The Mystery of Quantitive Easing 234


The headlines all say that the Bank of England has pumped another £50 billion into the economy in the third round of quantitive easing. In fact, the money will not get far into the economy. It is given to the banks and other financial sector companies, and evidence from the previous £250 billion worth of quantitive easing is that almost all of it will stay there, being very handy stuff with which to fund massive salaries and bonuses.

This whole notion of what is and isn’t useful in the economy is strange anyway. This cold weather is making us all use a lot more gas for heating. Those higher bills will count as increased economic activity and higher GDP, but actually we are all less comfortable. This morning I have put on an electric heater to boost the central heating. That is increasing economic activity and increasing GDP. But for the last week I have been burning logs from my own garden on an open fire – that doesn’t increae GDP as I didn’t pay for them. But they were warmer and more pleasurable. A homely example that the automatic equation of GDP with a better life is nonsense.

There is a mystery about the way Q.E. works. The Bank of England does not just give the cash away to financial institutions, but exchanges it for assets. We are told that this is not the Bank of England saving the bankers from their mistakes by buying up toxic assets, but rather that the assets are gilts.

I do not understand this at all. Why would banks want to cash in gilts? Gilts are already perhaps the most liquid asset you can hold, other than cash, in the classic definition of liquidity that they can be easily sold without much affecting their value. On top of which, these same financial institutions are actually still buying bonds from the Bank of England on a regular basis, which would make the process pointlessly circular. And the current Bank of England bonds the banks are buying pay historically low rates, almost certainly lower than any gilts they are exchanging under Q.E.. Why would they do that?

The only sense I can see is that the Bank of England is giving cash in return for junk, and the gilts line is a cover. Any genuine official statistics on exactly what the Bank of England has bought up under Q.E.anywhere?

It is beyond doubt true that the effect of creation of new money is to reduce the value of currency already in circulation. The effects will show through in inflation and the exchange rate. Of course, those will continue to be affected by other factors as well, which is why there are better and worse times to do it. But in effect Q.E. is still a transfer of wealth from those who hold any of the currency to those given the new stuff. In other words, more cash from you to the bankers.

Actually if QE had been used genuinely to stimulate the economy it would have been a marvellous thing. With £350 billion we could have built an enormous amount of social housing on brownfield sites, converted derelict high streets into housing, built the Severn barrage and a high speed rail link from London to Aberdeen and still have had change. We could have reopened the steel industry to do it. a thousand manufacturing firms could have been re-tooled. Millions could have been employed. The entire logic of economic depression could have been turned around.

Instead we gave more cash to the bankers.


234 thoughts on “The Mystery of Quantitive Easing

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  • Ruth

    Ingo,
    Surely feudalism was a means of maintaining wealth, power and control in the hands of a few.

  • amanfromMars

    Clark Thanks for that or perhaps not! What a deeply unpleasant piece* from that gay site on the Gareth Williams story. I have sight of the original now. It is a long and serious piece of investigative journalism which gives emphasis to the fact that the police have not solved the grotesque murder of this young man and that there has been disinterest by the authorities. I thought the ‘fagburn’ piece belittled Gareth Williams and his memory. ….. Mary 13 Feb, 2012 – 9:05 am

    Hi, Mary,
    It is hard not wholeheartedly agree with ….. No, wait – there is more sinister skullduggery afoot!
    .
    “From the point of view of the intelligence services, failing to prevent an assassination of an operative in the very shadow of the MI6 headquarters at Vauxhall would appear hopelessly inept — especially if a previous break-in had flagged up the building as a possible target.”
    ….. given the evidence of that which has been made known.
    .
    And if not an “outside job” and a foreign “attack”, then any budding Sherlock would be mulling over the probability rather than possibility of some internal Kellyesqe housecleaning to cover up shenanigans that bring down insecure security establishments?
    .
    And quite perfect spy script material for a SMART Bond Style movie about dodgy bonds rendered worthless because of a lack of intelligence at the head of supposedly intelligent corporations and Intelligence Communities ….. and the live algorithms and dynamic programs which create, deliver and support them? Does anyone here know any SMART movie moguls/directors/producers?

