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Is quantitative easing really just printing money?

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Stephanie Flanders | 12:59 UK time, Wednesday, 18 February 2009

And the sound you heard was the sound of a printing press being warmed up.

Bank of EnglandThe release of the minutes from the February meeting of the MPC confirms that the committee which sets UK monetary policy wants their power to go beyond interest rate cuts, with direct purchases of assets by the central bank, also known as quantitative easing (QE).

The big questions are: what happens next? Is it really printing money? And, finally, will it work? The first two are easier than the last.

What happens next (if it hasn't happened already) is that Mervyn King will write a nice letter to the Chancellor asking "please can we use the Asset Purchase Facility (APF) to buy a range of securities on the Bank's own account, using money we've created for ourselves?" We can be fairly confident that Alistair Darling will say yes.

At the MPC's next meeting, there may then be two votes - one on the level of Bank rate (base rates), and one on the level of any Bank-financed purchases through the APF. If it doesn't happen in March it will surely happen soon.

If they decide to go ahead with QE, that will be a change of policy, and we can expect a statement recording that fact. But unlike a change of Bank rate, QE is an ongoing process not an event. So the MPC may vote to authorise purchases over an extended period rather than month to month.

Traditional "QE" involves buying just government securities, or gilts. However, the minutes indicate that the MPC will be looking to buy high quality corporate securities as well, just as the Bank bought commercial paper on the government's behalf last Friday (the first official use of the APF).

If and when we go to QE (and it surely is now a matter of when), I think we can expect significant purchases of both gilts and commercial securities.

Large scale central bank purchases of government debt make people nervous, for reasons I'll get to in a minute.

But purchases on the £50bn-plus scale we're probably talking about would quite simply swamp the corporate debt market. There isn't enough to go around.

You'd also be taking a lot of higher risk assets on to the public balance sheet (via the Bank), which could raise the risk premium on government debt and send long-term interest rates in precisely the wrong direction.

So, we can expect the Bank to buy a lot of gilts as part of this policy. Is that "printing money"? The politicians will say no. But any economist would say yes.

A few weeks ago I discussed one definition of printing money, which was a deliberate expansion of the central bank's balance sheet and the monetary base (the narrowest measure of the money supply). Ben Bernanke, among others, has associated himself with this definition.

But the most popular definition of printing money - the one the politicians are terrified of - is simply central bank financing of government deficits. Also known as "monetizing the government debt".

Since the Bank will be purchasing gilts on the secondary market, not from the government directly, the government will almost certainly say that this is not monetizing the debt. To say otherwise conjures up vision of Weimar and Zimbabwe.

To preserve this distinction, the Bank of Japan was legally forbidden to buy debt directly from the Ministry of Finance when they undertook QE in the 1990s.

Funnily enough, the Bank of England faces the same legal constraint: Article 101 of the Maastricht Treaty (of all things) forbids direct central bank financing of deficits.

But it is a distinction without a difference. When the Bank of England buys up gilts, one arm of the government is buying up debt owed by another arm of the government in exchange for money created by the central bank. Whether the gilt is brand new, or issued the day before, is quite simply irrelevant.

That said, there are big practical differences between this policy and Zimbabwe-style money financing. The most important is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go.

Also - and crucially - the Bank has every intention of unmonetising the debt when the storm is past. In other words, it's going to sell it all back.

So in that sense, QE will not directly affect the stock of government debt one way or another. (Certainly there won't be any direct change to the amount of debt on the Treasury's books.)

It may even make the debt management office's job harder, by putting a lot of extra gilts back into the market, at a time when issuance of new debt is still running high.

But if QE works, the government will clearly benefit from a faster upturn in the economy - and so will all of us. I will tackle that thorny question in a later post.


Page 1 of 3

  • Comment number 1.

    Welcome to the banana republic of formerly Great Britain!

  • Comment number 2.

    When the words 'high quality' and 'if' appear I worry.

  • Comment number 3.

    "The most important is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go. "

    Are you sure about that.

    It looks ot most of us out here in the real world that short of going to the IMF the government has nowhere else to go

  • Comment number 4.

    You have to do better than this to explain these issues. I know what each word means but when I read this artivle, even as a native speaker of English educated to post-grad level, I have no idea what you are talking about. It is written in jargon and incomprehensible to those not in the know.

  • Comment number 5.

    Sadly, you just know in your heart of hearts the BOE and the government will make an almighty mess of this and we'll end up with a really bad inflation problem.

    Also, if you run the risk of no one wanting to buy UK gilts except the BOE - then we really will have a banana republic.

  • Comment number 6.

    "It is not being forced to buy them because the government has nowhere else to go. "

    Could you list what options the Government does have because it appears we are in a hole and its all hands to the shovels digging us deeper.

    We really need an election not only to promote confidence that the perpetrators are out of office if in fact they are removed but also to replace the so called expert "jobs for the boys" regulators who have by accident or design been proved to be not fit for purpose.

  • Comment number 7.

    I suppose I am something of a pessimist these days before commenting.

    "It is not being forced to buy them because the government has nowhere else to go."

    When will the government know that QE is/has worked?

    I am assuming its months or years and then we may well be more like Zimbabwe or 30's Germany - unless the rest of the "global economy" has picked up (better balanced economies & less expsoure) and is prepared to bail us out Marshall style.

    Hopefully if Mandelson reads this he won't react as he did with the Starbucks chairperson.

    Things can only get better!
    We never had it so good!


  • Comment number 8.

    I still struggle to understand the stigma of printing money in these circumstances. OK, printing just to fund excess government spending will lead to trouble, but printing specifically to counter deflation is surely the right thing to do.

    The problem occured when the banks (and shadow banking system) grew their leverage in recent years to excessive levels. They are now finally bringing that back down, which is a good thing. But to ensure there is going to be enough money in the system at the end of the deleveraging process then printing is necessary.

    We do need to think what the balance should be in the longer term, and surely that would involve the banks degree of leverage being nearer 1:20 rather than the more recent 1:40. If so then the extra money printed will be part of the long term model, not just a short term fix - ie move to a system with more M0 money and less leverage by the banks.

    Am I missing something here?

  • Comment number 9.

    Will all this printed money end up in the hand of banks?

    Will banks be encouraged to start lending enthusiasticly again?

    How long is the cycle of easing supposed to take before the banks pay back this cash, will this leave banks in the doo doo again?

    Is this really just a goverment's way of handing out huge loans with no repayment plan and no real security?

    Wouldn't it be a little more secure to just bite the biscuit and nationalise the banks, offer UK citizens good products, give them a good service, do away with bank charges, pay no bonus greather than 10% to any member of staff or the board, and eventually make continued, sutainable and ethical profit from sound and safe business practices. Profits that can then be invested and spent on our childrens future?

  • Comment number 10.

    Is this the best our esteemed government can come up with , print money and pretend it was the BOE's idea if it all goes skee wiff ? The BOE has hardly covered itself in glory in recent times, overseeing the collapse of banks, the failure of the economy and the devaluation of the currency. Somehow anything mooted by Mervyn King and his cavalry doesn't exactly fill anyone with confidence. Methinks its time for a clearing of minds, and a clearing out of personnel on the monetary committee because the present incumbents seem to be doing almost as well as Brown and Darling are. Hopefully the whole lot will suffer a like fate after the next election. There may be an answer to the present crisis , but none of the aforementioned gentlemen seem to have that answer, or anything approaching it.

  • Comment number 11.

    Does anyone know of any examples where "printing" money like this worked?

    Weimar in the 30's? No
    Serbia in the 90's? No
    Zimbabwe now? Errm, 230 million percent inflation and billion (trillion?) denomination notes probably means no!

    We're in for a whole heap of pain ...

  • Comment number 12.

    The BoE buys gilts on the secondary market.
    The government issues new gilts to the open market, to finance a stimulus plan.
    The secondary market then sells these gilts to the BoE.
    And so on.
    Therefore, indirectly, the BoE is buying gilts from the government, using the secondary market as an intermediary.

    The one saving grace is that gilts are sold through bond auctions. If the open market does not like the BoE's involvement, it won't buy any new issues of gilts offered for sale by the government at the bond auctions.

    Also the minutes of the MPC's meeting admit they have no idea what the affects of this QE will be - "The Committee recognised that the impact of such operations was both uncertain and subject to time lags".

  • Comment number 13.

    Stephainie, you didn't say what you think the best alternative would be. Or is it just too easy to criticise.

  • Comment number 14.

    The tiny fall in CPI this month shows the future. All concerns about deflation will be shown not to be justified and inflation will remain persistently and "surprisingly" high for the rest of the year before taking off next year.
    How can a nation that imports as much as us trash their currency and not import inflation? The fall in demand may have deferred the inflationary consequences but they will feed through eventually. Already petrol prices are creeping up again even although the world price (in dollars) has fallen very sharply.
    My fear is that a bizarre and unjustified fear of deflation will encourage this incompetent Government into even greater policy errors, QE being one of them.

  • Comment number 15.

    If the Credit Crunch teaches us anything it should be that financial smoke and mirrors trickery is a very bad thing.

    To that end, why not just do something simpler and more transparent? Such as admit that they are printing money, and then put that money straight into the treasury so that they can give tax cuts to help profitable businesses.

    Why is everything always done through the banks? The government will say they are helping the national economy, but previous strategies that operated via the banks just helped the banks and no one else. E.g. the bailout of Lloyds+HBOS and RBS did not kick start lending to businesses as they said it would - it just enabled them to give bonuses where they would otherwise have gone bankrupt!

  • Comment number 16.

    Goffdrop - I'm very sorry you feel that way. You might find my post on 4 Feb, on the same subject, a little clearer. It covers the basic mechanics in greater detail.

  • Comment number 17.

    Several points -

    if this is such a great solution the new economic theory should be that we simply have a massive debt driven boom followed by a bit of printing money er sorry QE, then go for another debt driven boom - fantastic! lets all become buy to let landlords and property developers!

    someone has to pay - when the printing press is turned on, it is the saver who should be nervous, how ironic it is that the sensible punters pay for the leverage monkeys!

    and here is the big one - in your blog you are putting huge faith in proposition that Gordon Brown - the spending junky can stop himself from going back again and again for another hit from the QA drug. oh yes thats right he says he will stop and this time he means it!

  • Comment number 18.

    Will we benefit?

    You Ms Flanders tell us "I will tackle that thorny question in a later post". Fine.

    But about that.

    Tact and diplomacy can be seen from one point of view as inaction. And when tact and diplomacy goes on for years - failing to tackle thorny issues or questions at all - criminally careless.

    "Let us call an enquiry into the matter" are words I dread now - normally uttered by people who already told us "We will learn the lessons" but who seemingly do not.

    Learn the lessons from almost the same thing happening over and over again.

    I started counting visits to my barbers now. Quantitive "Teasy Weasying" I could call it, were I considered a grand National and allowed to win just once.

    But I suspect I am not allowed either.

  • Comment number 19.

    They're' still pumping money into the system Stephanie. My worry is they'll be indiscriminate and start to buy-up any old rubbish, then we'll be done for.

  • Comment number 20.

    Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back.


  • Comment number 21.

    It all depends on what eventually happens when the bank sells the gilts. If at that point the money disappears, then it is a zero sum game. The temporary money which it printed has been taken back and ripped up, no longer needed.

    But if, when it sells these gilts, it uses the proceeds to buy more, then the money has been permanently created. Eventually the result will be inflation and devaluation.

    If QE were to be on a large scale: say, the bank printed another 10% compared to the existing money supply, then we would expect Sterling to devalue by 10% against the rest of the world. In practice we've already devalued by far more than this because the fall in asset value of GB plc has been more than other countries.

    Notwithstanding, I would expect any announcement of a move to QE to be accompanied by further devaluation.

  • Comment number 22.

    Ah this reminds me of first year Macro. Under the IS-LM model setting interest rates and setting the money supply are equivalent. So basically they're lowering interest rates under a different name...but interest rates are already extremely low! Of course, we all know the real world is more complicated than a model (that's why we use models).

    I think there is a huge difference between the economist's understanding of 'printing money' and the layperson's. What the BoE are considering is not firing up the presses and letting rip, but a considered increase in the monetary base. Whether or not it'll work, I've no idea - monetary policy never interested me much.

  • Comment number 23.

    What it will actually do is stick a plaster on the balloon half way through it deflating and blow it up again even bigger this time.

    Result is a big bang and nothing left.

  • Comment number 24.

    No.6 What we don't need now is an election.

    If you think that, then you don't understand the depth of the problem. The wholesale funding market has been removed, period. Credit is off a cliff, no bank is lending money to anyone. We're being distracted by the public's rightful anger at bank bonuses. The problems are deep seated, serious and long term and need concerted planning and expertise to resolve. The economy needs to be unskewed from financial services and retail, to activities that the world of the next 100 years wants to buy. QE is just the start. Perhaps chuck the money at energy technology projects, coastal defence, become a world centre for climate change industries.

    This crisis is beyond the Labour/Tory ding dong - far too many been caught reading the Telegraph/Mail. Didn't save your pensions or house prices did they? Where were their "voices of reason" moderating the bubble?

  • Comment number 25.

    The best solution is simply creating a differentiated currency pegged to Sterling and guaranteed by the BoE (tax payer). 100 billion should do the trick.

    This paper would then be handed pro-rata to every person in the UK and would be spent 12 times before going out of circulation within 24 months time.

    The 12th person banks it for it's sterling value at the BoE.

    This is an QE theory which would work, If anyone cares to discredit this theory please respond.......

  • Comment number 26.

    The calls for an election from non Labour are sometimes a little boring but on this occasion I’m in agreement.

    It is going to take some time and some considerable effort to get us out of this mess and I’d like the same Gov to take us through it.

    It’s fallen just right for the US, BO has a good run and doesn’t necessarily have to look for short term gains to boost his approval rating.

    I fear, rather like with the Finance Industry and bonuses, that this Gov have half an eye on the next election and I wonder if their primary objective is short term gain. If so, should all this spending be set against their election budget?

    As for the wonders of QE, just as we are heading towards a realignment of the value of real money they come up with a solution to devalue it..... great!

    I do wonder what percentage of the money we are pumping into the economy will go straight out of the back door to pay for goods produced in China. Our economy is not one conducive to money CIRCULATING

  • Comment number 27.

    Time to start hoarding. Buy now, so you don't pay later.

  • Comment number 28.

    Mervyn King is a first rate buffoon - no country ever became rich by debasing its currency.
    Why follow the Japanese model when it didn't work? Japan has been a zombie economy for years and years. Quantative easing didn't work for Japan and neither did zero interest rates.

  • Comment number 29.


