Dear Liberal Conspiracy,
We need more demand, of course it would be better if money was given to normal people but that isn’t on the cards. It would be better to target a nominal anchor like NGDP or a specific price level, but we have to work within the realms of reality.
QE is a politically feasible way to boost demand, which is flagging and will begin really suffering next year. Attacking Adam Posen, who cares about unemployment and siding with George Osborne, who doesn’t, is always the wrong position.
Britain’s interest rates-setting body voted to expand its purchases of gilts in an effort to bolster a badly flagging economy that is already showing signs of stagnation. At the same time rates were left unchanged.
The Bank said it would increase asset purchases by £75bn, taking the total to £275bn.
Good news. Although, I’d much rather the Bank just gave people money rather than swapped one asset for another.
If people want to hold money, and money is free to produce, then we can just give them money – we stop when expected future inflation gets too high and inflation predictions are not looking too high.
The alternative to giving people free money is that they spend less to increase the amount of money they hold. If everyone does this at the same time, we have a recession until people hold as much cash as they want to.
Avoiding this outcome is what monetary policy is for and I’m glad the BoE are taking their job seriously.
I am sceptical of QE because as far as I’m concerned monetary policy works better through expectations than through what a bank does in the here and now. So the £75bn extra doesn’t concern me too much other than as a good sign that Andrew
Mellon Sentance is losing and that Adam Posen is gaining the upper hand.