  • guano

    My point is that the problem is about crime, not economics.
    For example if you force everyone to abstain from buying land in green belt areas and surreptisiously inform your supporters that you are going to change the rules and then do so when in power, or similar in the NHS completely absent from Tory manifestos, you are doing the equivalent of insider dealing, which is a crime.
    Your big foot sometimes seems to get stuck on both pedals, slagging off others and crawling to government policy. No. Governments engage in criminal activity, kill and terrorise millions, and actively undermine countries that are supposed to be our political partners. You approve of all of that, but you can’t stand others who don’t approve. Who cares about the economic argument if you get the moral argument wrong? Economics is figures, morals is peoples lives. It is slowly becoming apparent what sort of callous scumbag you really are, like a blown-up flea of Gordon Brown.

  • leonard

    The universal ignorance about the complete con of QE has its roots in the dire reporting of it by the entire conventional media. The result is that the electorate has no idea what a scam QE really is, otherwise there WOULD be riots, since QE is de facto the worst possible way of stimulating the economy. The BoE would be better off giving that 300 billion away in tax holidays for the poor, direct injection of funds into proper infrastructure and improving roads, rail, public amenities and directing those vast funds into something useful.
    .
    There is simply no point in writing out cheques to banks, since that cash is going to be funneled away well before it makes it into “the economy”. Banks won’t lend to businesses who have no customers no matter how much cash you give them! You cannot create bigger markets by subsidising businesses who already have stockpiles of goods that the over-taxed cannot afford to buy.
    .
    If you must artificially stimulated the economy (which will create even more debt in the long run), then giving it to small businesses who cannot even sell current stock, so they create even more stock they cannot sell either, is nuts. The only way you can stimulate in this fashion is to increase the spending power of people.
    .
    Instead, the Government continues to tax people out of existence (now all tax taken as a whole accrues to OVER 50% of average earnings), meaning the average employeee now has to work from January 1st until JULY until they actually get to keep one penny of what they earned! Meanwhile, if you have a salary of £1 million with a bonus of an further £2 Million per annum, you still have a fabulous sum to spend even after paying the top rate of tax.
    .
    QE is a disaster and serves only those who control money.

  • ingo

    Ingo,
    Surely feudalism was a means of maintaining wealth, power and control in the hands of a few.

    Ruth, yes and it still is. Most of Polynesia and Micronesia are governed by feudalism, although now they are slowly changing to other forms of Government. Feudalism has worked for some, in its purest forms it might still serve a ruling class/King/village elder, but it is more hands on, there are some connective rituals and traditions that have survived and that are inclusive, they have never known of any other system, or have rejected them in favour of what they had going for so long.
    BTW. Is a caliphate a feudal system?

  • Courtenay Barnett

    Canspeecy,
    All that you state is noted. Wasteful public expenditures, no doubt, feed deficits. And, we also need to put things in current context.
    None of the bailout money goes to the people, but to the banks in interest payments.
    The economy is not fixed by assignment of the bailout money. The lending implies cuts in public spending; social unrest; no job creation; fire sale purchases of Greek assets – and nothing likely to fix the Greek economy despite the billions assigned, until the next bailout.
    George Papandreou first agreed to an EU bailout, then the people wanted a referendum on the issue and then Papandreou eventually resigned. By the time he did resign Greek bonds took a big hit and maybe 50% of Greek bond value was lost. This sent shock waves into the global market.
    Your point Canspeecy is that overspending is reflected in the deficit, and is a cause of the Greek problem. I agree, that too has to be fixed. However, if one destroys social infrastructure and elements necessary for economic recovery – health sector, education, jobs and skills training etc. how does that fix the Greek problem – only makes it worse.
    Are Germany and France heaping unworkable borrowing and high interests rates on Greece?
    Why would banks lend, if the situation of the borrower does not permit realistic chances for repayment?
    The banks misguided lending policies caused sums to be lent in ways that were never viable. The Greeks are now placed in a debt and austerity trap with no prospects of a solution of economic growth – so, how does this solve anything?
    I accept many of your points Canspeecy. There are others to be made as well if Greece or the Eruo are to get any lasting fix and be viable.