    Government gilts are government IOUs.

    The government needs money so gets it from the markets/banks an in return the government gives the banks the IOUs (with a bit extra added to cover 'interest').

    So then the banks have IOUs and the Government have cash to spend now.

    QE means that the government will buy the IOUs back from the banks. So the banks will have have cash (to lend/spend etc) and the government will have its IOUs back.

    However the Government don't actually have the cash to pay for these IOUs because they already spent the money they got for them...

    So they will print some new pound notes and use those...

    What is the difference between this and just printing the money to cover government spending in the first place? nothing...


    Why is printing money bad?

    Because each pound represents a share in the total wealth of the country.

    If you increase the number of pounds in circulation without increasing the real wealth of the country, then every single pound represents a smaller share of that national wealth - the pound in your pocket shrinks.

    i.e. double the number of pounds in circulation and each will be worth half of what they were before - all prices double - but your savings wont... they are just worth half of what they were before.

    QE is stealing/taxing us all, without going to the bother of asking/collecting it from us.

  • Comment number 30.

    "17. At 2:27pm on 18 Feb 2009, cantgettheborrow wrote:

    someone has to pay - when the printing press is turned on, it is the saver who should be nervous, how ironic it is that the sensible punters pay for the leverage monkeys!"

    Workers and savers are just grist for the mill.

    You don't think the financial and governmental systems are set up for the benefit of the "sensible punter" do you? Take a look at the world around you.

  • Comment number 31.

    If QE works? Like all medicine it is important to ensure that the treatment is appropriate for the patient. Thus QE would work if the problem was an overly tight money supply. It would reduce the value of the currency and increase demand the result could boost the economy whilst moderating imports.
    Whilst this may sound like a no brainer for the UK we need to ask a question is the problem an overly tight money supply? Gordon would have us believe that the economy was all but perfect and the only real issue is the credit crunch that has resulted in a contraction in the money supply. If this is correct then QE will work.
    Having worked for five years in the debt advice industry I don’t accept this story. The UK’s problem is that we have an economy that consumes more than it generates. Significant parts of the economy are spending wealth they have not earned. Houshold debt £1.5 Trillion; government debt £0.5 Trillion and rising very fast; State pension £0.9 Trillion PFI £0.4 Trillion. The attempt to get the economy to run faster is merely to force it to consume ever more than it can afford.
    The lessons of the Great depression in Germany and the US both inform us that the real solution is to create more wealth than we consume. Far from boosting reckless consumption the solution is to ensure that demand for wealth creation is maintained. The whole area of wealth creation has been ignored for decades. For those that have forgotten wealth is primarily created by extraction, growing or manufacture other value can be created by providing beneficial service such as providing education or care.

  • Comment number 32.


    So after the 24 months is up we do it again.....again...again

  • Comment number 33.

    GBP still seems to be overvalued at the moment compared with the USD, judging by the relative prices of goods in the UK and USA, so even if quantitative easing (or directly printing money) results in a further fall in GBP it will only be moving GBP towards its true market value.

  • Comment number 34.

    Stephanie , I do hope ALL governments are doing this in co-ordination with each other. As GB has said we need to all act together

  • Comment number 35.

    "8. At 2:04pm on 18 Feb 2009, random_thought wrote:

    I still struggle to understand the stigma of printing money in these circumstances. OK, printing just to fund excess government spending will lead to trouble, but printing specifically to counter deflation is surely the right thing to do."

    Most people have no clue what money is. They have a simple concept of print money inflation. They have no idea that banks are "printing money" all day every day.

    I'd argue that in this case the right thing to do is simply bypass the banks. Which is partly what the BOE is going to do by purchasing corporate bonds directly (time to sell). Provide credit directly to businesses and individuals through a national commercial bank. Then let all the banks which are loaded up with bad debts simply fail.

    The idea that the commercial banks will provide a stable monetary system has been completely discredited. They just add unnecessary complexity and instability.

  • Comment number 36.

    "29. At 3:04pm on 18 Feb 2009, the-real-truth wrote:

    QE is stealing/taxing us all, without going to the bother of asking/collecting it from us."

    Pretty much agree but for one thing... The high street banks have been creating pounds out of thin air every single day of the week.

    Right now they're in the business of destroying them, at a fair old clip too.

  • Comment number 37.

    "You'd also be taking a lot of higher risk assets on to the public balance sheet (via the Bank), which could raise the risk premium on government debt and send long-term interest rates in precisely the wrong direction".

    This raises several questions. First, of course, savers - who outnumber borrowers by 7 to 1 and have seen their incomes fall by more than 80% in just a few months - might argue that higher rates might be desirable. This includes many elderly people who depend on income from their savings.

    Then there is the question of the asset bubble, which has to be completely drained before recovery can happen. It is at least arguable that low interest rates simply drag out the agony by putting off the inevitable.

    The question of the future rates of interest payable on government debt will ultimately be decided by international markets, and will reflect perceptions of risk. In my opinion, the UK economy is so structurally weak that risk perceptions (and hence interest rates) are very likely to rise.

    Ultimately, as I have said before, we need to get away from the "credit assumption" - the widespread but fundamentally mistaken belief that the only way to start a business, or even to buy a car, is to borrow. This is out-of-date thinking; we need to re-learn the art of saving, and of living within our means.

  • Comment number 38.

    30 true lib

    They have already made it plain they are desperate for credit junkies to pump up the volume. Sadly the safest place to be looks to have nothing which is difficult. If you aint got noting you got nuthin to lose. Or - Some men rob you with a six gun, Some with a fountain pen. Woody Gurthie.

  • Comment number 39.

    35 true lib

    At times listening to the arguments coming out of the banking sector I have the feeling we are dealing with a sect.

  • Comment number 40.

    "Traditional "QE" involves buying just government securities, or gilts. However, the minutes indicate that the MPC will be looking to buy high quality corporate securities as well, just as the Bank bought commercial paper on the government's behalf last Friday (the first official use of the APF)."

    Stephanie, who is going to decide exactly what constitues high quality corporate securities? there's the rub.

    Are the BoE going to rely on the rating agencies who failed so spectacularly to spot the weakness of 'assets'? Can we really rely on AAA ratings any more?

    Who are they going to buy them from? If they go directly to the firms then the biggest names (not necessarily the safest) will get the money. If they buy via the banks, then what assurances do we have that the money will not just be retained to support the banks balance sheets?

    If our commercial banks are finding it hard to define commercial risk what chance do a bunch of central bankers have?

    My gut feeling is that the train will crash and somebody has nicked the buffers.

  • Comment number 41.

    I think we will get deflation AND inflation. The prices for UK services sold to the UK market will fall - banking, lawyering, accountancy, government. The price of UK assets such as housing will also fall. The prices of things made abroad and traded in the world market - food, energy, electronics will rise. The inflation/deflation statistics show the combined effect of these two trends which may be overall inflation or deflation - but for many people working in the UK both effects are negative. The deflation cuts your wages and the inflation increases your costs.

    We need to rebuild our technology industry and start exporting to balance our imports. Unfortunately the last 10 years of overpriced currency and property boom have run down that sector of our economy. The government needs to ensure that what money is available is directed to building up exporters: we need to get venture capital flowing into high tech and lending for larger firms to finance production.

  • Comment number 42.

    I am not an economist so should be grateful if someone could explain the following in laymanny terms so I can get a grasp of quantitative easing.

