Quantitative easing

Are we dangerously addicted to Quantitative Easing?

For such a radical change to our monetary system, the lack of understanding of quantitative easing (QE) and its impacts is worrying. That is one of the conclusions drawn from this month’s House of Lords economic affairs committee report, ‘Quantitative easing: a dangerous addiction?’ QE involves central banks creating money and using it to buy financial assets (usually government bonds). It is known as an ‘unconventional’ monetary tool, as opposed to the conventional monetary policy of raising and lowering interest rates. But as this new report highlights, the practice has very much become a conventional part of monetary policy. The financial crisis in 2007-08 kicked off rounds of QE in

The true cost of cheap money: an interview with Andy Haldane

Britain’s economy is growing at the fastest rate in 200 years. Job adverts are 29 per cent above their pre-pandemic levels and employers say they can’t reopen because they can’t find staff. Wages are rising at the fastest rate in ten years. But here’s the question: how much more support does the economy need from the Bank of England’s printing press? Should the BoE stick to its pledge to bring QE up to £895 billion or stop £50 billion short? Its members met to discuss this last month and decided (as they always do) to press ahead — by eight votes to one. The dissenting vote — the first time

The ideological bankruptcy of modern monetary theory

If you can’t explain something, try an abbreviation. The latest in economics is MMT — Modern Monetary Theory or, in other words, a magic money tree. It’s a simple idea. It costs almost nothing to print money: the cost of printing banknotes is negligible compared with their face value, and even lower when the Bank of England creates money electronically through its so-called ‘quantitative easing’ programme (QE). That money could be given to the public — either directly or indirectly via the government — to enable people to spend more, so raising output and employment. We are all better off. Why didn’t we think of this before? Well, of course

Covid has left Britain printing money like never before

Lockdown is convulsing the British economy on multiple fronts. ‘Going to work’ has been upended, hitting transport and commercial property sectors. The demise of the high street accelerates as online retail surges. Yet the definitive Covid-related economic trend is happening within the national accounts, as the government spends vast sums on furloughing and other business support, while our locked-down economy struggles to generate tax. This has big implications for investors. The UK borrowed an astonishing £215 billion between April and October, almost twice the annual NHS budget. Our national debt now exceeds £2,000 billion — and just outstripped annual GDP, a first in our peacetime history. Amid renewed lockdown, with

Why Boris Johnson’s ‘New Deal’ won’t save us

John Maynard Keynes looks down and smiles, recalling his own perhaps too-often quoted remark that ‘when the facts change, I change my mind’. Boris Johnson’s £5 billion ‘New Deal’ of school and hospital projects to stimulate the pandemic-torn economy is pure Keynes, as well as a conscious reference to Franklin Roosevelt. And like the totality of the Treasury response to Covid, it represents a 180-degree change of mind from the modern Conservative belief in squashing state spending while letting the private sector drive. But in dire circumstances, most commentators accept it’s right to park ideology and try anything that looks like it might work. And for a while — I’d

Why do banks and governments seem to have learned nothing from the financial crash?

With September marking a decade since the Lehman Brothers implosion, stand by for a slew of economic retrospectives. Any meaningful analysis, though, needs to get beyond historic balance sheets and plunging share price graphs — however dramatic the data. For the most significant impact of the biggest financial and economic upheaval since the Great Depression has been the growing loss of faith in western liberal capitalism. Politics has been upended by the 2008 crisis — doing much to explain Trump, Corbyn and the broader shift away from centrist parties towards extremes. The demise of Lehmans, a once-impregnable investment bank, exposed a US financial sector riddled with chronic debts and fraud.

Capitalism is the best system, but it has been undermined by Quantitative Easing

The Prime Minister spoke today at the Bank of England to celebrate its 20 years of independence. But she has failed to recognise the irony of trumpeting the virtues of capitalism in the seat of monetary policymaking which has, for the past ten years, undermined many of the principles on which capitalism is based. In theory, the central bank operates independently of Government, but in practice, its unconventional monetary policies have acted as a democratically unaccountable arm of the Treasury. It is understandable that, in the face of the 2008 financial crisis, policymakers were looking for new ideas to save the banking system. They used monetary policy as the weapon

Quantitative easing has made houses hopelessly unaffordable

Financial crises tend to see asset prices collapsing, making housing more affordable. But it’s been different this time because the authorities in the UK, and elsewhere, countered the crisis with low interest rates and quantitative easing. By slashing the cost of borrowing and flooding the system with liquidity, these policies set out to – and succeeded in – inflating asset prices. So we have seen the UK stock market and housing market rising at roughly the same amount in the last ten years. Taken together with weak wage growth, the result is that housing in the UK (as in many other countries) has become less affordable. So what has been

Breaking the Bank

The exchange of letters this week between Mark Carney and Philip Hammond made it very clear who the supplicant was. The Governor of the Bank of England informed the Chancellor of the Exchequer that he was prepared to extend his term by one year. Carney pointed out that while the personal circumstances that had made him want to limit his term to five years had not changed, this country’s circumstances had. So he would be here a little longer. Things had seemed very different a few weeks ago, when Theresa May bemoaned the consequences of the Bank’s monetary policy in her party conference speech. ‘A change has got to come,’

The Bank of Wonderland

What should we think about negative interest rates? What kind of Alice in Wonderland world are we living in when companies and households are paid to borrow and charged if they save? Seemingly crazy, negative interest rates are spreading nonetheless. Implemented by central banks in Europe, Japan and elsewhere, they now apply in countries accounting for a quarter of the global economy. Should we be worried? Could we see negative rates in Britain? Earlier this month, the Bank of England cut interest rates for the first time in seven years, from 0.5 per cent to a new record low of 0.25 per cent. Quantitative easing was also restarted, with the

Will Theresa May end the era of easy money and call time on QE?

