Does The UK Need More Stimulus?

Bank of England Governor Mervyn King voted 'yes', even though he was outnumbered. The topic: to print more money, to lend to the British Government. Money which is supposed to flow into the economy and rescue us all from depression.

Some commentators argue QE, quantitative easing, or pump priming, is just another way of financing the budget deficit. Since the private sector won't do it, the government has to do it itself.

This analysis fails to ask the question 'why', or to answer it.


We know why the private sector can't and won't buy gilts, but the government has not found an alternative lender. It is not borrowing from itself, it is creating currency in order to create/facilitate debt.

That is precisely what the banks did when they created a parallel currency based on collateralised debt obligations.

They created debt which expanded the money supply, which the central bank was powerless to stop. As Australian economist Steve Keen explained in February.

So the only way the BoE has managed to offset the lunacy of the banking sector is by apeing it.


The techno music loving economist Edmund Conway in The Telegraph:

Let’s try to put that total into perspective. The size of the entire conventional gilts market is currently around £400bn (though of course with the Government raising so much extra cash year by year it is growing at a rapid rate). A £200bn slug is equivalent to around 14pc of Britain’s gross domestic product. This is bigger than Japan ever tried and is far greater than anything either the Federal Reserve or the European Central Bank is doing. And all for a policy whose dividends are extremely dubious and which has arguably never been successfully employed. At least, you can’t fault King for lack of boldness.

The MPC minutes are a further surprise for the City. Two weeks ago, at the time of the decision, few traders anticipated an extension of QE; they were wrong. Last week, few expected the Bank to indicate in its Inflation Report that market expectations for a series of interest rate increases next year and the year after were too much; they were wrong. And now this.


It is not merely that the 6-3 vote represents the first time the MPC has been split on how to carry out QE since it started the unprecedented policy in March – though that landmark in and of itself is a significant one. The fact that King was on the wrong side is highly significant. For in the few times that this has happened before, hindsight has usually proven the Governor to be right with his vote – and the rest of the committee wrong.

Can't disagree with the guy's economic analysis. As for the music, I guess it sounds better in Ibiza.

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