    If the banks have lent many billions to businesses or properties which have gone bust or seen assets devalued with consequent defaulting on the loans, then surely this money has disappeared from the system, never to be recovered ?

    IE Bank lends company X £100M. Company X spends £100M on properties/trading. repays say £20M and defaults on £80M, never to be repaid.

    Surely this £80M has been removed from the system altogether ?

    If the Bank of England prints/quantitatively eases a replacement £80M, then how can this cause medium or long term inflation if the original £80M was forever lost ?

    Help !

  • Comment number 43.

    I wish the government would just go.

    We are now getting further and further into very dodgy territory. I have no confidence in the competence of Mr. Brown and his team.

    They have no mandate for this and I would suggest that a mandate is essential for such a major change in our fiscal behaviour.

    I would be happier if this was all set out in a formal proposition. I have no trust in decisions made by self-styled experts behind closed doors.

    Remember: this is how we got into this mess in the first place. The Man in Whitehall does not know best and the Old Lady in Threadneedle Street has become not much more than his battered wife.

  • Comment number 44.

    yes QE is QED for lets just print some more money...but let's give it a swinging 21st century label.
    What ever...welcome back S.F. newsnight has been very exciting with R.P. but sometimes too..Jennings of the upper 5th gush about the delivery.

  • Comment number 45.

    When the Thrifts in the USA (equivalent to our building societies) had solvency problems in the 1990s, this could have led to a big shortfall in mortgage lending.

    This was averted by the USA government rigging things so that the Thrifts made good profits which repaired their balance sheets and allowed lending to continue (albeit at the expense of customers).

    In the UK, the B of E (for moral hazzard reasons) seems to want to punish the banks with penalty charges, high interest rates on the preference shares and big haircuts on security.

    Why doesn't the government overrule the B of E, reverse the penalty rates and try to boost bank profitability so that lending can remain strong and share prices of government owned RBS and Lloyds rise for trhe ultimate benefit of taxpayers.

    (Thanks Stephanie for another excellent blog)

  • Comment number 46.

    24: tonyparksrun wrote:
    "What we don't need now is an election."

    I think we do. As #26.thinkb4 said, there is a real danger that the government will take a reckless short-term position. Brown is was not elected as PM by the people, and will not want that to be his record so I think he is just trying to re-inflate the credit bubble to bring back the good times just before a General Election. He will claim to have saved the world, but then things will go even more wrong because of all the government debt he built up re-inflating the bubble. This is evident when Brown tells the banks to lend at 2007 level - this is exactly what created the illusion of good times, but then got us in this problem.

    Furthermore, if a company performed badly, the shareholders would remove the board of directors because they were seen as incompetent. If poor judgement of management causes a problem, then that same management's poor judgement is unlikely to be able to solve it. What ever happened to UK plc.? We should be able to call an Extraordinary General Meeting and sack the board!

    Finally, Brown's strategy is likely to saddle the country with enormous debt for a generation. It is criminal that one man can do this without a democratic mandate. A general election would allow the people to evaluate the solutions and vote for the party they backed. They would therefore carry some responsibility for any debt the government they elected created. (Note that any arguments based on the fact that the common man would not understand the solutions are actually arguments against democracy itself.)

    I do agree with one thing though - the Tories do not seem to be much better really. However, Vince Cable does actually have PhD in economics and talks more sense than most other politicians so the opposition is not totally hopeless.

  • Comment number 47.

    Post 16

    You READ the stuff on your blog, Stephanie, and respond, personally, when you believe it to be appropriate.

    My faith in human nature is restored.

    I'm glad I've been polite on your site. And I think that you're smashing on the telly.

    So there, critics.

  • Comment number 48.

    # 42
    I'm not an economist either - but I'd guess it's something to do with the fact its not backed by any assets whereas the initial 80M was backed up (theoretically) by assets (albeit they were grossly overinflated). Possibly/probably I'm wrong - in which case sorry!

  • Comment number 49.

    Sorry goffdrop - I referred you to the blog of 4 Feb. I meant 6 Feb.

  • Comment number 50.

    Somebody else has already raised the question.

    How do we know when any of the measures being taken by the government/BOE are working?

    Any management training will that show that what you put into action should be measurable.
    Unemployment levels?
    Value of Pound?
    Inflation/Deflation level?
    Government borrowing?

    The government keep saying that one of their main responsibilities is that of maintaining financial stability. Do we now have a stable financial system?

  • Comment number 51.

    No. 42 Upthebarns

    "Bank lends company X GBP100M. Company X spends GBP100M on properties/trading. repays say GBP20M and defaults on GPB80M, never to be repaid.
    Surely this GPB80M has been removed from the system altogether?"

    The bank would repossess the property which company X originally bought for GBP100m.
    The bank would sell that property in today's market for GBP70m.
    Company X already repaid GBP20m
    Therefore, the bank loses GBP10m as a bad debt. It already made a 10% bad debt provision against the asset class in its balance sheet, paid for from this year's and last year's profit.

    The problem we face today is that banks failed to make enough bad debt provisions in the boom years. Their reported profits were overstated, and were paid out as dividends to their shareholders. This means the banks have not enough reserves to cover the bad debts as they blew up in 2008. Further bad debts will blow up in 2009 and 2010. The banks need to provide say 40% against their assets as a general bad debt provision, but this would blow a huge hole in their balance sheets. They are already insolvent, before they even try to increase the bad debt reserve.

    The problem occured because banks lent money to borrowers who bought assets whose prices were overstated by say 40% or 50%.

    The original sellers of these over-valued assets pocketed the money, and then spent it on cruises and cars, and have little to show in the way of savings. The banks earned huge interest and profits from their lending, but paid this out to senior staff as bonuses, and also to shareholders by way of dividends. Those bankers and investors who got rich by this practice have moved the money to safe havens abroad.

    The government cannot replace the lost money, as it cannot hope to cover the huge value of all the bad debts and falling asset prices combined. The government is limited to spending only what it can raise in taxes, which is no-where near enough. Hence, the government will fail in its attempt to reflate the economy. It will throw good money after bad, and make the situation worse.

    The idea of QE is to create money through the government selling gilts (government bonds) to the BoE. This is equivalent to the State lending money to itself - ie printing money. The government cannot just create money from thin air. The result will be sterling falling further in value as foreign governments and investors pull their money out from the UK. No foreign investor will want to lend money to Britain, as they will worry there are just too many unpaid debts in the British economy.

    Some households and businesses are correctly trying to pay off their debts. QE is an attempt to counter this reduction in debt, by creating more debt to replace that which is being repaid. The BoE will attempt to buy gilts and corporate bonds to more than replace any borrowings being paid off by households and companies. If QE succeeds, it will increase the risk of further bad debts, which in turn will cause UK companies to struggle to make any profits, meaning the government struggles to raise enough tax revenue to redeem all the gilts in existence (the government runs the risk of defaulting on its borrowing). QE is just teeming and lading on a major scale.

  • Comment number 52.


    ..apart from the feckless who are heavily in debt.

    QE risks further penalising those with savings to benefit those in debt.

    I can't figure out what's worse - having the economy collapse (and therefore my savings through loss of job etc) through lack of lending or my savings collapse through QE.

    Problem is I don't think the government (or anyone else) can figure it out either.

    Whatever happens I blame Brown/Blair for getting us to this state in the first place.

  • Comment number 53.

    "Is quantitative easing really just printing money?"

    No, it is just ridiculous....

