Quantitative what?

Posted on March 6 2009

I think people are trying to get their heads around £75 billion worth of quantitative easing.

I personally have no problem with the concept.

I am personally relaxed about the possibility that it will create some inflation. More than that, I welcome it. Moderate inflation always makes economic management easier.

I do have a massive problem with the way in which quantitative easing will be put into operation. The government is going to buy its own bonds back from the banks. It might also buy some corporate bonds.

Will that increase the money supply? Only if that is then put into circulation as lending. If it is simply used to shore up an insolvent balance sheet it has no benefit at all.

I would like £75 billion to be spent. But I mean I want it spent. I want rail electrification (planning permission not always required). I want massive retrofitting of our housing stock to make it carbon efficient. I want improvements in our National Grid. I want expenditure on alternative transport systems, not cars or roads. I want investment in green technology. I would buy out PFI. These provide real long-term benefits. They also create a massive multiplier effect that pays for the investment because 40% come straight back in his tax, and the multiplier on these is at least 1.6, meaning that more than 25% also comes straight back in as additional tax. The real cost is therefore less than the 35% of the sum put into circulation.

That makes sense.

That creates jobs.

That delivers a green new deal.

Quantitative easing by repurchasing bonds saves banks that are beyond redemption.

What is the priority here?

Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:

You can subscribe to this blog's daily email here.

And if you would like to support this blog you can, here:

2

2 Responses

  1. Mark Lee says:
    March 6 2009 at 10:05 pm

    Why does the Government persist with the notion that giving money to the banks means they will lend it to small businesses? I hear repeated stories of how local bank relationship managers put forward lending proposals only to have them turned down by the credit committee.

    On the other hand plenty of banks have been approached by small business owners who have heard about the additional funding available only to be disappointed. In many such cases this is because there is no business plan or realistic prospect of the borrowings being repaid. So the Government has created unrealistic expectations.

    If they seriously want to get money into the economy they have to put it there directly. Giving it to banks and hoping they will lend it is wholly unrealistic.

  2. Richard Murphy says:
    March 7 2009 at 11:55 pm

    Mark

    Agreed

    It’s why this must be spent in to the economy

    Then real people get real work and the flow of money improves fast because of real economic activity

    Banks won’t and can’t deliver that right now

    They’re out of the real economy right now, for starters

    Richard