  • Anon the one and only

    @Clark

    “I was very moved by a documentary about the Mir space station after the collapse of the USSR. The Russian space programme continued, its employees worked on for no pay, and their communities supported them.
    .
    We don’t actually need money at all, not”

    If you had seen the misery caused when the payments system of the former Soviet Union froze up – and people in many industries were not paid for many months, and in some case tried to resort to barter, I very much doubt that you would make such a comment. Alcoholism went up sharply, male life expectancy fell suddenly and corruption was given one hell of a boost as factories with little access to finances were often soild on the cheap to members of the nomenklatura. I’m afraid losing money usually means that those with access to the little that remains or foreign currency are able to call most of the shots.

  • Iain Orr

    Rose/ Ingo etc. I’m happy to add to the gaiety of nations, delayed by a PC glitch and a hospital appointment. However I disclaim any talent, for writing pornographic poetry. My skill was as an editor who helped publish the cyclostyled “St Andrews Poetry” in 1962. The poem that got up the Master’s nostrils was by a good friend, Harley Millar, who has given me permission to quote from it.
    .
    “The Scent Of Bitches”
    .
    Shut your filthy trap
    You stinking slut.
    Put your bloody lipstick
    Smooth on you beautifully-proportioned bom.
    ….
    I want to meet the you –
    Strip off you sweaty small-talk brain, Propriety,
    Show off in your own, uncopied way
    Or piss, you bourgeois bitch
    On my introductory nose.
    .
    The reason the Master even read the poem was that the aunt of a female student – who had sent her a copy of the magazine – received by the same post an appeal for funds from the University. With indignation she wrote to Johnny Wright (the Master, and also my Professor of Logic and Metaphysics) on the lines “How can you expect me to support a university whose students write such filth?” I was enjoined to mend my ways. Not sure if I have done so.
    .
    As a postscript, on University challenge this evening the team from Balliol failed to identify the author of “Murder in Samarkand”. Craig needs to educate the latest student generation.

  • Iain Orr

    PS – Correction to the above. My porno poet friend is Hartley Millar; apologies all round for the typo.

  • Fedup

    “an unfettered free market”
    ,
    Yeah sure, after which we can get on with finding Yeti, and Loch Ness Monster too.
    ,

  • Anon the one and only

    Canspeccy

    So you want the banking industry to be returned to the discipline of an unfettered free market – but when it comes to labour you are totally against free markets. Please make you mind up – some of us just don’t belive in totally free markets for anything – and believe that there is a balance to be struck as in most things.

  • Courtenay Barnett

    @ Canspeccy,

    “an unfettered free market”….duh….huh?

    Up to a point I thought that we were sharing ideas from the same page, reading in a similar rational way, if not quite fully the same script – but, with that comment, I must put distance between where your mind is and where mine is.

    There is not and never has been any totally unfettered market. What happened at the time of the Great Depression is seeing its mirror image reflected in current times in greed combined with significant corruption. Following the Great Depression, the Americans introduced the Glass-Steagall Act – which was designed to keep sections of the banking industry distinct and reasonably accountable and regulated. For a while it worked, then we get to further movement away from the gold standard, repeal of Glass-Steagall, removal of regulation Q, and greed is at it again and we now find ourselves in the mess that presently exists. Put those thoughts on the shelf for a minute.

    Goldman Sachs sold the Greek government worthless shit derivatives. The rating agencies had been paid by Goldman Sachs and Merrill Lynch – thus Triple A ratings were given, when, truth be told – shit was being certified as substance. With market collapse the same Goldman Sachs crooks send in auditors for “assistance to the Greek government” ( so – originally when I implied a swindle and you disagreed with me, my mind was perfectly clear about what had transpired). Thus, the books had to be cooked. Now send for the EU who figured out the scam. Now play the politics. Why hasn’t legal action been taken against Goldman Sachs? – simple politically Obama says to the EU – fuck off – leave ‘em alone. Try to follow the legal trail but it fades away, with “political dust and powder” sprinkled to hide the truth from public eyes and just scrutiny. Call it – cover up; civil settlement; avoidance of criminal charges against Goldman Sachs – but all fundamentally corrupt at the core.

    The whole thing sticks to high heaven. Meanwhile the Greeks get fucked.

    Note now, with zero US interest rates, the banks get free money. And, they cut interest on deposits, but still have the use of the money.

    Again, in the banking sector, simply borrow free money, then lend back to governments and consider the levels of profits the banking sector is presently actualising.