    If it is not accompanied by steps towards sound money again. We are just becoming a laughing stock! These failed men of the Bank of England the the MPC haven't a clue.

    The banks don't want customers' money, because they can't lend what they have got. The problem is the collapse in demand - not the nebulous 'liquidity'. There has been a catastrophic collapse in demand - 'free' containers ates from Asia to Europe - a massive drop in air freight.

    The 'wise men' (if there was ever an oxymoron that it it) are out of touch with the real economy as usual. QE is too late and irrelevant.

  • Comment number 54.

    This is really the last throw of the dice though, it relies on all the other nations, not being protectionist, which the US is blatantly going to be,
    As I understand it, unless we sell more than we buy, we are done for.
    So who chooses who are going to be the beneficiaries of this extra printed money, friends of the ministers ? good companies on hard times ?
    lucky dip ?

    There is a lot of hit and hope about this, I dont suppose they can do anything else, apart from let the bad banks go to the wall, long live the UK mutual bank.

  • Comment number 55.

    Why not just print £10000.00 for every person.

    Gordon could roam around chucking wads of it out of his car window and children could fight to pick it up.

    That would get people spending again.

    We all know that lots of spending and borrowing is the correct thing to do. Thats exactly what we should teach our children.

    Does anybody know just what the price of bananas is these days?

  • Comment number 56.

    I vote the government employ this man to sort out the wheat from the chaff

  • Comment number 57.

    #16 Stephanie's reply to Goffdrop.

    (This is not a criticism of SF)

    I imagine few people understand much of what is happening.

    How many people understand "money"? How many people understand that high street banks can create it at will? (pretty much).

    How many people have any idea of "securitisation", "slicing and dicing" "capital"?
    My guess is very few (as %). Not because they are dumb, just because under normal circumstances most people have no need to know. The biggest problem is in many cases the technical meanings of terms is different from common usage. Would the BBC consider a programme to explain things in simple terms? Perhaps SF or one of the other sensible ones could do it. I daren't say which ones I would not wish to see presenting it...but there are a few real winners!

  • Comment number 58.

    Thank you Number 51, MrTweedy.

    I think I'm getting more of a grasp.

    The money has not disappeared - it has gone into the hands of the sellers of the overinflated assets and into the hands of bankers who ripped out the gargantuan and false profits.

    So if we print or quantitatively ease more money into the system, it could lead to inflation with more money chasing the same assets.

    Although these assets' values were grossly overstated so that may counter the inflationary force of printing money.

  • Comment number 59.


    Ben Bernanke takes the trouble to call what he is doing as credit easing, and targeted as such. He says its not the Japan model.

    Charlie Bean says that the APF is being funded by a 50billion loan from the Treasury. Public debt is being affected. Beyond that, the BoE will use IOUs, he says.

    You mention that 50billion would swamp the corporate bonds market. I am intrigued with what is going to happen. The Credit Guarantee Scheme permitted the BoE to underwrite debt issue by the banks last October. How much has been underwritten?Will the APF be used by the BoE to purchase those bank bonds which might not have sold into the market? Also, the FSA have instructed the banks to hold more gilts to improve liquidity / Tier One ratios. Will the BoE be buying those?

  • Comment number 60.

    Some very dubious manouvring going on here.

    RPI is nicely placed 0.1% so everyone is told there is now no inflation so noone will get a wage increase.

    Well we all know there is still plenty of inflation in our cost of living. Essentials like food continue to go up as will council taxes and water rates etc.

    Everything we buy from abroad will increase in price because of the devaluation of the pound so what will actually be dropping in price.

    We are being told prices will keep on going down.. Only if the retailer is going bust and needs to shift stock.

    And now they are introducing more money into the system. Literally printing money.

    Cheaper mortgages encouraging buyers into a still overinflated housing market.

    Easy credit. Buy more stuff you don't need

    Everthing will seem wonderful until........INFLATION

    You have just negotiated your O% increases in wages pensions benefits etc when prices start to rise at an incredible pace just like they did in 2008.

    To stem this inflation interest rates have to rise quickly.

    Bang goes your cheap mortgage payments. Up goes the cost of debt.

    Been there before?

  • Comment number 61.

    Dear Govevnor,

    I have a synthetic loan default instrument will you exchange it for cash please say 10 million GBP.

    No - you say my synthetic loan default instrument is worthless - I never claimed it was worth anything did I - Isn't it the point that you will buy worthless rubbish and turn it into hard cash!

    Why not do it fro the small investor? Oh you are only interested in doing it fro members of your club! Just in case you want a job with them when you leave your present job (just like the many sacked bankers being recruited by HM Treasury!)

    Fat cats scratching the backs of other fat cats - a sick joke on the British people!

  • Comment number 62.

    So we use theoretical debt to buy up real debt?

    Hopefully in time we will be able to sell back the real debt into the market and erase the theoretical?

    So in the mean time where does this appear on the countries profit and loss statement?

    At the same time we have rampant inflation which will reduce the impact of interest and hopefully eat into the capital repayable?

    So really it's just a punt and hope that all these assumptions actually come off?

  • Comment number 63.

    Is QE necessarily inflationary?

    Could the treasury/bank (later) introduce (temporary?) mandatory reserve requirements to prevent that?

  • Comment number 64.

    As someone else pointed out- does anyone actually know of a time where QE worked?

    All it is doing is devaluing peoles savings. I have been waiting for the housing market to correct itself, so I could get onto the ladder, for a while. Now the money I will have saved for a deposit will lose its value, and I'll be worse off than before. People with debt will just see the interest increase with the inflation, so they won't gain either!

  • Comment number 65.

    9 wrote

    Will all this printed money end up in the hand of banks?

    In a word yes, why dont the print the money into folks bank accounts?

    Money as debt, thats why!

  • Comment number 66.

    I think the whole thing is back to front

    Corporate bonds being issued by high quality organisations are being snapped up. They are offering high yields.

    It seems to me, that no one wants to lend to organisations lower down the food chain and that there is not going to be enough demand for all the government debt at the low prices on offer.

    The way to create a market for this debt would be to increase interest rates a little. Without having to 'create' or 'print' money, money would find its way back to 'products' that would provide a reasonable return. This money is there, its just sitting in safe havens called government bills and notes.

    The bank of england's approach will just devalue the overseas lending already in the system and makes it a) more likely it will be withdrawn and b) less likely that overseas investors will choose to buy debt on the basis that it might devalue further with devaluing exchange rates.

    This is almost what has happened with banking shares - fear that all value will be stripped out through nationalisation has minimised any demand for these stocks.

    Its very easy to devalue a 'brand'. Just look at what happened to YSL when it started producing and selling in bulk at lower prices back in the nineties. Pretty soon no-one wanted the products, they just weren't desirable anymore.

    Finally, I'd have more confidence in all this nonsense if I heard a few words about cutting ones coat according to ones cloth. At some point, government will either have to raise taxes or cut expenditure.

  • Comment number 67.

    Because I am a simple woman can someone explain to me why no-one considers issuing vast amounts of government debt any different from short term printing of money????????

  • Comment number 68.

    Is QE necessarily inflationary?

    Could the treasury/bank (later) introduce (temporary?) mandatory reserve requirements to prevent that?

    What like post dated money?

  • Comment number 69.

    #64 Arnie_99

    "I have been waiting for the housing market to correct itself, so I could get onto the ladder"

    If you get on the ladder, doesn't that mean someone else will have to get off? Are you waiting for someone to become homeless or to die?

