Leading article: A Faustian pact

Given the hold that Goethe had over the German elite in the 1920s, it is impossible that the Weimar Republic’s leaders could have been ignorant about what happens when desperate politicians start printing money. In Part II of Faust, the devil suggests to an emperor that he solves his fiscal crisis by mass-producing banknotes. He does so — and, for a brief period, all seems well. The public sector salaries are paid, debts are settled, courtiers run off to feast on food and wine. Later it is revealed that these were ‘bogus riches’ and the empire ‘collapsed in anarchy’. This, more or less, is what happened in Weimar Germany.

For George Osborne, the story is different. He is not deciding to print money — such matters are now devolved to the Governor of the Bank of England. Some £275 billion has been printed so far, and the total could turn out to be £500 billion. This freshly minted cash is being used to buy government IOU notes and keep the interest on its debt down. The Chancellor is thrilled by this cheap debt, and has offered to allow small companies to share his bonanza — all sponsored by Sir Mervyn’s non-stop banknote machine. As Faust puts it: ‘Tens, thirties, hundreds, all to date/ You cannot think how people jubilate.’
Among ordinary British people, however, there is no jubilation, just a deep sense of unease and distrust. The economic risk being taken is hard to exaggerate. Every new pound created reduces the value of the pound in your pocket. When the Bank of England printed £200 billion in the last round of quantitative easing, prices were pushed even higher in Britain. Printing money has a cost: a little extra pain, inflicted on millions of households. This is the unannounced, but official government policy.