Adam Posen WIN

Bank of England increases QE by £75bn

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.

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2 thoughts on “Adam Posen WIN

  1. Did you see Martin Wolf calling for helicopter?

    http://www.ft.com/cms/s/0/045aab84-e61c-11e0-960c-00144feabdc0.html

    the reason, I think, that they don’t do it, is that if they do QE via buying assets, they can reverse gear and suck money out when they need to buy selling those assets. If they mail everybody a check for £1000, they can only reverse that by raising taxes, running a surplus and repaying bonds held on BoE balance sheet (that will “destroy” money). But that isn’t within BoE powers.

  2. BoE cannot literally post checks because that would be fiscal policy. Treasury needs to do that.

    Monetary policy is all about changing the composition of the portfolio of financial assets held by the public. As long as the BoE only buys high grade assets (essentially gilts), then it will never lose money on them and thus never redistribute wealth, which is the job of fiscal policy.

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