    I'm not sure prices are (were) the problem; it is (was) shortage of properties.

    (Or perhaps to sell their second home. Probably only a small part of the problem in most parts of the country)

  • Comment number 70.

    #6 aqualungcumbria and everyone else calling for an election:

    How would an election promote confidence that the perpetrators are out of office?
    As I understand it none of the major parties has put forward a plan that is significantly different to that being perpetrated. The Conservatives have said they see Q.E. as a last resort, not that they wont do it. At base the same incompetent civil servants and BoE experts will still be in place.

    We are experiencing systemic failure. Perpetuating the belief that government can fix the problem, if only they would choose your (or my) priorities for spending, is to perpetuate the problem. Government manipulation of the free market and its perpetuation of an artificial monopoly in (paper) money creation is at the root of the problem.

    #8 random-thought asks: Am I missing something here?

    Yes. Who gets the seniorage? And who pays it?

  • Comment number 71.

    No 60, who cares what the RPI is? Mervyn King didn't care when it was way above the CPI and nor did the government. The CPI is the government's preferred measure of inflation. Or, now that RPI is indictating what the government wishes to use, is there going to be a change in the "preferred" measure.
    That's just insane.

  • Comment number 72.

    Whatever the Government/BoE tries, until the fundamental structural imbalance in the economy towards imports is addressed, it's just more sticking plasters.

    This version of QE is akin to asking the bank for a loan, oh, and by the way, can I have a credit card aswell so I can pay the interest on the loan (and don't even think about asking for the capital back).

    UK has to reverse the current account deficit, and whilst I accept that doing that as a precursor to economic salvation looks well nigh impossible, there is no possibility of a sustainable future without it. Government has to demonstrate that it understands this fundamental problem (something I have yet to see from the current, or potential, incumbants) before I will have any confidence that the catastrophic problems inherent in our economy can be succesfully addressed.

    In the meantime, negative real interest rates for borrowers and, potentially lenders, suggest a seriously dysfunctional banking sector. Pumping more liquidity into a leaking system doesn't seem to me to be the best way forward.

  • Comment number 73.

    13th man

    So on that basis, everyone hoping for a job is hoping someone dies or gets sacked or retires?

    There are plenty of houses available at the moment, the problem is the prices are too high (in comparison with peoples wages). You forget in include the fact that plenty of people buy to let (including my current landlord) hence if I could afford to buy one of the houses on the market, it theoretically wouldn't affect the balance, as I was already occupying a house originally, except I now own it, rather than paying off someone elses mortgage.

  • Comment number 74.

    "42. At 4:12pm on 18 Feb 2009, Upthebarns wrote:

    IE Bank lends company X ?100M. Company X spends ?100M on properties/trading. repays say ?20M and defaults on ?80M, never to be repaid.

    Surely this ?80M has been removed from the system altogether ?"

    Nope. The company spent the 100 million. It is there, in the economy. It is the 20 million which they repaid which is destroyed and removed from the system. If they go belly up and default on 80 million. The DEBT is written off leaving the 80 million defaulted upon still in the economy. Bankruptcies are inflationary. Which is why the best thing we can do is let the banks go bankrupt.

    Think of debt as anti-money. What you're not getting is that the 100 million never existed in the first place. It was magic'd into existence when Company X borrowed it. That's the big secret of banking. The money is created purely for the purpose of the loan. The banks don't actually have the money beforehand.

  • Comment number 75.

    Quantative easing ? It's called making something out of nothing and it's a fraudulent way of redistributing wealth from those that earn it to those that acquire it by trickery.

    We all know who really benefits from this , don't we ?

    Increasing the supply of money by this means always results in inflation so any suggestion
    that it is paid back (which is doubtful) is a devious argument they would like us to believe.

    What we are never told is that by that time the original assets (whatever they may have been) will have devalued to the point of a very unfair exchange. Those on the recieving end do not give back the value they receive. They are the winners of the great 2009 fraud of the century.

    Ever wondered why our pathetic leaders are calling for a global new world order ?
    It is related to this very point. If they don't all participate in this scam, then it doesn't work. If only one country did this in isolation then inflation relative to other countries would make the gain of the few impossible by way of the total loss of value for the majority and the inevitable revolt.

    The people that really lose in this situation, as it seems many of us are allready finding out,
    are those that have worked hard and saved. I am really angry with this "idea" and I am also angry with the BBC for not standing up and shouting out what is really going on.

    I will not forget this injustice and I'm pretty certain from what I'm hearing and reading, that neither will millions of others.

  • Comment number 76.

    There seems to be a little confusion as to who's blog we are on since a number of posts are suggesting an election. I can think of a dozen reasons for calling an election and getting rid of this administration. Managing the credit crunch is not one of them.

    Does anybody have any plausible evidence that the Tories could do it better? I think not.

    The danger is that linking the management of the economic crisis with party politics will simply let the government off the hook for the myriad other iniquities which are passing more of less unnoticed.

  • Comment number 77.

    Game over. Bye bye Britain. If you live there, leave.

  • Comment number 78.

    13thMan (#69)

    "I'm not sure prices are (were) the problem; it is (was) shortage of properties."

    You ar not sure? Or you are sure?

    We have a TFR of 1.88 or so. It would be lower (like E Europe's 1.1-1.3 where the population halves in 30-60 years) if we hadn't been so busy importing so many people from abroad (and some of those who are non-indigenous did not have a higher than replacement level >3 TFR) on the ground that they would be 'good-for-the-economy' (buying cars on tick, cash-back). We have an indigenous ageing population - so, if we'd put a brake on immigration we would have had a surfeit of housing given population growth would have turned negative. It would have done years ago but for mass immigration. Might it be that there was lots of money to be made from a) the property development bubble b) importing not-very-bright-people-who-were-equals as they comprised more consumers/debtors for those who wanted to make money out of them?

  • Comment number 79.

    #74 "Nope. The company spent the 100 million. It is there, in the economy. It is the 20 million which they repaid which is destroyed and removed from the system. If they go belly up and default on 80 million. The DEBT is written off leaving the 80 million defaulted upon still in the economy."

    Hmm. But if the 80 million is written off, then the bank has lost 80 million of its capital and will probably have to claw back something like 2 billion (25 x 80million) of its loans in order to get its ratios back in shape. Banks can be tamed if their loan/capital ratios are strictly controlled - we just haven't bothered doing that properly for the past 20 years.

    On the other hand another way of looking at this is that banks are just intermediaries. Net savers lend money to the banks and the banks lend money to net borrowers. Net borrowers are going belly up. If everyone in the chain were to write off the debt (say if the banks had been allowed to go under) then the debt and money would go away, but we're trying to protect the net savers. Is this sustainable?

  • Comment number 80.

    76 threnodio

    Thats the problem there is no fundimental policy difference. It is Worzel Gummidge, which head today.

    73 arnie 99

    There is much ado about a property crash. Prices may have declined but property still remains unsold and for many unaffordable. That is not a crash.

  • Comment number 81.

    I am frankly amazed that after 100+ years of economic theory being developed this is the best the BOE can come up with.

    I have no dgeree in economics, yet to me it's patently obvious that creating money by pressing a key on a computer cannot possibly change the fundamentals of our economic woes.

    Just get back to basics: Weatlh is created by making stuff, growing/mining stuff or delivering services. If we don't do any of those things then we are going to get poorer. Allowing debt to mushroom has simply pushed the burden of actually generating wealth to the future.

