Not worth the paper its printed on - The Bank of England hints at more QE

They wish it was this easy

The BBC news website reported yesterday that minutes from a recent meeting of the Bank of England's Monetary Policy Committee have hinted at a further round of quantitative easing. Apparently the MPC does not think the £375 billion worth inflation is sufficient to prolong what fictional economic growth they have created thus far and is now considering printing an additional £50 billion not, as one might expect, to pump into the wider economy through futher asset purchases, but to buy government bonds. So, in effect, the Bank of England is creating money, essentially out of thin air, in order to finance the wreckless deficit spending of politicians. Even for a central bank, this is impressive in its audacity. In one move, the Bank will not only further devalue its fiat money, once again causing those with savings to essentially be taxed due to negative returns on their deposits as the rate of inflation exceeds any earnings made through interest rates (which, by the way, the MPC is also keeping artifically low), but it is also adding ever greater amounts of money to the already eye-watering level of national debt, which devours more and more of taxpayer's money as the months go by.

How exactly do the Bank of England believe that this will help the economy, I wonder?

The problem with QE, just as with any other form of government stimulus or spending, is that the only possible way to maintain any artificial growth it might have created is to keep doing it. The myth that all government's need do is simply spend some money here and there (taxpayer's money, of course) and the economy will spring into life once more is as ridiculous and misguided now as it was when President Roosevelt wasted billions of dollars of American taxpayer's money on the New Deal in the 1930s. Yes, for a while, the economic activity did pick up as millions of poor unemployed people were paid other people's money, be it the tax payer's or a bond holder, to do work that the market did not require. But, as the stimulus was gradually withdrawn, economic growth faltered. Keynsians who can't bear these kind of home truths usually try to argue that the economy needed something bigger to stimulate it. And so for them the Second World War, quite possibly the most destructive war in history, assumed the status of the 'mother of all stimuli', with government demand for weapons and men boosting industrial output and reducing unemployment. Of course as soon as the war was over, the economies of many countries which had been geared towards total war production simply collapsed, such as happened in Britain. The long suffering US economy only fully recovered from this reckless programme of government spending after spending was reduced during the 1950s.

Although, obviously, the logical conclusion of QE is not a catastrophic war (although central banks, notably the US Federal Reserve, print money to finance them) the point is that everytime any form of government stimulus ends a new one is needed in order to sustain any growth created. This is because there is no growth, only inflation. The notion that economic growth is a direct consequence of government intervention could not be further from the truth. Economic growth occurs in spite of government interference, not because of it. The reason why there is no economic growth in Britain, is not, as the Labour Party would have you believe, because of government inaction and spending cuts. The market is merely trying its best to equilibrate following the decade of debt-fueled inflationary growth that preceeded this recession. The reason that businesses are holding off from investment is not because they are greedily hoarding their money or that they're acting irrationally,but because programmes like QE merely serve to prolong the uncertainty of economic outlook by kicking the can further and further down the road and perpetuating the problem. The actions of markets and businesses are always for very important and very valid reasons. Simply priming the pump in the knowledge that ordinary people will ultimately have to foot the bill one way or another simply does not work.

The BBC states in its 'Crisis Jargon Buster' (what would be better known as 'a Keynesian guide to the economy') that QE serves to ...' add more money into the system, which depresses the value of the currency, and to push up the value of the assets'. What the BBC is in essence saying is that inflation- the '[depressing] the value of the currency' results in assets gaining value. The value, you understand, not the price. An asset can only gain or lose value if real people in real economic transactions place more or less value in the asset in question. Inflation certainly changes prices, but inflation is no reflection whatsoever on the changing value of something. If inflation in this case causes the prices of assets to rise then all this represents is that the currency in which the asset is operating has diminshed in value, i.e it takes more pounds to buy it because the pounds don't go as far as they previously did.

If this is the Bank's idea of providing constructive solutions to the economic crisis then they really ought to read some history and remind themselves of the consequences of central banks financing transactions through printing money (1920's Germany comes to mind). Quantatitve Easing, and this case in particular, merely serves to illustrate the danger of allowing an institution that is not accountable to anyone to issue an indefinite amount of what is essentially fancy paper that is not backed by anything with real value. If in a few months time a news outlet reports that the Bank is planning another round of QE then don't be at all surprised. They will have necessitated it themselves.