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A Response From The Bank Of England's Printing Money Roadshow

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I have two questions that I would like answering

1. Quantitative easing or the creation of money out of thin air is theft of the purchasing power of peoples savings.

Do you thing the police should be investigating this theft

2. Every time in history that a similar policy has been carried out by bankers and politicians it has resulted in devastation and a destruction of the currency involved. What makes you think it will be different this time

The Deputy Governor – Charles Bean – received a large number of questions on quantitative easing. Many of these covered similar topics and so we grouped questions of a similar nature together and provided answers on our website in August. These can be viewed at www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm

We are now responding to each of the emails sent to us. Thank you for your patience.

Regarding your specific questions, you may find it helpful to look on the website at the answers to questions 3, 5, 6 and 7. May I clarify that the aim of quantitative easing is to help support spending in the economy to bring future inflation back to the target. In other words, our monetary policy objective is unchanged. It is only by keeping to the inflation target that the Bank can protect the purchasing power of people’s savings. Please be assured that the Bank’s monetary policy does not seek to protect, benefit or disadvantage any one section of the community.

The Bank has made it very clear that it will monitor the developing situation carefully and if the Monetary Policy Committee thinks that inflation is likely to move above the target in the medium term, it can tighten monetary policy by raising Bank Rate and/or selling the assets it has purchased.

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http://www.bankofengland.co.uk/monetarypolicy/qe/askqa.htm

5. Won’t quantitative easing undermine trust in money? Won’t it lead inevitably to high levels of inflation and a collapse in confidence in sterling? Aren’t there limits to quantitative easing?
Monetary policy in the UK is focused on maintaining trust in the currency by ensuring that inflation is continually on track to meet the Chancellor’s 2% target in the medium term. At the beginning of 2009, the MPC’s traditional instrument of Bank Rate was cut to nearly zero (0.5%), but the economy continued to weaken as a result of the financial crisis. That is why the MPC judged that inflation would undershoot the 2% target without an additional policy stimulus. Far from undermining trust in the currency, quantitative easing is designed to ensure that inflation is stable and in line with the 2% inflation target in the medium term. As the economy starts to improve, so the MPC will tighten monetary conditions by selling off the assets it has bought and/or by raising Bank Rate so as to keep inflation on track to meet the target.

if we steal a little bit at a time thats ok then

7. Didn’t this happen in the Weimar Republic and in Zimbabwe? Why will it be different this time? Aren’t you taking an enormous risk with our economy?
In the Weimar Republic and Zimbabwe, the central bank printed money to finance government expenditure. This vastly increased the money supply, and hence prices rose rapidly. This is not happening in the United Kingdom. Here, the Bank is buying assets from the private sector to stimulate the wider economy, because otherwise we risk undershooting, rather than overshooting, the inflation target. Quantitative easing is not carried out to help the government meet its financing needs. When the economy recovers, most of the purchased assets will be sold back to investors, reducing the money supply.

who has been buying the Gilts then and where did they get the funds from to do it

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Does anyone know the % of QE that has resulted buying government gilts?

who has been buying the Gilts then and where did they get the funds from to do it.

Edited by mbga9pgf

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They should stop and reverse qe and leave interest rates at 0% for the next decade. That would make me a very happy man indeed.

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They should stop and reverse qe and leave interest rates at 0% for the next decade. That would make me a very happy man indeed.

True. Problem is, how does the BOE claw back the QE without raising rates? They need cash inflow to pay it down. Just as QE is the same as lower interest rates, paying down QE surely needs higher rates to pay down the assets purchased?