    Assets have to deflate, and wages have to drop, along with all the imaginary wealth created by debt. There is no way around it.

    Credit easing is just a pathetic attempt to make things look better in the short term than they actually are. It will do no good whatsoever in the long term.

  • Comment number 82.


    Which is exactly what I said- I'm still waiting for further 'corrections' in the property market. Unfortunately I feel the governement may still try and prop the market up to stop the housing bubble contracting further.

    All the same- its a bit off the point from the topic of the blog. My original point is that those of us saving up our deposits (which now have to be bigger due to the lack of available credit) are now worried that this fiscal easing will devalue that which we have saved, putting us back at square 1 (especially as the money is earning next to nothing while it is being accumulated at the moment!)

  • Comment number 83.

    #80 - glanafon
    #82 - arnie_99

    Again, we do not have an either/or situation here. It continues to be the case that there is a dire shortage of affordable housing. The fact that prices are falling is entirely due to the fact that money is hard to come by even for people who can afford it. It would take a fall of catastrophic proportions to bring homes within the price range of people who would really benefit. Ironic is it not?

  • Comment number 84.

    Romeplebian, message 56...that is SO good! You just know it wouldn't work in the UK but there are several table loads of FSA/banker/ etc that should be dragged over the coals. Ackermann could do it, he may even be worth hiring to interview Gordon Brown as nobody in the UK seems even remotely capable.

  • Comment number 85.

    Re post 4 Goffdrop..I'll have to get a post dated grad degree because I haven't got one but I understood it....that's the end of the good news.

    re 29 the real truth..I agree absolutely...putting tax up from 40 to 45 and (especially) NI is just gratuitous; as you say they don't need to do it just let the effects of QE flow through.

    finally re 43 Stanilic... That worries me very much .. so much of the stuff now just looks not competent. The 'debate' about Northern Rock last week that it had done very well paying back so much quickly....

    The good debt, yes.... but it's the last part that won't get paid back so easily ( a) it's bad and non-one wants it...and b) there isn't anyone left to buy it -

    QE will only penalise the savers, those people still deluded into thnking that there are 'rules'... they may not have borrowed like maniacs to buy 3 buy-to-lets, but they're going to pay for those boarded up repo flats anyway now.

    Those carefully built up savings will be effectively massively and inevitably, reduced in value...

    ' If you didn't do the still do the time!"

  • Comment number 86.

    I've been saying it for months; hyper-inflation is definitely going to happen if labour remain in charge; printing money is their only weapon left because they still refuse to admit that they've made mistakes on fundamental economics over the last 10 years.

    Zimbabwe is a perfect example of how this happens; refusal of the government to admit/fix their fundamental problems always leads to total economic collapse if the leadership is allowed to continue.

    If they won't fix the fundamentals, then printing money is now their only option left.

    Brown/Labour are still lying (or deluded), thinking that 100% of all our problems are "global" in nature and that nothing is wrong with our own national economic policies/situation.

    The global aspect has simply exacerbated/speeded-up problems which would have arisen anyway in time given how our economy's been run.

    How can you run an economy properly when the man in charge doesn't believe in natural economic cycles, thinks that doubling the lowest tax rate won't effect the poor, and thinks that he's personally saved the entire world?

    We're finished until/unless labour get kicked out. The latest polls show labour on 28%; I've got no idea who that 28% are, but I hope they're not in charge of anything important.

  • Comment number 87.

    Stephanie Flanders wrote:

    "the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back"


    Shouldn't you put some kind of smiley next to that remark? You were kidding right?

    If you're serious...

    Will the money it pays back still be worth the same as the money it borrowed?

    Will it sell it back when Gordon is no longer PM - and if so isn't this one government borrowing from the purse of the next?

    Will the next government have any influence over who is Governor of BOE when it comes to power, and will the new Governor want to sell it back to cause problems for his/her masters?

    My questions were of course rhetorical.

  • Comment number 88.

    Stephanie, you're keeping us all in suspense on the key question - will it work?

    I have my doubts. Yes, this is another way of pouring money into the banks (presumably the holders of the bought-back gilts are either banks, or will put the money into sterling accounts in UK banks). But we have already tried giving the banks money by recapitalisation. How much money do we have to give the banks before they start lending? One major problem is, we don't know how much is 'enough' - we don't know at what point the banks will decide they have enough liquidity to start being a bit less risk averse. The other major problem is, do we even want banks to be less risk averse?

    Looked at another way, people and banks are behaving rationally, and we are trying to change that rational behaviour. It's rational for banks to hoard liquidity, reduce their lending, and if they must lend, lend only to those who are the best risks - those who need the money least. For the public, it's also rational not to incur any more debt, to reduce the debt they have, and conserve cash in case of trouble ahead. The only people wanting to incur debt are the people at the margins who are recycling debt to meet interest payments - the last people any sensible institution would lend to.

    It's a different matter with companies. There are companies who want to borrow for investment with a reasonable expectation of return. But there are also companies in difficult. With a risk that demand in general collapsing, can any bank even lend to a profitable company without risk? No.

    In my opinion this is why lowering interest rates has not worked to restart lending. The government thought it had a lever, but the lever relies on the rational actions of consumers, banks, borrowers, lenders - and that lever has been disconnected. I don't see why putting more money into the hands of the banks will work any better. Do we think there is a point at which the banks will have so much liquidity that they won't care about losing money by lending it at risk? I'm not sure there necessarily is such a point.

    QE, printing money, is stealing from everyone with a positive (credit) bank balance and giving to everyone with debts. Apparently there are 7 times as many of us who are creditors as debtors. On top of giving near-zero interest rates to savers, we are now eroding the spending power of the reduced interest and worse, eroding the value of savers' capital. That doesn't seem very fair. Especially if there is no guarantee it will even work.

    There is a much simpler and more effective solution to the problem, which no one has the courage to take. This is to let all the insolvent businesses and consumers go bankrupt. Anything crucial to financial infrastructure should be nationalised so that the country gets any upside as well as subsidising the downside. With that sole exception, everything else should be allowed - forced in fact - to go the wall. Once the good risks have been sorted out from the bad risks, assets can be correctly priced, risk can be correctly priced, and on that basis we can return to stable, secured lending - on a prudent basis and without stealing the capital of the country's savers.

    Personally I am immediately liquidating all my sterling denominated assets - ISAs, savings accounts, everything - and buying tangible assets asap before deflation hits. I will probably buy gold, since any UK asset or sterling asset is questionable while this QE is going on. Maybe Euros will be a safe haven for my savings, since the Euro zone can't print money and it can't even issue debt very effectively.

  • Comment number 89.

    Can i have my money back please?

    Failing that.... could you recommend which foodstuffs may pove the best to own choice is evaporated milk.... but I don't have an economics degree so I'm no expert...

  • Comment number 90.


    "So on that basis, everyone hoping for a job is hoping someone dies or gets sacked or retires?"

    I don't recall talking of jobs.(But economic growth creates new jobs, so it is very different).

    Buy to let must have an effect, as you say. Especially with tax breaks and Gordon's cynical special stamp duty relief added (it just meant FTB's could afford to pay more and so pushed up prices even higher, just in time for the crash!). There has always been a rental sector. BTL couldn't push prices up if there were shed loads; there must be a restricted supply.

  • Comment number 91.

