Coffee House

A feast of Quantitative Easing

9 February 2012

Fire up the printing presses, once again. The Bank of England has "">just announced another £50 billion of Quantitative Easing, bringing the total monetary expansion up to £325 billion.
And it probably won’t end there: Citi, among other analysts, forecast that it could go as high as £600 billion next year. 

So what are we getting for all this free money? The Bank would tell you that its supporting the economy: keeping interest rates down and encouraging investors to flush money into growth-inducing
schemes and mechanisms. And there’s obviously truth in that. But we, and the suits of Threadneedle St, shouldn’t pretend that QE doesn’t create victims too — and it is those victims that we
highlight in the latest issue of The Spectator. 

Here’s how Nassim Taleb, purveyor of Black Swans to David
Cameron, describes it in an interview with Fraser:

‘“Quantitative Easing is a transfer of wealth from the poor to the rich,” he says, “It floods banks with money, which they use to pay themselves bonuses. The banks
have money, and assets, so they can borrow easily. The poor guy, who is unemployed and can’t borrow, is not going to benefit from it.” The QE process pushes asset prices up, he says, which
is great for those who own stocks, shares and expensive houses. “But the state is subsidising the rich. It is the top 1 per cent who benefit from Quantitative Easing, not the 99 per

And, in a separate article, Bill Jamieson details what he calls ‘possibly the greatest gamble in British economic history’:

‘Low rates of interest are, of course, great news for a government which needs to borrow £4,000 a second — but not for savers who see the value of their nest egg destroyed
by inflation. It hurts pension funds, so what we think we’re putting towards retirement will be worth far less. Companies see the value of their pension fund plunge — and have to top
it up. This is what QE does: transfers wealth from savers to borrowers. If the Chancellor stood up and admitted as much, it would cause uproar. But because QE is a complex Bank of England
mechanism with a boring name, no one much cares.

We need not guess at its effects. The Bank’s own analysis has confirmed that the first £200 billion of QE pushed up inflation by anything from 1 to 2.6 percentage points. This
was slipped out in the small print of a Bank report, barely making a ripple. Compare this to the political outcry which surrounded the 2.5 percentage point rise in VAT last January. Every
household had to pay considerably more for shopping due to QE, too, and, as with VAT, it has hit the poorest households hardest.’

The Bank justifies its action today by saying, ‘without further monetary stimulus, it was more likely than not that inflation would undershoot the 2 per cent target in the medium
term’. But, as Bill Jamieson says, why should we place unswerving faith in the inflation forecasts of an organisation that has a "">particularly patchy record in this area? Mervyn King & Co are enacting radical policy, and with too few questions

  • Darius S.

    If you look at the US Quantitative Easing, they’re pretty much making similar debates. I think quantitative easing is wrong since it doesn’t target velocity of money. This article explains it:

  • Herbert Thornton

    I don’t know whether the Hungarian currency has yet reached the debased state of the Zimbabwe or Weimar inflations, but this seems to be a portent for our time. It certainly made me raise my eyebrows –

  • Colin Cumner

    HERBERT THORNTON – spot on. Can’t believe this is occurring under a Conservative administration – oops, forgot. It isn’t really, is it?

  • Herbert Thornton

    “Quantitative easing”. Why does everybody go on using this silly expression?

    Sorry about this – but to me it really does sound like a prissy way of referring to an ample bowel movement.

    Anyway I suggest that we all stop using the expression & start referring to it more accurately as – Debasing the value of Paper Money by printing lots more of it.

    Anybody agree?

  • daniel maris

    Who is getting the commission on this quantitative easing?

  • Herbert Thornton

    So, which is going to collapse first – the Euro or the Pound?

    Of course the Euro won’t suffer a universal collapse – just everywhere except in Germany where the sensible Germans will keep their own versions of it – maybe calling them Deuros or even good old D-marks.

  • Peter From Maidstone

    I am not in favour of large banker’s bonuses, but I find it hard to believe that the £350 billion has all been distributed as bonuses, therefore the interview would appear to be a load of rubbish since the main point seems to be that this money is being printed just to pay bonuses.

    A more interesting interview would surely have referenced the actual amount that is paid in bonuses, and then actually dealt with the reality of what the rest of the money is being used for.

    I’d be interested in that. I am not interested in what sounds like lazy banker bashing. Anyone can do that.

    Come along to an join in.

  • Sean O’Hare

    Here is one pensioner on a fixed annuity that will come a lookin’ for Mervyn for a handout when I can no longer afford to eat.