When Theresa May was gearing up for a summer-long leadership campaign, she identified a worthy target: George Osborne’s addiction to easy money and the whole notion of quantitative easing. Rock-bottom interest rates and QE, she said, boost asset prices – and, in so doing, transfer wealth to the richest. When she became Prime Minister, the Bank of England decided to do another £70 billion of QE. We can guess that the effects will be the same as they were last time: more inflation and a surge of asset prices, making the richest even richer. As I say in my Daily Telegraph column today, QE is a magic wand of inequality.

The Bank of England has just taken a huge risk – on a Brexit boom

Plunging output. The FTSE in freefall. A financial collapse. Unemployment rising rapidly and trade falling off a cliff. At first glance, you might think that was an accurate description of the British economy, given the decisions that the Bank of England took this morning. After all, to cut interest rates to their lowest level in history, to re-launch quantitative easing, and to promise more action down the road, the economy must be in crisis, right? Except, er, it isn’t really. While there are good reasons to argue that the decision to leave the European Union may well hurt the economy in the medium-term, there is no immediate emergency. In fact,

Diary – 9 June 2016

When an old friend X came to dinner in London, I sampled what it must have been like during the American Civil War, when families were split asunder from aligning on opposite sides of the Mason-Dixon. Lo, this warm-hearted, well-read, intelligent Midwesterner is backing Donald Trump. This was my husband’s introduction to X, whose electoral preference clearly queered the first impression. Our threesome didn’t talk long on the matter. The disconnect being so absolute, there was little to say. X is the only Trump supporter I wittingly know. But I was chilled by the difference between this and countless heated-but-civil suppers of yore, at which a dinner guest plumped rambunctiously

Better that the Americans take over the London Stock Exchange

The London Stock Exchange is no longer the red-hot crucible it once was, given the multifarious ways by which shares, bonds and derivatives now change hands. But the prospect of the LSE passing into the control of Deutsche Börse — in what was announced as a ‘merger of equals’, but with the Germans holding the larger stake and the top job — is a mighty provocation to Brexit campaigners. The Express claims it would reduce the London market ‘to an insignificant regional afterthought’. Brexit or not, there’s logic to a pan-European trading platform with shared technologies and harmonised listing rules: but who can doubt that the German agenda must be

Unequal struggle

‘How do you feel when you go back to Gary?’ I ask Joe Stiglitz. ‘Well, frankly, I get depressed,’ he replies. ‘The American middle class was created in places like my home town and is now struggling badly — which makes me sad.’ Stiglitz, a Nobel prize-winning economist and the closest thing the left has to an intellectual superstar, grew up in Gary, Indiana, during the 1950s, when it was the heart of the booming US steel industry. His father sold insurance and his mother was a teacher. ‘We had a modest detached brick house, with a lawn all around — it was safe and secure,’ he recalls. ‘Back then,

Why Switzerland should have listened to Hong Kong on currency pegs

The Swiss National Bank usually ticks away as quietly as one of its nation’s more expensive timepieces, but when the cuckoo does occasionally burst out of the clock, all hell breaks loose. After a policy was introduced in September 2011 to depress the Swiss franc against the euro (as traumatised investors continued to pour money into safe-haven Switzerland), governor Philipp Hildebrand resigned when it came to light that his wife Kashya had sold a huge bundle of francs ahead of her husband’s market intervention, then bought them back at a handsome profit. Now, weeks after Hildebrand’s successor Thomas Jordan called the informal fixing of the franc at €1.20 ‘absolutely central’

Thank heavens for Justin Welby!

For decades, interventions of the Archbishop of Canterbury in national debate were like a sporadic bombardment of small pebbles against the door of Downing Street. Justin Welby has changed all that. This week, payday loan companies are facing reform (or in some cases oblivion) as new caps on interest payments come into effect. That the industry finds itself in this position is thanks, in no small part, to it having been hooked around the neck by the Archbishop’s crosier. Welby has inspired reform of the industry not by trying to set himself up as the leader of the opposition in a cassock, but by acting as an effective leader of

The European market hangover – bad news is bad news again

In the latest Spectator, Liam Halligan takes a sobering look at European markets bearing the brunt of sanctions against Russia. ‘The western economy that’s suffered most, by far, is the largest one in the eurozone. Germany’s manufacturing thoroughbreds have sunk tens of billions of euros into Russian production facilities in recent years. . . . ‘This helps explain why, having grown 0.8 per cent during the first three months of 2014, German GDP shrank 0.2 per cent in the second quarter. The eurozone’s powerhouse is now on the brink of recession. Industrial production dropped 4 per cent in August, the biggest monthly fall since early 2009. Exports were down 5.8

Europe’s leaders worship Mario Draghi. They should listen to him instead

European Central Bank President Mario Draghi secured a place in history by his demonstration, on 26 July 2012, of the power of words in a financial crisis. Not long in office, he had already shown willingness to act firmly, averting a liquidity crunch by providing three-year lending facilities for European banks. That day, he told a conference in London: ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’ While the rest of the speech was an opaque metaphor about the euro as a bumblebee — ‘a mystery of nature because it shouldn’t fly but instead it

The revolution the West needs (and won’t get)

The western world is a mess. The ‘advanced’ economies are failing to generate higher living standards for the majority of citizens. Many of us believe, rightly, that our children and grandchildren will have less prosperous lives than we do. That not only runs counter to the tide of western history, but jars with natural human instincts, creating a deep sense of unease. The public no longer trusts the political classes to deliver a brighter future, so lots of us don’t vote. In the European elections, only two fifths of voters bothered casting their ballot. Many of those who did, of course, abandoned mainstream parties for the extremes. The common western