    I seem to recall that the pricing of assets and their expected future values was one of the major contributing factors to the credit crunch, which we know has since induced the recession.

    I was keen to know how the BoE will be able to protect its and our (the taxpayers) interests when purchasing gilts and securities on the market.

    I seem to recall that certain market players took positions "short-selling" financial institution stocks, which led to nationalisations and a temporary ban on short-selling.

    How will the BoE be able to prevent such practices undermining its market stabilisation strategy in the national economic interest, with the purchases of these assets?

    Is a further temporary ban on short-selling called for and justified?

  • Comment number 92.

    #78 jadedjean. There is no doubt that the rulers of the world have been engaged in a process to commoditize people.

    Given that premis then your identified correlation as between "commodities" is broadly accurate.

    However I do not understand on what basis you are able to conclude that the UK has specialized in the importation of "not very bright people."

    A lot of these people hail from countries where the UK (and its commodity centric friends) have been busily undermining the basic fabric of the societies from which these people hail. This ranges from covert "counter terrorist" techniques to the installation of "death squad" type regimes through to the full scale bombing of entire countries. Anyone able to extricate themselves from such situations would on the balance of probabilities most be likely be extremely bright and tenacious.

    They are also more likely to be concerned about collapsing houses as opposed to collapsing house prices - which would suggest that they are not likely to be overly interested in the debt/consumption paradigm.

  • Comment number 93.

    #74 True Liberal Said:

    "Think of debt as anti-money. What you're not getting is that the 100 million never existed in the first place. It was magic'd into existence when Company X borrowed it. That's the big secret of banking. The money is created purely for the purpose of the loan. The banks don't actually have the money beforehand."

    At the same time money is(bank) debt (it says so on the paper versions "I promise etc.).

    The idea that money is created concomitantly with loans is hard to swallow (though true). That is why I think the BBC (someone sensible like Stephanie Flanders) could usefully explain how financial systems work and what the words mean (since the everyday meanings of words like "money" and "capital" are different from their technical meanings).

  • Comment number 94.


    I am sure that Stephanie's additional explanation of 6th February probably answered your questions, but some alternative suggestions might be:

    Have you tried accessing the book written by Stephanie's Colleague Evan Davis' and Bannock and Baxter, "Dictionary of Economics". It succinctly explains most economic vocabulary in layman's terms.

    For the more financial market related terminology, have you tried "How to read the financial pages". by Michael Brett.

    These are as useful as a Shakepeare's Complete Works or the Oxford English Dictionary, on your shelves at home, especially at the moment.

    These suggestions are meant in the spirit of the BBC's mission to educate, not as commercial plugs.

  • Comment number 95.

    "Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back. "

    In recent times when has our government shown the strength to do the right thing? For this the Bank will need government approval and I wish I had your confidence in them

  • Comment number 96.

    So is this incompetence, irresponsibility, or the financial equivalent of a "hail Mary pass" in American Football?

    There are many posters on this site who have been calling it like it really is for a long time now.

    So why in the name of perversity, do we have yet another measure taking us away from stability instead of towards it?

    Ah yes, we're economists, we're clever because we know things that you wouldn't begin to understand (even if we never saw the train coming).

    The ultimate stealth tax. Our currency, and with it our individual wealth devalued (going the same way as our savings, pensions). We are fast becoming financial hostages to the state, or superstate.

    The same state that presses on with ID cards, says we can't photograph policemen any more, wants to put CCTV cameras in pubs.

    Where am I?
    In the village.
    What do you want?
    You won't get it!
    By hook, or by crook, we will.

  • Comment number 97.

    Stephanie wrote:
    "But if QE works, the government will clearly benefit from a faster upturn in the economy - and so will all of us. I will tackle that thorny question in a later post."

    Firstly Stephanie "which thorny question?"

    Secondly, why should you be so confident that if QE works there will be a faster upturn?" Remember that Ben Bernanke and King both thought that if they dropped interest rates significantly, then consumers would respond in the way they are meant to in economic theory, i.e. stimulate investment and consumer demand. Problem. They didn't, hence the belief for a need for QE. (A short revision in social psychology might have made them slightly more aware of this outcome - but hey nobody's perfect).

    My point is that we are no longer operating in a world where the conventional economic wisdom operates. Setting aside the variations in macroeconomic policy put forward by monetarists, neo-classicals and neo-Keynsians and other schools of thought, the truth appears to be that most policy efforts are currently more of an "experiment" rather than the execution of robust and proven relationships.

    I do not wish to suggest QE cannot work, rather I should like to respectively caution that it is not a foregone conclusion.

  • Comment number 98.

    I really don't see why there are fears about deflation. The likelihood is that there will be a significant increase in inflation.

    The Govt are running huge and growing deficits which need to be financed by "QE". This will happen and it will cause increased inflation. In some respects QE is absolutley essential in order to reduce the real cost of the debt the Govt is accumulating on future generations.

    The growing Govt deficit and deficit on the balance of payments will surely cause futher falls in sterling. Already inflation is building up a head of steam because of the 30% fall in sterling in the last year, which is the major reason inflation hardly fell this month despite the growing severity of the depression. Buy now before prices go up!

    Our savings rates are neglible anyway and the damaging falls in interest rates will reduce savings as investors look for alternative savings such as gold or collectables.

    Why should I keep my savings on deposit if the interest payable is neglible? Many others will be forced to spend their savings on day to day living, so making the country poorer as this reduces savings and will put more pensioners on benefit, thereby increasing the Govt's budget black hole.

    Hardly anybody, except the very rich, can now afford to save enough towards their own retirement. This is very damaging to the economy and yet it has been totally ignored.

    Every commentator points out that the problem is the drying up of the wholesale credit market. But this was the cause of the credit crunch in the first place! Northern Rock lent like it was going out of fashion because they were able to borrow on the wholesale credit market, and this led to the unsustainable housing price bubble.

    Surely the last thing the Govt should be doing is recreating the system that led to the credit crunch in the first place.

  • Comment number 99.

    The banks have been printing money for years, it is called Fractional reserve banking - they can easily make £100 into £400 (c.f.

    It's just that the banks have stopped doing it. Great if the Government takes over provided they make sure the money ends up with the people who will spend it i.e. the poor. Its the only way out of a depression short of a war.

    Stephanie - error or miswording in your article "It may even make the debt management office's job harder, by putting a lot of extra gilts back into the market". I think you must be referring to what happens after QE when they sell them back. QE itself will reduce the supply of gilts, increasing their price and decreasing their yield.

  • Comment number 100.

    No 88, you talk a lot of sense.
    The insanity of policy makers in this downturn has bordered on absurd. Let's take the case of two banks.
    Northern Rock, run by a bunch of incompetents was nationalised. It is now backed by the government and has seen huge in-flows of capital, allowing it to pay back circa £15 billion of it's loans from the BoE, but, just as surely, taking money out of the economy and competing unfairly with other banks.
    Lloyds TSB was a well run bank, so well run in fact that the government decided to lumber it with the toxic HBoS. That's a hefty chunk of punishment for the prudent and successful Lloyds TSB. I sold my holdings in Lloyds TSB the minute I read that the Golem was involved in the takeover.
    The good bits of Northern Rock and HBoS should've been hived off to competent people and the remainder left to go to the wall.
    But, one of the great failings of democracy is that governments view electoral success above national success.
    We'll be like Japan soon, a zombie economy. In fact, we'll be worse off.


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