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http://cynicuseconomicus.blogspot.com/2009...nment-debt.html

The Telegraph's economics editor's latest article headlines that 'Mervyn King Wanted to Buy Half of the UK Government Debt Market'. It is a headline that, of itself, is worth some contemplation. That the Governor of the Bank of England should propose such an extreme measure is quite astounding. Conway, as I pointed out in one of my early articles on quantitative easing, had been co-opted by the Bank of England, and was 'on board' with the program. However, even Conway appears to be having some reservations:

However, the argument will reignite questions over the ultimate purpose of QE. The Bank and the Government maintain that the idea is not in any way to monetise the deficit (in other words for the Bank to print money and buy government bonds in an effort to keep it from technical insolvency). I still believe them - though I know many of you are already sceptical. However, as the next years roll on and it becomes ever more difficult and painful for the Government to raise money in the capital markets, it will become ever more difficult to convince people of this argument – unless the world really does succumb to a deflationary trap of 1930s - or at the least Japanese - proportions. And that is a sentence no-one should ever relish.

The outcome of the policy decision is that Mervyn King failed to win the argument for the massive increase in quantitative easing that he wanted, but that the amount was still increased by £50 billion to a total of £175 billion.

For regular readers of Cynicus Economicus, quantitative easing (QE-printing money) will be a familiar subject, and my opposition to the policy has been consistent. In early articles (e.g. here), I identified that QE would be used once risk of failure to sell government debt loomed, and this is what has taken place. Just as government finance commenced a severe downward spiral, QE 'coincidentally' appeared as a new policy tool.

In a recent article, I identified that QE was supporting the UK gilt (bond) market, and that even a hint of ending the program saw bond yields start to soar. I also noted in another article that the Bank of England was introducing a new 'exit strategy' for QE, which was the issuance of short term Bank of Englan bills, rather than the sale of the gilts back into the market. If QE is not about the monetization of debt, why not simply resell the gilts? This is the most simple and direct reversal of QE policy...

Then there is the deflation scare that is used as the justification for the policy. In each Bank of England report, deflation is just around the corner, but never seems to materialise. As I discussed in one article, inflation has not yet even reached a level far enough from the 2% target to require a letter of explanation from the Bank of England. Despite this, a radical and highly unconventional policy has been implemented. Furthermore, there is no evidence that deflation is actually a 'bad thing', as I explained in a recent article, with no empirical evidence or justifiable explanation for the scare.

Finally, there is the convoluted justification for why the Bank of England is buying gilts, rather than other assets, as a means of expanding the money supply. Quite frankly, the Bank of England explanation makes no sense at all (discussed here). There is simply no justifiable explanation for the necessity to buy gilts over other assets.

The Bank of England has nevertheless reached a point at which it is expanding QE, and the Monetary Policy Committee (MPC) minutes make fascinating reading. I strongly recommend that you read them in full, as you will find frequent use of terms such as 'may have', 'could have', or 'possibly' in reference to the outcome of the policy to date. It is very clear that there is considerable uncertainty about the actual effects of the policy but, despite this, the policy is being continued.

The continuation of QE is once again built upon flimsy justifications. The simple truth is that the Bank of England is now on a treadmill in which it must continue the policy to prevent a collapse of the UK gilts markets. However, the further the Bank of England goes, the greater the build up of inflationary pressures, and the greater the danger when the policy finally unwinds. The Bank of England is supporting the fiscal irresponsibility of a bankrupt government, which is both bankrupt in terms of money and bankrupt in terms of ideas (the opposition are still not much better).

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what part of this dont they understand

The Austrian business cycle theory is an explanation of the phenomenon of business cycles held by the Austrian School (which is regarded as being outside the mainstream).[1] The theory views business cycles (which they also call credit cycles) as the inevitable consequence of inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.[2]

The theory proposes that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment.[3] According to the theory, the business cycle unfolds in the following way. Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas that would not attract investment if the money supply remained stable. A correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when exponential credit creation cannot be sustained. Then the money supply suddenly and sharply contracts when markets finally "clear", causing resources to be reallocated back towards more efficient uses.

and

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. --Ludwig von Mises

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I didn't understand the bit about them not financing government expenditure.

