I am going on holiday tomorrow, so let me get my thoughts on QE in early given that there is at least a chance that the Bank of England might announce a resumption of the programme whilst I am heading away as part of its post-Brexit manoeuvres.
First, let's recall what QE is meant to do. The aim is to buy government bonds to reduce the yield on low risk funds with the intention of pushing money into higher risk assets where it is hoped that the cash in question will be used to stimulate real productive activity, and so demand, and as a consequence inflation in due course.
Second, let's remember there has been £375 billion of this to date. None has been reversed and none ever will be because the market simply has not got the capacity to buy this debt back and fund continuing government deficits at the same time. So QE is in fact money printing in all but name.
And third, let's be clear that it has not worked. Bond yields have fallen to near enough nothing but demand for them ha grown despite that. Any funds that have moved towards equities have been used for speculation but not for investment (and there is, in any case, almost no link between equity investment and the real rate of investment in productive assets because no company of any size funds tangible assets in that way). And so there has been no inflation (it's fallen) or growth of consequence, let alone in wages.
All that has happened is that bank's balance sheets have been boosted by near enough free money that they have lent at a profit, banker's bonuses have been maintained, speculation has continued and asset prices have grown, seriously increasing the UK wealth gap as a result at cost to society at large. All this as pretty much predictable in 2010, as I said at the time.
So why might we do it again when the option of People's Quantitative Easing or Green Infrastructure Quantitative Easing as I prefer to call it is available? Let's start with the fact that we give the right to make decisions on this issue to the City shall we, and stop there shall we? No further explanation is needed.
Quantitative easing now would be a policy for the continuing power of the 1% in the UK economy and be of no benefit to anyone else. Surely the message that this is politically unacceptable will filter through sometime soon? Won't it?
I sincerely hope so.
There is a very strong need for action post Brexit but QE is not what we need.
People's QE is.
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The bank-directed QE we’re seeing now is good for relieving a liquidity crisis, but worse than useless in the face of a continuing recession.
Propping up the banks was necessary: enriching them, lowering the immediate cost of risk, and maintaining asset price bubbles, is counterproductive.
The worst that can be said of Green or Peoples’ QE is that it is reflationary.
Agreed
Have no truck with any of the comments made in this blog posting. And before I forget, have a great holiday Richard.
I seem to be spending more time absorbing the complexities of the underlying economics that shape our daily lives, and more importantly, the prospects for future generations. Your blog posts have been invaluable as reference in this regard as have your books…
I too am an accountant. I work 4-5 days a week and have no intention of stopping whilst I have the ability and energy to do so – I am 68 next birthday. It is some time now since I formally studied economic theory and it takes more than a tad of concentration to get the gist of what you are trying to say, but I have persevered.
Have you ever considered that Corbyn, and to a much greater extent, Trump, have lighted on a different aspect of this debate: the elitism of ideas?
Are we not seeing a failure by those “in the know” to communicate their ideas in a way that those of us who may not be equipped to understand why the rich are getting richer, but are readily willing to agree that they are.
This to my mind is why we have seen the extraordinary rise in Trump’s popularity. He provides a point of focus that is easy to understand. Pointing the finger of blame has a wider audience for understanding than the words of explanation that point to the wider responsibility that we all share to make this world of ours a better place to live in.
Surely, this is a serious contender for consideration if we are to refute the destructive prejudice of blame politics and move instead into the progressive debate that is necessary to improve my grandchildrens’ prospects?
I have spent the last fifteen years simplifying written information about changes in tax rules so that accountants across the UK can more easily communicate these changes to their clients. Would you consider collaborating on a similar “simplification” of ideas that may lead to a wider appreciation of the economic nuts and bolts that our politicians seem hell bent on twisting to further their own ambitions and beliefs, rather than lifting the overall understanding of the people they are pledged to enrich?
Bob
I admit we are on a wavelength
The outline of a boom on this theme is already with my agent….
Richard