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Easing made easy

How to sound confident when the conversation  turns to financial magic

21 July 2012

6:00 AM

21 July 2012

6:00 AM

Ghastly moment, isn’t it, when at a supper party (worse, at editorial conference or in a meeting with clients) some drawling know-all asks ‘so what do you think about QE?’ Everyone at the table swivels in your direction. Your mental turbines stall, your eyeballs sweat. QE? Is that a conference centre? Cruise liner? A fashionable disease? Anyone who has been through this experience may find useful the following bull-point presentation. With the emphasis on bull.

On hearing ‘QE’ do not say: ‘You mean that game show fronted by Stephen Fry?’ People may think you are being serious (which in fact you are, but let’s keep that quiet).

QE stands for ‘quantitative easing’, the government’s main economic policy in response to the slump. Quantitative easing is a euphemism and like all euphemisms — ‘terminological inexactitude’, ‘sleeping with Jesus’, ‘trouser cough’ — it is not entirely honest. ‘Easing’ sounds so minor, so relaxing, doesn’t it? Yet so far there has been £375 billion of QE since March 2009. Yes, £375 billion. That is worth about 100 aircraft carriers.

QE is sometimes compared to printing money — shades of those wheelbarrows of cash they need in Weimar Germany to buy a kartoffelwurst for lunch (soft drink not included). Printing money, as we all know, is a rotten idea. However, if you take this position you will betray yourself as a being of simple tastes. Bien-pensants are more soigné about mad public spending and bien-­pensant is still the look to aim for if you wish to get ahead in modern London.

The difference between QE and ‘printing money’? Sigh. ‘Printing money’ is something done by printing presses, using ink, watermarked paper and a hoary symbol of national identity (e.g. obscure poet/astronomer/nurse). Only African dictators go in for printing bank notes these days. It is, my dears, wildly 20th-century. Third World despots tend to wreck economies for selfish ends, normally because they want to hold on to power despite not having won an election. It is — ahem — inconceivable any modern British government would behave in such a way. Isn’t it?

QE is computer generated. Marvellous, really. It is ‘virtual money’, produced at the squeeze of a central banker’s chubby forefinger on his or her keyboard.


If you want another expression to bandy about with an air of bogus expertise, try this one. Economists say that when central bankers do that keyboard tapping with their chubby fingers, they are ‘extending the balance sheet’. You must admit, it’s a beautiful little saying. If you find yourself short of funds when September’s school fees arrive in the post, fret not. Just say ‘I am extending my balance sheet’ and get yourself further into debt.

Our central banker at present is Sir Mervyn King, friend of our high-minded Chancellor, George Osborne. King may look and sound as timid as a vole on the upper reaches of the River Trent but with QE, furtive Merv has been more like David Niven at a casino. The contrast of King’s outer dullness with this crazy profligacy is one of the best in-jokes among the power crowd. Clark Kent/Superman had nothing on Merv!

Experts, when dealing with simpletons, may refer to QE as a ‘sophisticated tool’. What a satisfying expression that is, to be deployed with a superior frown when you are losing an argument. When you say ‘sophisticated tool’ do not add ‘and I’ve met a few of those at the London School of Economics’. This will quite lose you all the credit you have accrued.

Having created its digital dosh on his keyboard, our man Merv uses it to buy bonds (IOU notes) from City firms. This alters lending rates because they are sensitive to the amount of money swishing round the Square Mile. The Bank would save itself some trouble and commissions by lending the money directly to the government but that celebrated work of anti-democratic genius, the Maastricht treaty, prevents sovereign countries’ central banks giving direct bungs to the state. So the Bank dreams up its cash, lends it to investors, who then lend it to struggling companies. Maybe.

QE lowers the government’s cost of borrowing because it creates more demand for the government’s IOU notes. The more demand there is, the less interest the government has to pay. Mr Osborne is borrowing £250 million a day, more than any eurozone country; anti-gambling charities would call this ‘a serious habit’. As borrowing costs are lowered, he has less interest to pay, and less explaining to do to Parliament. It also saves him having to upset the Lib Dems by making tighter savings in government spending.

Therefore, our country is spending billions on QE to save itself not quite as many billions in day-to-day interest payments. In the process, City firms get fat on cash. It’s enough to make a Libor trader blush.

One of the beauties of involving financial institutions is that the matter gets to be reported by the BBC’s near-incomprehensible business editor, Robert Peston, rather than the more plain-talking political editor, Nick Robinson. This means that the public — and several members of the Cabinet, who understand almost as little as the rest of us — listen to the first couple of sentences and then lose the thread. If you are worried that your audience may actually be following your remarks on QE, throw them off the scent by alluding darkly to ‘reversible QE’, ‘sterilised QE’ and ‘real QE’.

The first glurp of QE was £200 billion in 2009. A further £125 billion followed last year. In February of this year, gobble!, another £50 billion went down the hatch. And now we have just had a further £50 billion. How jolly moreish QE is.

The Japanese have been trying to kickstart their economy with QE for years. In their case it has not succeeded.

Citibank expects the Treasury’s spending on QE to reach £500 billion. This is money that Her Majesty’s government will, effectively, owe to itself. Does all this not make it even more amazing that HM the Queen manages to stay so radiantly cheerful?

Quentin Letts writes for the Daily Mail.


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