by Ann Pettifor 9th March, 2009
Professor Victoria Chick, Emeritus Professor of Economics at University College, London, a disciple of Keynes, true to his monetary policies, and whose advice and wisdom I lean on, has written in with some apposite comments. She writes:
” QE is not new, only the name is. It used to be called expansionary open market operations, and was routine.
“And why does the press refer to QE as printing money when the BoE does it – but not when banks do it – as they do every day? ”
She is incensed by the misleading media coverage of QE – and I assume she includes the Financial Times’ analysis in that.
10 thoughts on “More on not printing money – from Prof. Chick”
Too true. That’s why many of us are campaigning to nationalise the money system, i.e. for
legislation to prohibit banks from creating new money (as debt), and for the state to take exclusive responsibility for issuing money. The banks
should be limited to taking deposits and making loans based on those deposits (with strict liquidity ratios).
@Martin, I’m afraid I don’t understand your comment.
“Quantitative easing” was used in Japan as part of the Bank of Japan’s
five-year experiment, beginning in March 2001, to create growth or inflation. It failed to induce any inflation at all, as the Japanese continued
to pay down their debts.
I am a bit confused.
Has or is the B of E about to print 75 billion pounds or is it going to use QE (I am still not
clear on that one) to make it look like there are 75 billion pounds more in the British economy.
I think I need to read something along the
lines of QE , Keynesian economics, derivative etc for dummies so that I can get a better handle on the discussion.
There still seems to be a misunderstanding about QE.
1) QE IS “printing money” (though it may not be “about” printing money) –
which nowadays is done through computer entries in bank’s credit acounts. The central banks buy back government bonds from holders and credit
their bank accounts with new money.
2) QE creates money out of “thin air” – as the effort required is as laborious as making keyboard entries.
Ann mentions QE as a tool to reduce interest rates to prevent insolvencies from spiralling out of control . But how is the Obama
administration going to do QE and running a record budget deficit at the same time – which requires new treasury bill issues to fund it.
may be the same with the UK if they go on budget deficit.
Where will the BoE get the £75 billion which it will use to buy back bonds, if not by “printing” (presumably electronic) money?
Rasjid, you are right. QE is no more printing money, than banks issuing credit every day are ‘printing money’.
The point about the BoE taking government bonds out of the market, and on to its balance sheet, is that that will increase the price of the bonds
and lower the yield….And for a government planning to issue more bonds, that is very helpful. Because it reduces the cost to the budget
ultimately of those bonds….But more importantly, it reduces the borrowing costs of businesses going bust….if they can be kept alive, then there
is less chance of unemployment and the costs of unemployment benefits. i.e. welfare….Cutting welfare as well as borrowing costs, helps reduce the
budget deficit….hey presto. Its been done before (i.e. 1930s) and it can be done again…Its not rocket science.
Robert Munro….where will the BoE get the money? Where the banks get it from every day…’our of thin air
‘….Economists are whingeing about the BoE ‘printing money’…but banks do it every day…and no, they don’t use printers…they simply punch
numbers into an electronic ledger, add a ‘price’ – the rate of interest….and then drain your bank account to get repaid. That’s the magic of
banking…and why aren’t we all bankers?
The BoE will do the same thing, but instead of draining any institution’s bank account, including
the government’s bank account, they put the assets they have purchased on their balance sheet. One day they may sell them…but for now, those
assets (bonds) are out of the market place, and helping to increase the price of government bonds.
As the price of a bond (say £1,000)
rises (to say £2,000) the fixed rate of interest on the original bond (say 3%) falls relative to the total price – ie the ‘yield’ on the bond
falls….this has an impact on the yields of all bonds, in particular corporate bonds..used by companies to raise cash….Hope this helps..
Your reply to Robert Munro is as a “breath of fresh air” – not talking thin air.
Ann’s reply to Rasjid: I can’t (yet) fault
your answer as it seems logical. Being too long exposed to Antal E. Fekete, part of my mind just think that… debt is evil…and wouldn’t accept
any proposition involving issuing massive new debts/evil to attack “The Destruction” from destructions of old debts/evil.
running BoE people have PhD Economics and know that “Dynamics of Perpetual Motion” has been discredited – Rasjid.
I’ve never given this a try, but I think it’s about time I do.
Thoughtful post and well written. Please write more on this
if you have time.