I believe it's normally referred to as a 'lie'. :lol:

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Guest Daddy Bear
I believe it's normally referred to as a 'lie'. :lol:

house indices up

stockmarkets up

oil up

commodities up

sales up

etc

etc

etc

the government:

"inflation down"
:lol:

like the "housing crash" - people only realise when its too late.

Mind its fun watching.

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I believe it's normally referred to as a 'lie'. :lol:

Exactly! I can't understand the purpose of even discussing these points with these criminals. You have more chance of getting the truth out of a a teenage chav hoodlum with 25 pages of previous convictions than you do out of these bunch of amoral lying theiving kunts!

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house indices up

stockmarkets up

oil up

commodities up

sales up

etc

etc

etc

the government: :lol:

like the "housing crash" - people only realise when its too late.

Mind its fun watching.

CPI doesnt target asset prices. So, apart from Oil and Commodities, your figures are false.

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I didn't understand the bit about them not financing government expenditure.

Surely the BoE is buying gilts. The govt sells gilts because it is spending money it doesn't have. what's the difference?

I think the point is, they're not just printing and then spending it, but keeping a tally of all the spending and intend to either pay it back or sell it to the private sector.

The thing is, it makes no odds anyway. If gilts are considered risk free (ie. as good as money) in the Basel Accords, then the banks can extend the credit to the government, swap it for gilts of equivalent risk, and claim interest (yield) from the government. The government can then spend the money into the economy, increasing the monetary base.

How is this different from borrowing direct from the BoE? The money was created out of nothing from the private banks anyway, so why not cut them out and create the money free of interest? There is a risk of the government borrowing too much using the latter technique, but it is common knowledge what happens if too much is printed (high inflation). If the government is serious about sticking to the inflation target, it makes little difference who creates the new money for deficit spending.

The real question is whether the government should be deficit spending at all; it robs from future generations, interest free or not.

EDIT: Note, the CPI measure is rubbish either way though and the whole monetary system needs reform. The point is, they are sticking to their decided remit, right or wrong though.

Edited by Traktion

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When the economy recovers, most of the purchased assets will be sold back to investors, reducing the money supply.

So when the economy recovers in 2020, I can expect to see these 'assets' turn up in the jumble sale at my local primary school. £3 Mrs Webb? That's a little steep. Call it £2.50.

Just what conditions have they in place for this fabled buy back?

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Exactly! I can't understand the purpose of even discussing these points with these criminals. You have more chance of getting the truth out of a a teenage chav hoodlum with 25 pages of previous convictions than you do out of these bunch of amoral lying theiving kunts!

yep

but the evidence of the lies may come in handy - you never know

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Quantitative easing or the creation of money out of thin air is theft of the purchasing power of peoples savings.

Do you thing the police should be investigating this theft

No as it's not illegal. And if it doesn't result in inflation then it doesn't alter spending power. So far it hasn't caused inflation.

Every time in history that a similar policy has been carried out by bankers and politicians it has resulted in devastation and a destruction of the currency involved. What makes you think it will be different this time

In Japan in the 1990's QE had absolutely no effect whatsoever on the money supply. So far that's been our experience too.

Edited by tpbeta

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No as it's not illegal. And if it doesn't result in inflation then it doesn't alter spending power. So far it hasn't caused inflation.

In Japan in the 1990's QE had absolutely no effect whatsoever on the money supply. So far that's been our experience too.

It doesn't stop it causing decades of stagnation though. The bad companies and the suffocating debt are still with us.

We must stop seeing recession as a bad thing - it is the antithesis for the exuberant excesses of the boom times. The booms are the enemy.

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The central bank is just a slush fund for incompetent politicians and fraudulent bankers.

They have done a great job in aiding the destruction of huge swathes of the income earning and manufacturing base and only created debt and bubbles. They never dare mention the trade deficit because it would expose the reality of they utterly dysfunctional monetary policy. They passed off all earnings about what would happen and then pretend that this trouble was unforeseen - a total pack of lies. Having instigated quantitative shitting they then after the event go on a pathetic PR exercise to try and justify it. It is theft, it will be highly destructive and will utterly skew the economy further.

