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Bank Says Qe Is Making A Difference

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Gordon Brown isn’t the only one launching a fightback. The Bank of England has started a campaign to win round public opinion. In its case, the Bank is trying to combat scepticism about its quantitative easing policy that injects new money into the financial system.

In response to those economists and City scribblers who claim that it simply isn’t working, the Bank has been doing the equivalent of the political media blitz.

On Tuesday, it invited economists to a QE teach-in, and yesterday David Miles, a member of the Bank’s Monetary Policy Committee, gave a speech in which he said that the policy was having a real impact.

Some critics have pointed to this week’s money supply figures, which showed the M4 measure of broad money rising just 0.2 per cent in August, as evidence that QE is a damp squib.

But Mr Miles said it was wrong to judge it on the basis of one money supply measure. And economists say the Bank believes M4 would have fallen sharply without QE, judging by the relationship of M4 to economic output in the downturn of the early 1990s.

Supporters of QE argue that it has clearly had the initial effects that were hoped for in terms of reduced gilt yields — providing investors with an incentive to switch from gilts to other assets — higher corporate bond and equity prices and a general improvement in the corporate credit markets. Clearly, this is not all due to QE, but comparing what has happened in the UK with other countries suggests that it has played a role.

Bank lending figures remain weak but that may have less to do with weak supply than with weak demand. As the IMF pointed out yesterday, you would expect British non-financial companies to be paying off debt now following the very sharp build-up of borrowings over the past few years.

Anecdotal evidence suggests that credit conditions for small and medium-sized companies have improved markedly in recent months, perhaps helped by pressure from the Government.

But the IMF says that of all the big Western economies, Britain faces the most serious “credit shortfall” due to the shrinking of bank balance sheets and the ballooning of public borrowing.

So the Bank will be very wary of unwinding the policy quickly or of starting to raise interest rates early next year, as many economists predict.

This unnerves those who are worried about the return of inflation. But, as Goldman Sachs argued in a report on the US yesterday, there is so much spare capacity now that inflation is the least of our problems.

It is unclear quite how the Bank will unwind QE. But it has every reason to take its time.

Massive interest rate rises to shake some people out of assets before further printing?

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Massive interest rate rises to shake some people out of assets before further printing?

Nah they can't do that , I reckon massive tax rises to force people to sell things to pay their taxes , then a resumption on the road to Harare , or some sort of shock announcement saying no we didn't say 250bn we meant 2500bn.

Wonder when the bond strike will occur, in that in HK alot of people I know were there from the UK taking their life savings out the bank and changing them to HK$ in preference to holding UK£ , cept there is a biggie problem in that the HK$ is linked to the US$.

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They are hardly likely to say it's been a colossal waste of time are they?

That's about the top and bottom of it.

A short-term, smoke and mirrors fix for a structural problem.

Nobody is going to admit they fvcked up.

Edited by tinker

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