This was reported in the FT a couple of days ago, but I missed it due to other issues:
The Bank of England could buy new types of assets instead of UK government bonds if it ever has another round of the money-printing programme it launched in 2009 to combat the economic crisis, its governor, Mark Carney, has said.
Mr Carney made the disclosure in a letter to Green party MP Caroline Lucas, who is part of a body called the Green New Deal Group that wants billions of pounds funnelled into environmentally beneficial infrastructure projects with what it calls “green quantitative easing”.
There is no sign of any new round of QE now that the economy is on the mend.
But Ms Lucas wrote to Mr Carney in October to see if he would discuss the Green New Deal Group's idea of green QE. The intention is that the BoE would buy bonds from a body such as the Green Investment Bank, which would use the money to provide cheap loans for projects such as a mass rollout of rooftop solar panels.
This could create thousands of jobs and benefit the productive economy, rather than “the finance sector and speculators” who had been helped by the BoE's gilt purchases, she wrote.
Mr Carney replied saying it would be wrong to say previous rounds of QE had helped financiers and speculators but not the productive economy. He pointed to a BoE assessment that found that the first £200bn of QE may have raised the level of real gross domestic product by 1.5-2 per cent.
This is considered a good sign by those of us in the Green New Deal group:
Ms Lucas told the Financial Times that because the BoE could be willing to broaden its range of asset purchases, the government should agree to allow the Green Investment Bank to issue bonds so that any future QE programme could include the purchase of such assets by the BoE.
“This money could then be used to help make the country more resilient to flooding, and reduce the threat of climate change,” she said. These measures, plus others such as making every building in the country energy-efficient, could create “huge numbers of jobs in every constituency”.
“David Cameron has said that ‘money is no object' when it comes to making the country more resilient to flooding. Now is the chancellor's chance to prove it,” she said.
The option is available for another government.
That's an important point made.
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A couple of things. First, it’s absurd to suggest an economy which is created as interest-bearing debt can in any way shape or form be ‘on the mend’. It’s doomed by its very nature. Second, we don’t need QE to be used to buy bonds grey or green or of any description. We use fiat currency now. What can differentiate between one fiat currency and another? What can give it its value, make it a credible belief system? The use to which it’s put is the answer. So, the money necessary to fund the green revolution can be created from nowhere just as the private banks do now. Providing this is done proportionately, there’d be no inflationary effect. More money would be circulating, true, but as it would be backed by proportionately more wealth, there’d be no inflation.
“Mr Carney replied saying it would be wrong to say previous rounds of QE had helped financiers and speculators but not the productive economy.” Quoi???
organisations like NEF would NOT agree! See their QE report:
“The way QE has been interpreted and applied in the UK has benefitted some parts of the economy at the expense of others. While it has assisted some borrowers (including the Government) who have enjoyed lower medium and long-term interest rates, it is bank credit for productive GDP transactions, not interest rates, that is the primary driver of nominal GDP. In other words, success in lowering interest rates does not necessarily translate into success in stimulating the real economy.
In theory, QE should induce investors to move money away from holding government debt and into the corporate sector, boosting investment, production and employment. But it is highly uncertain that this mechanism of ‘portfolio rebalancing’ works in reality. Instead — as evidenced by current volatility in stock, bond and currency markets — investors reacting to QE are likely to channel their money mainly into financial assets. This inflates the price of such assets, and enriches the assets’ owners, with minimal positive impact on the real economy.”
Are we not getting confused about what QE is here?
It sounds like what is being proposed is more straightforward printing money and using it to fund things. Surely to create assets simply for them to be bought by QE is an unnecessarily round about and non transparent route.
This is what we call Green QE
You can call it something else if you want
I don’t care if we get it