  • mongoose

    sorry, you did say so!

  • mongoose

    You might have mentioned that Jamieson’s essay is in the latest print edition of The Spectator.

  • wrinkled weasel

    Bring on the revolution. It is time for patriots to shout “enough”.

    QE is theft from the working classes, pure and simple.

  • AJK

    £5k in shopping vouchers for each person in the UK would do a darn sight better than more banking QE. Helicopter
    Drop now!

  • In2minds

    “Mervyn King & Co are enacting radical policy, and with too few questions asked”

    And it’s a policy that could do even more damage than that done by Gordon Brown’s madness.

  • Andrew Zalotocky

    It’s worth reading Detlev Schlichter’s take on this:

  • tb

    Merv should take his pension out of the inflation protected fund it’s in at the moment.

  • Tiberius

    The more open-minded may care to read Daniel Knowles in the DT today.

    This blog assumes that QE is an evil with some possible benefits. There is an alternative view, which is that it is one of the few financial tools left with which to keep the economy ticking over, but with it come some unwelcome side-effects.

  • michael

    10k 20k. Thing is, the first thing most people will do is keep it in the bank.
    D’you think I might get a grant to start a ea…flog it on ebay – hollow mattress/creaky floor board business.

  • REPay

    Yet aagain the public sector is fed at the expense of savers, private businesses etc. Why are we still funding the massive unfunded ponzi scheme of public sector pensions….the productive economy is groaning under the burdens.

  • Leonidas74

    Russell, 1.13pm:

    ‘just imagine the effect on the economy’

    One word: hyperinflation.

  • Radford NG

    I call this a PANCHO VILLA economy.I saw it in an old movie.After Villa takes Mexico City he’s told there’s no money in the bank.He,being an ignorant peasant,declares:”So!Print some!”.

  • Russell

    Rhoda has the right idea. £600billion shared between 30million taxpayers equates to £20,000 each.
    If a condition of this ‘gift’ or taxpayer rebate was that it must be spent within say 6 months, just imagine the effect on the economy.

  • Publius

    I have just written a cheque to myself for £10m in order to recapitalise my bank account.

  • M Lupton

    The government have decided to steal some more of my savings. Would that I could prosecute them for this criminal act. I feel so helpless and angry.

  • john gerard

    The BoE will follow the US Fed, albeit to a much, much lesser degree. By the end of this decade, the US Federal Reserve will have printed many trillions of dollars to juice the markets. There is no limit to what they can do. They are answerable to nobody and no institution. They can do what they like, and they will do it. No-one can stop them. This is an election year, and Congress is OUT of the stimulus business. Barry will get Bernanke to do him a favour and get that Xerox machine in the basement of the Marriner Eccles building working overtime.

  • Sally Chatterjee

    There go my savings.

    I should have “maxxed out” a credit card and started a buy-to-let empire. Silly me for carefully saving money.

    Who votes for this policy?

  • Rhoda Klapp

    No, tell you what, stuff the £10k cheque. Deliver the whole 600 bil to my house, in notes. I’ll do the rest, for free.

  • Rhoda Klapp

    £600 billion is about £10k each. I’d like mine as a cheque, I am not confident that their chosen mechanism is effective.

  • Brian A

    Once again the BoE has decided to punish the prudent saver while supporting the reckless borrower (including the most reckless, i.e. the government). When this all goes pear-shaped can we look forward to Mervyn King losing his knighthood?

  • Fergus Pickering

    Of course inflation is the plan. Inflate the debt away. Good for the young, who will get wage rises. Bad for the old, who have fixed incomes.

  • Heartless Curmudgeon

    Now here’s a real opportunity for the H2B to stop his endless speechyfying and actually do something useful: work to restore real money!

    But, given that almost the entire coalition is as sham as the ‘money’ in circulation, not much hope in that direction.

  • Couldn’t make this stuff up.

    Just in time to cover the dues (30 days) for all those Xmas/new year bonuses… Handy that.

  • DavidDP

    “not for savers who see the value of their nest egg destroyed by inflation”

    Home ownership has been promoted as the ideal, not least by the Tories (particularly in the 80s under Thatcher) and the UK right overall. Low interest rates are great for home owners with mortgages. I’m surprised savers are suddenly the ideal, and not homeowners. What changed?

  • Rhoda Klapp

    Inflation IS the plan. Been saying it for months, right here. How about working on the assumption that this fiddle is not being done for our benefit, but is an attempt to pick our pockets by the same folks who brought you today’s economy. When are they going to lose THEIR jobs?

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