Mark Bathgate

Printing money is not the solution

With another £40bn disappearing down the black hole known as the British Banking sector, the financial cost of the economic and banking collapse is now only rivaled by the two World Wars in it’s cost to the UK taxpayer. Rather than going to support credit to business or households, the further £25bn of “newly printed money” announced today is likely to go to help prop up the Government debt mountain.


 
The above chart shows how the Bank of England has been using quantative easing since March. 98.8 per cent has been used to purchase Gilts. As fast as the Debt Management Office “sells” Gilts to the “market”, the Bank of England shows up and buys them. The investment banks have been making a nice turn in recent months out of transferring money from one arm of the Government to another. The fact the new money is being laundered back to the Government via the investment banks does not change the economic reality of this process: the Bank of England is financing the Government’s debt needs via printing money in the manner of the Weimar Republic and Zimbabwe.


 
The above chart shows who has bought and sold Gilts since the Bank of England started its money printing programme. The only buyer of Government debt in the UK has been the Government itself. All other investors have used the Bank of England’s buying as a route to exit.  With the Bank finally acknowledging that a collapsing currency, soaring oil price and consumption taxes may lead to rising inflation in the coming months, its ability to continue rolling the printing press is going to be increasingly difficult.
 
The belief that lack of money supply is the key restraint on the UK economy, which is being used as the cover for financing the deficit in this way, is misguided.



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