business economics

The spiralling numbers of quantitative easing

quesaing940

Kudos to the Guardian’s design team for making quantitative easing beautiful, but it’s still an ugly set of figures. £125 billion so far, with a further £50 billion to go. You do have to wonder what the long term effects of articificially injecting 12% of your GDP into the economy will be. Then again, what might have happened if the Bank of England hadn’t done it? Honestly, who’d be an economist?

Not being an economist, I very much hope I’ve misunderstood quantitative easing. As I currently understand it, the banking system overstretched itself and broke the economy’s cycle of debt and growth. To set that cycle back on track, the Bank of England has written itself a large mortgage, and bought assets. What assets? Corporate bonds, in the banking sector. £122 billion of the 125 spent so far has been corporate bonds, which is why investment banks have made such huge profits in the last six months.

So, to stimulate the economy, we have used IOUs from the government to buy IOUs from the banks. That’s a highly elaborate and expensive way of doing absolutely nothing useful. And yet, the economy has been stimulated, which only goes to show how futile GDP is as a measure of an economy’s health. We have spent billions of our children’s tax bills, and created nothing but profits for the very people who got us into trouble in the first place.

As I say, hopefully I’ve completely misunderstood quantitative easing. Either that or someone is laughing somewhere.

2 comments

  1. I think you understand it just fine. GDP is a horrible measure of the effectiveness or success of the economy. I particularly like that you recognize “to stimulate the economy, we have used IOUs from the government to buy IOUs from the banks. That’s a highly elaborate and expensive way of doing absolutely nothing useful.”

    I think we could easily wipe all the debt off the records and not make much of a difference to anyone – except our grandchildren, who would benefit from no longer being given our wasteful debt spending.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: