Thursday, October 8, 2009

To remove quantitative easing and cut public spending is like a return to 1937 — it could drive the

Bank’s wait-and-see on QE divides opinion

There have been calls for the Bank to pump more money into the economy. David Kern, chief economist at the British Chambers of Commerce, said: “There is worrying evidence that earlier hopeful signs of improvement in the economy are weakening. To counter serious risks of relapse, we urge the MPC to raise the QE [quantitative easing] programme to £200 billion.” Geoffrey Dicks, chief economist at Novus Capital, agreed: “The scheme should probably be extended. It is very easy for the Bank to sell back the gilts if needed.”

Posted by devo @ 11:16 PM (954 views)
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6 thoughts on “To remove quantitative easing and cut public spending is like a return to 1937 — it could drive the

  • … economy into depression.

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  • “It is very easy for the Bank to sell back the gilts if needed.”

    Now that, is an out-and-out lie which you’ll be familiar with if you understand what the bank of England are doing.

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  • paul @ 2 Can you elaborate on why you believe it to be an “out-and-out lie”?

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  • See also:

    David Cameron yesterday seemed to imply that money was being printed, not to boost the money supply and so stimulate the economy, but to bridge the budget deficit. That brought hoots from the City, who said the speech suggested that the Tory leader had only a faint grasp of monetary economics.

    “Either Cameron or his speech writers have got their wires crossed,” said Philip Shaw, chief economist at Investec.

    October 9, 2009
    Bank must set out QE thinking soon

    http://business.timesonline.co.uk/tol/business/columnists/article6867088.ece

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  • @wanderinman

    Hi Wanderinman, welcome to housepricecrash.co.uk!

    Oh dear, this really should be very obvious by now. If you follow [email protected] or Cynicus Economicus or any of the other unaffiliated economics blogs you’d know they’ve discussed this to death.

    The Bank of England is basically propping up the bond market right now – the market for government debt. Withdrawal conditions for QE are undefined and like all economically prudent but politically unfavourable decisions (like raising interest rates to counter a credit boom for example), the Bank of England will never actually do the right thing and will always instead do the expedient thing.

    If you haven’t worked it out already – the Bank of England will never sell back the gilts it has bought with QE.

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  • Hi Paul, thanks for the greeting.

    I’ve wondered if Bank of England would just keep on holding the gilts it bought with QE. However, what about the other side of the equation – the new created money that the banks are currently holding in reserve at the Bank of England? Will the BoE just let the banks push that into the real economy and create a bomb of inflation?

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