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1. Quantitative easing or the creation of money out of thin air is theft of the purchasing power of peoples savings.

Someone once allegedly said "Render unto Caesar the things which are Caesar's".

Money is just bits of paper with numbers on, printed by the BoE, anyone who thinks any difference is mistaken, treat it for what it is -- something to be spent while it will still buy something.

Edited by caparn

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The central bank is just a slush fund for incompetent politicians and fraudulent bankers.

They have done a great job in aiding the destruction of huge swathes of the income earning and manufacturing base and only created debt and bubbles. They never dare mention the trade deficit because it would expose the reality of they utterly dysfunctional monetary policy. They passed off all earnings about what would happen and then pretend that this trouble was unforeseen - a total pack of lies. Having instigated quantitative shitting they then after the event go on a pathetic PR exercise to try and justify it. It is theft, it will be highly destructive and will utterly skew the economy further.

Well said Only Me ... a while since anything has been mentioned about uk/Western twin deficits and Eastern surpluses.

Like you say it will only push the global economy further and further out of kilter.

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We owe the Chinese a lot of money, if we pay it back by just printing it, isn't that a good way for us to obtain goods without having to put any effort in to repay for them? If we can't hide what we're doing enough it might lead to the Chinese refusing to do business with us and the devaluation of the pound. Which will lead to imports of things like flat-screen TVs going up in price. If we can fool them enough so that they don't realise we are just printing it we might still get away with being able to buy goods from them.

Edited by caparn

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We owe the Chinese a lot of money, if we pay it back by just printing it, isn't that a good way for us to obtain goods without having to put any effort in to repay for them? If we can't hide what we're doing enough it might lead to the Chinese refusing to do business with us and the devaluation of the pound. Which will lead to imports of things like flat-screen TVs going up in price. If we can fool them enough so that they don't realise we are just printing it we might still get away with being able to buy goods from them.

You think they are that stupid that they don;t realise what is going on?

We trade our future with printed money for products that they produce in exchange for currency. They then use that currency to buy up assets / resources or invest in further developing their own economy which in turn means that we are more reliant on their production rather being able to produce our own and earn income from that. Eventually when they have a complete strangle-hold on goods they can turn the currency peg of and demand their price - there will be no capital, no experience and no infrastructure to counter-produce a product even if the currency/cost situation eventually made it a credible alternative, game over. They re-cycled dollars in into the US economy because they knew that those dollars would further stimulate demand for their goods and further deteriorate the competitive position in the US because the banks were just re-lending the money into the housing bubble, they knew this would blow up but they didn't care - they were getting the technology, the jobs and the export stream and income derived from it.

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we are in the sh1t QE and 0 interest rates is INFATION failure to create this inflation all the wolds bankrupt banks would be bankrupt and that probably means most if not all of them so after the damaged caused by this event whats left?

QE at the moment prevents the answer to this question

Someone stated inflation hasnt materialized consider this

Houseprice yoy inflation now from the bottom 5 or 6 months ago is 15 to 20% thats what i call inflation

oil up over 100% so petrol well over £1.00 a litre and rising

Be rest assured we are now in double figure inflation and rising dont be fooled by the hype to keep bond yields down and wages anyone with savings are being raped spend them before its too late

The government should start exiting this policy now to prevent failure of trust in GBP this will not happen think general election May 2010 labours slogan house prices up 20% unemployment falling and stocks up maybe the fools will re elect them but by then it will be too late the real damage will be done regardless of who wins its not going to be nice

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Houseprice yoy inflation now from the bottom 5 or 6 months ago is 15 to 20% thats what i call inflation

oil up over 100% so petrol well over £1.00 a litre and rising

Be rest assured we are now in double figure inflation and rising dont be fooled by the hype to keep bond yields down and wages anyone with savings are being raped spend them before its too late

Spend your savings on what? A house?

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