mistake…not a Freudian slip… not a slip of the tongue. Mr Corbyn’s political enemies may not see anything out of kilter…Gandalf, daft Labour . ..etc etc. Except he has been MP for thirty years and probably knows more about the EU and its relationship with the UK than many or most in Parliament.

    #Time to check Parliament’s drinking water/air and other communalities of imbibing and environmental pollutants of particular fixtures. A Conspiracy Theorist would think first, politicians were being attacked covertly by a foreign or domestic agency wishing them ill. So, that can’t be right.

  37. Smiley
    October 26, 2016

    Our Defence Minister Fallon:”We’d be extremely concerned that any NATO member should consider assisting a Russian carrier group that might end up bombing Syrian civilians,” Reuters
    Lucky for him the Russians have voluntarily withdrawn their request to refuel and take on supplies. They could have insisted…and in fact demanded. Brilliant Chess players!
    Of course any NATO ship or plane breaking down or experiencing difficulties of any kind whatsoever where Russians are capable of assisting before NATO forces…well it will prove embarrassing for Fallon because the Russians will assist in accordance with all international and UN agreements. But..may agree to NATO saying it “withdraws” its request for refueling etc.

  38. theresa is ok
    October 26, 2016

    Media starting hatchet job on T. May. She needs our support, poor woman.
    Given the amount of effort JR puts into this blog and the way he speaks, I rate him.
    If T.May was a baddun I hope he’d have dropped a hint by now.

  39. PennyBanger
    October 26, 2016

    In 1980, one missile from a RAF aircraft could destroy two city blocks ( US sized blocks ). So, It should expected 35 years later that one missile from a Russian aircraft, as Russians are good at playing Rockets, would take out five city blocks.

    The Russians and Syrians have enough aircraft in Syria to demolished Aleppo many times over.
    So, what fear has Russia got that she needs send an added eight ship flotilla including her one aircraft carrier to Syria? She does not have enough service personnel to actually invade anywhere boots on ground style.
    Perhaps a little bird has told Russia that the build up of forces in Iraq of several different armies and airforces signals more than just an assault on Mosul. It takes two to tango but in the case of the West a multitude of aggressive forces and quite barmy war objectives.

    Mr Trump is adamant that Obama is trying his best to start a major war soon (Mr Trump has over 200 endorsements for his Presidency from senior military. He knows them well. It could well be.
    If only hawkish Mr Fallon and Mr Benn who crawl, wiggle and bow to Obama would be offered enhanced pensions if only they retire immediately, we would all be much more safe.

  40. B
    October 26, 2016

    Had enough.

    Its not about interest rates, immigration, tariffs, trade deals, extra runways, exchange rates, bmw’s, wind farms, level crossings etc

    Do you want

    A ) all countries to be dissolved and there to be one big country.


    do you want to

    B) retain individual countries.

    That’s the only question.

    Its not about left v right/islam v christianity/black v white/young v old etc

    Do you realise who will be governing you ?
    A very small group, I wont call them elite because they are not, will be ruling you.
    Brexit /Remainer/Democrat/Republican/Conservative/Labour/Communist/Islamist all immaterial.
    Divide and rule

    Are you an A or a B

  41. Peter Martin
    October 26, 2016

    Before we all get too excited about “printing money” we need to recognise that all money, apart from loose change, is either printed or created in a computer.

    Sometimes Government issues IOUs which are called bonds. Sometimes Government , or its not-so-independent central bank, issues cash or pounds. If it didn’t issue them we wouldn’t have any in our wallets and we’d have to revert to a barter economy, or, even worse, use the euro!

    So the question should be about the amount of the new issue. Is it too much or is it too little? It really comes down to how much extra spending it all creates. If its too much then we could see inflation become too high. That’s the key test.

  42. Jack
    October 26, 2016

    You have to remember that pre-BoE “independence” was also a disaster. Double-digit base interest rates caused unnecessary double-digit inflation rates. I can tell you’re thinking “but high rates slow inflation, right?”, so I’ll quote Warren Mosler:

    The spot and forward price for a non-perishable commodity imply all storage costs, including interest expense. Therefore, with a permanent zero-rate policy, and assuming no other storage costs, the spot price of a commodity and its price for delivery any time in the future is the same. However, if rates were, say, 10%, the price of those commodities for delivery in the future would be 10% (annualized) higher. That is, a 10% rate implies a 10% continuous increase in prices, which is the textbook definition of inflation! It is the term structure of risk free rates itself that mirrors a term structure of prices which feeds into both the costs of production as well as the ability to pre-sell at higher prices, thereby establishing, by definition, inflation.

    The lower interest rates we currently have are keeping inflation low by definition. Thanks to low rates, it’s unlikely that much of the GDP fx depreciation will passed on into consumer prices.

    1. Jack
      October 26, 2016

      GBP fx depreciation* (not GDP)

  43. Dioclese
    October 27, 2016

    Er…. is this the result of putting a foreigner in charge of the Bank of ENGLAND?

    Just asking…

  44. Robin Smith
    October 31, 2016

    It would seem the private and by far largest arm of money creation – private banks – created too much money too prior to the most recent recession – as mortgages – money created out of nothing, at zero cost to the banks, secured against the value of land, no risk, always bailed out by government anyway and tax free profit in the end. This kind of activity when not legalised is known as a Ponzi. The activity when not legalised of trading them between mortgagees and mortgagors, pyramid selling. Not saying its right or wrong. Just don’t see the relevance of this piece in the context of the whole of political economy.

  45. jane4brexit
    November 3, 2016

    Dear Mr. Redwood,
    I found this link placed in the Comments after another of your articles, prior to the referendum, and it stated that £240m could be saved each week by the UK if we ran a Bank of England overdraft instead of paying Gilts interest. It was posted by another of your readers, but unfortunately I no longer remember who:
    If doing this is possible it would mean that together with the £350m plus we already know we could save if calculated gross (and I believe this contribution plus top ups is even more now) we could save approx. £600m a week, before all other less direct costs are added.
    I do not have the knowledge re banking to know if it would work but I am sure you would know or if not you would know how to check? The article linked has had two additions/postscripts added since I first saw it…the first states that to do this it has to be definite that we will not be joining the Euro in the future (which surely is the case by now?) and I have to say that I am not quite sure what the second addition means?
    If you think this change re our borrowing would work, then I dread to think how much money we have wasted unnecessarily by not doing it sooner.
    Might this article by Neil Wilson be of interest and could you use the information to save us this amount and to help us Brexit?
    As I am writing I also will add that I am of course disappointed about today’s Court decision and so mention (although you probably know this already) that I read that 429 constituencies voted Leave if added up by constituency. Hopefully this means that at least that many MP’s would vote with the government if a vote becomes necessary, but I mention in case you have not noticed it is so many, it has not been given much media attention.
    I am writing to draw the enclosed link to your attention again, in case it is possible to do, so I do not mind whether or not you print this on your blog as I can see that you may want to investigate it further in private.
    Best wishes, Jane.

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