Tuesday, July 21, 2009

Putting more money into our economy to boost spending

Quantitative easing explained

The MPC’s decision to inject money directly into the economy does not involve printing more banknotes. Instead, the Bank buys assets from private sector institutions – that could be insurance companies, pension funds, banks or non-financial firms – and credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves). The end result is more money out in the wider economy.

Posted by devo @ 08:24 AM (902 views)
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4 thoughts on “Putting more money into our economy to boost spending

  • But the Bank of England started quantitative easing at a time when inflation was more than 1% above target (at 3.1%) and has been so for two years.

    Hardly compatible with the idea that QE is needed to boost inflation to make it meet the 2% target.

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  • What happens when the QE money, now being stored or abroad, starts to appear on the UK streets?

    Hyperinflation or big interest rate rises…..or both.

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  • refusetobuy says:

    “Bank buys assets from private sector institutions and credits the seller’s bank account. So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves).”

    So the effect of QE can be quickly cancelled by requiring that banks hold greater reserves at the BOE.
    Or
    Instead of printing money the BOE could have reduced the reserve requirements at the BOE. Why is this policy tool not discussed?

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  • “The Bank creates money and uses it to buy assets such as government bonds and high-quality debt from private companies”

    The way the handy leaflet skims across the phrase “the Bank creates money” it almost seems like they are talking about creating music or love…. no mention of the interest added to the creation of of the new money, no mention of the expansion of debt burden that this injects into the economy, the handy leaflet only talks of increased wealth…. mmmm make me some more of this lovely money

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