    Put all the foregoing together and get back now to the Greek political situation.They are not stupid – they know that their politicians in collusion with the “banksters” fucked ‘em – but what do they do? Well, they don’t make the laws, the politicians do. All they can do is what they are doing – and it becomes a choice between riot, revolution or continued impoverishment. But, Canspeccy – educate us on this “unfettered free market” when it is definitely that lack of regulate that caused the problem in the first place. Goldman Sachs, junk sold, books cooked, and then?

    Having swindled the system, the same banking sector stands to reap considerable rewards from the interest payments that the Greek government has to pay for the bailout money, but the Greek people need not hold their breath that an iota of the several millions will in any way be there but to keep the ponzi scheme going , and they dare not expect any prospects of an economic solution or any likely chance for economic recovery.

    And you post about the “unfettered free market”….duh…huh?

  • CanSpeccy

    One and Only
    .
    “So you want the banking industry to be returned to the discipline of an unfettered free market – but when it comes to labour you are totally against free markets. ”
    .
    Bollocks. If you’re for bailouts for stupid bankers who buy crap bonds, fine with me as long as my government’s not involved.
    .
    And when did I say I was totally against free labour markets? Never, obviously, since you cannot quote me on it.
    .
    What I said was that if you insist on the globalist agenda, and Craig Murray is a globalist, made welcome at Global Empire HQ, Chatham House, then the only way to solve the unemployment problem is (a) full wage convergence with the third world, or (b) a wage subsidy program. But the subsidy program I have outline elsewhere is market based. Employers would have to pay at least minimum wages, but they could bid in an auction for wage subsidies. But probably too complicated for you to understand.
    .
    But I do realize that understanding anything is too much trouble for the weird crew here.

  • CanSpeccy

    Courtenay,
    .
    Try not to sound like total prick. If your as rational as you claim, why is it that it hardly shows.
    .
    Do you want to bail out the bankers or not? If not then you are agreeing that the full unfettered free market in bonds should be allowed to work.
    .
    Sure Goldman Sachs may have mugged the Greeks in some way but that is a side issue. The Greek government irresponsibly borrowed far more than it could repay. This was out and out corruption — vote buying on a huge scale.
    .
    The scam ended with the election of the Papandreou government because Papandreou was not prepared to take the blame for the fiscal irresponsibility of his predecessors.
    .
    The scam was probably aided by bankers lending money they knew the Greek government would have difficulty repaying. But then again the banks may simply not have done adequate due diligence.
    .
    Either way, a Greek default would have provided some well-deserved punishment for the moral and business laxness of the banking industry. But you’re against that, apparently. Why?

  • Courtenay Barnett

    @ Canspeecy,
    Three points that you raise:-
    1. Do you want to bail out the bankers or not? If not then you are agreeing that the full unfettered free market in bonds should be allowed to work.

    There is no desire, on my part for any bailout of the bankers. If you read what I posted, you would have seen that far from that I was pointing out the corruption of the “Banksters” and the depths to which said corrupt ran. So – how with a rational mind could I have been seen to be going down a path of reason that equates in any way to:-

    “If not then you are agreeing that the full unfettered free market in bonds should be allowed to work.”

    Read Adam Smith very carefully and I guarantee that with a rational mind applied you will come to appreciate why the “free market” and even more so an “unfettered free market” ( as you term it) is a misconception. There was corruption afoot in the Greek situation ( and I believe that we are agreed on that?).

    2. Sure Goldman Sachs may have mugged the Greeks in some way but that is a side issue. The Greek government irresponsibly borrowed far more than it could repay. This was out and out corruption — vote buying on a huge scale.

    In any process of corruption there are two parties – the “corrupter” and the “corruptee”. So, I really and honestly do not think that either side of the process is a mere “side issue”, since both are symbiotically related. You seek to apportion the blame on to the elected Greek representatives – and that is one side. Yet, the Goldman Sachs flip side is the other very important element, and I did speak to that in my post and stand by what I said.

    3. Either way, a Greek default would have provided some well-deserved punishment for the moral and business laxness of the banking industry. But you’re against that, apparently. Why?

