Daniel Hannan On Our Money-Printing Masters

As we feared, the wise men at the Bank of England have decided that what our ailing economy needs is another dose of QE. I was about to blog the event, but it’s hard to match the eloquence of Daniel Hannan’s latest post:

According to the BBC, the Bank of England has decided to ‘inject a further £75 billion into the economy’. Who knew it was that easy? I mean, why not inject £500 billion? Or a trillion? According to the BBC’s logic, it would surely make us the wealthiest nation on Earth. I can’t believe I’m having to write this, but nothing new will be manufactured, invented or developed as the result of this monetary splurge, no services offered, no businesses founded. Rather, the money already in circulation – the money in your bank account, in your purse, under your mattress – will be worth less. The government, in other words, is helping itself to your savings – and, in doing so, is damaging productivity, disincentivising work and weakening the competitiveness of the British economy.

These themes will be familiar to regular Cobden Centre readers, as will his conclusion:

It’s a paradox. If I were to print counterfeit £20 notes and buy goods with them, I’d be perpetrating a fraud: I’d be buying something of real value with something I had magicked out of thin air. Yet when a central bank does the same thing, the half-educated economists who dominate our universities and television stations nod approvingly and mumble cliches about ‘boosting demand’. You can’t keep boosting demand without producing anything, for Heaven’s sake. That’s what got us into this mess.

We’ll post more on this latest act of folly in due course, but in the meantime Steve Baker has posted a warning straight from Human Action:

The Silver Lining in the Fed’s $600 Billion Decision

A good article from Ryan Streeter

The Federal Reserve’s recent decision to buy $600 billion in bonds—another example of the mysteriously named “quantitative easing”—may have the unintended effect of solidifying GOP policy makers behind an economic growth agenda. House GOP Conference Chairman Mike Pence immediately issued a release, as did Republican Study Committee Chairman Tom Price, claiming that the decision was the wrong thing for America. It would devalue the dollar, retard growth, and make us less competitive overall. In an unanticipated development, Sarah Palin burst onto the scene decrying the decision, earning the praise of the Wall Street Journal’s editorial board this morning for her articulate encapsulation of the problem. Palin pointed out that American households will pay more for basics such as food and oil as a result of the Fed’s decision, which—to paraphrase her—will end up working against any recognizable set of economic growth policies.

Read more.

Halligan: QE Now Seen As An Aggressive Depreciation Tool

Another superb article from Liam Halligan:

While the US has doubled its monetary base over the last 18 months, the UK’s base money supply has tripled. That’s right – UK base money is now three times bigger as a percentage of GDP than it was at the start of 2009. Given all that money-printing – sorry, QE – the danger is that inflation expectations take hold, and price pressures spin out of control. For now, a lot of the UK’s QE money remains “inert”, and therefore not yet inflationary, seeing as the banking sector has so far refused to lend it on to firms and households – one reason the UK economy remains so weak. That will continue to be the case, in my view, until the banks have black-mailed the British government into following America’s “lead”, and expanded QE to include the purchase of toxic corporate “assets”  as well as government bonds. Eventually, though – and it may not take long – the huge expansion of the UK’s base money supply will cause broader monetary aggregates to balloon as well, even if credit creation multiples remain relatively subdued. The QE money is out there and is almost impossible to withdraw. Once that money gets into circulation, and is leant against many times over, the UK could face “stagflation” – when high and rising inflation combines with an economic slump.

I recommend the whole article.