quantitative easing
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Bank of England risks becoming addicted to creating money and needs to come clean about how it plans to unwind its £895bn bond-buying programme, the House of Lords has warned.
A report from a Lords committee – the members of which include the former Threadneedle Street governor Mervyn King – said there was a threat of quantitative easing (QE) leading to higher inflation and causing damage to the government’s finances…it said was widening Britain’s wealth gap by boosting asset prices.The report in today’s Times is ever more damning. It says the report says that the only thing QE has done is to increase “asset” price (ie the price of bonds and shares on the stock exchange”) but “has done little for growth, consumer spending and investment during the past decade”
Another failed attempt to control capitalism and one that has in fact made matters worse. The original idea was to make it easier for firms to invest by supplying them with cheap money. That didn’t work (because it’s the prospect of making a profit not cheap money that moves firms to invest). They brought the horse to water but it didn’t drink.
Predictably, causing “asset” prices to rise was going to benefit those who own them and the more the more stocks and shares they owned. This has increased inequality (even though the increase in “asset” prices is only a paper increase in wealth not an increase in the real things that make up wealth).
Here’s what the Report says in its own words:
“We conclude, on balance, that the evidence shows quantitative easing has had limited impact on growth and aggregate demand over the last decade. To stimulate economic growth and aggregate demand, quantitative easing is reliant on a series of transmission mechanisms that operate primarily in and through financial markets. There is limited evidence to suggest that these increase bank lending or investment, or boost consumer spending by wealthy asset holders. (Paragraph 50)
Quantitative easing is an imperfect policy tool. Its use in 2009, in conjunction with expansionary fiscal policy, prevented a recurrence of the Great Depression and in so doing mitigated the growth of inequalities that evidence shows are exacerbated and deepened during economic downturns. (Paragraph 67)
However, the mechanisms through which quantitative easing effectively stabilised the financial system following the global financial crisis have benefited wealthy asset holders disproportionately by artificially inflating asset prices. On balance, we conclude that the evidence shows that quantitative easing has exacerbated wealth inequalities. (Paragraph 68)”
How does QE relate to Modern Monetary Theory?
Is there any similarity?
I understand QE isn’t about printing money, but issuing credit that the government then later redeems back, so no extra money circulates to feed inflation.
While MMT doesn’t require QE and those countries with strong currencies can print money and ignore their national debt mounting.
But are national treasuries using both in practice?
Are Biden’s trillions really going to be funded from higher taxes on the 1%?
QE does cause inflation but limits this to “asset” prices which increases the nominal wealth of “wealthy asset holders” as the House of Lords calls them. It doesn’t seem to do much else.
MMT would cause a massive and uncontrollable rise in the general price level as in Weimar Germany and present-day Zimbabwe. Only a big player like the US (possibly only the US) could get away with it without too much of this because most of the extra money would be used by other countries.
QE is not currency crankism. MMT is.
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