    Let there be a default. Find and post my words where I am indicating that the Greeks are not entitled to go all the way ( if that is their choice) when I have used words such as “riot” and “revolution”. Please point it out to me. The post I put up, if you read carefully, was actually pointing out the US legal dodge when it came to accountability for what Goldman Sachs had done. So, why do you for a moment think that I would not from a legal perspective support, as you put it in your own words:-
    “…well-deserved punishment for the moral and business laxness of the banking industry”?

    At the end of it, you have a polite, non ad hominem propelled reply from me.
    Respectfully,
    Courtenay

  • CanSpeccy

    AJ
    Are you dyslexic?
    .
    I quoted Friedman as saying “we are all Keynsians now”.
    .
    What he meant is open to debate. Here’s one commentary:
    .
    one can make the claim that Friedman is a Keynesian and remain in good scholarly company. Both Don Patinkin (Gordon, 1974) and Harry Johnson (1971) see Friedman’s monetary theory as an extension of the ideas commonly associated with Keynes.

  • CanSpeccy

    Courtenay,
    .
    Any one can say “read Adam Smith very carefully and I guarantee that with a rational mind applied you will come to appreciate blah blah blah.”
    .
    Have you read Adam Smith carefully or otherwise, with a rational mind or otherwise? I have certainly read Adam Smith, including the Treatise on Moral Sentiments, which is probably more than you have. So there’s no need to lecture me.
    .
    I said it would be a good thing to allow a free unfettered market to operate in Greek bonds, which would punish the fools or knaves who lent the money. Now it turns out that you agree, so what are you arguing about.
    .
    There’s nothing in my statement that you apparently agree with that contradicts Adam Smith. Smith believed in free markets within a framework of laws that maintained competition, etc. He would certainly have objected to government intervention that prevented market forces driving incompetent or corrupt bankers out of business.
    .
    “Find and post my words where I am indicating that the Greeks are not entitled to go all the way ( if that is their choice) when I have used words such as “riot” and “revolution”.”
    .
    What are you talking about. My comment makes no reference to “riot” or “revolution”. You seem to be terribly confused.

  • amanfromMars

    But I do realize that understanding anything is too much trouble for the weird crew here. …… CanSpeccy 14 Feb, 2012 – 1:05 am

    One just needs to read what you share here on this somewhat conservative blog, CanSpeccy, to realise that your understanding of all that is going on everywhere is severely limited by what you do not know and a lack of viable imagination, too. A double whammy of misfortune, methinks. You have a great deal to try and learn, and even more to discover.
    .
    I do love your humour though, with this gem of yours ….. Global Empire HQ, Chatham House ….. really taking the biscuit.

  • Rose

    Iain – thanks for that little window on student life all those years ago.

    Never mind the filthy writing – you’d have thought aunty would have been more concerned about supporting an establishment whose students couldn’t even write sense.

    I loved the beautifully-proportioned bom and introductory nose!

  • Leo

    @ moderator
    Thank you for deleting several of my posts. I was quite drunk &, upon sobering up, delighted to find that you had done so. Nevertheless, many a true sentiment is spoken in drink & I do think that you give far too much leeway to Clark and Iain Orr despite their excessive (and apparently collaborative) comments that add little to the general discussion.
    Cheers,
    Leo.

  • Iain Orr

    Leo – I don’t think your blood alcohol level is quite under control if you can still hallucinate about “collaboration” between Clark and Iain Orr, when that does not exist. Try an unbroken organic egg in tomato juice, with a dash of Worcestershire Sauce – does wonders, head and tail.

  • Leo

    Well Iain, I guess my first instincts were correct. You are an arrogant shit and I have met many of your ilk in Scotland. Your “collaboration” with Clark is not necessarily by contact but by by your cozy back and forth comments (all too many) on this site. Keep your smart-assed recipes for your few remaining friends.

  • Iain Orr

    Well Leo, I think we’re brothers under the skin.
    “Cet animal est méchant; quand on l’attaque, il se defend.” I concede that you got in the first blow because of your feeling dissed by what others would regard as normal polite exchanges of view in public.

  • Leo

    OK Iain, we can shake hands metaphorically and make up although I cannot let it pass that apparently you do not know the difference between your and you’re.

  • guano

    Apostasy – problem. Apostrophe – no problem. Why get stroppy about apostroppies? Nobody cares any more, even that Thatcher-spawn Canspeccy.

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