There will be no end to ‘quantitative easing’
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by DETLEV SCHLICHTER
The Bank of England is expected today to announce
another round of debt monetization, called ‘quantitative easing’. A majority of
economists polled by Dow
Jones Newswire earlier
this week expect the central bank’s policy committee to agree “to £50 billion
($79 billion) of additional bond purchases using freshly created money to
underpin demand and ensure its 2% inflation target is met. Some expect it to go
for £75 billion.”
Official inflation is over 4 percent in the UK, so how printing more money is going to help meet a 2 percent inflation target is a bit difficult to grasp, but let us not quibble over such details. What counts is that the Bank of England is the undisputed champ of QE. After the next round of money printing, the BoE will have created new money to the tune of 20 percent of GDP, and will fund more than a quarter of all outstanding government debt via the printing press.
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This has tradition. The Bank of England was founded in
1694 for the specific purpose of financing the Crown, which at the time was in
low standing with its creditors. From its inception the Bank of England enjoyed
numerous legal privileges that cemented its dominant position in the nascent
but growing British banking system. Among them was the privilege to issue money
against obligations of the Crown – a form of early ‘debt monetization’. Of
course, the gold standard was a hindrance to unlimited money creation, so
whenever the state needed more funds, usually at times of war, the Bank of
England was conveniently absolved of any of its contractual agreements to
redeem in specie, and kindly asked to fund the state through the creation of
new money.
Gentlemen, start your printing presses!
But only after the gold standard was abandoned and the
dollar’s gold window finally shut in 1971, the party could really begin. From
1965 to 2007, the year the present crisis started and UK banks began to
collapse, the pound has lost more than 90 percent of its purchasing power! Two
generations of British savers have been locked in a desperate struggle to
sustain the real value of their savings. But hey, why save? Just borrow!
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Such persistent monetary debasement has created a
freak
economy, in which every high street is littered with the cheap-looking
branches of retail banks and in which property speculation is a national
pastime. The English seem to live in the smallest and oldest houses of all of
Europe but thanks to money-induced housing booms consider themselves to be
wealthy, on paper at least, as long as they managed to get onto the housing
ladder early enough. Why bother with engineering, once the hallmark of British
industrial superiority, when you can flip a few semi-derelict terraced houses
with borrowed money?
On a GDP-per-capita
basis, 19 countries
in the world now generate more income than the UK, but the UK is still world
leader when it comes to leverage: according to a study by McKinsey, private and
public debt combined stand at 5 times GDP, only Japan comes close.
But when the bubbles finally burst, the overstretched
banks teeter on the brink of collapse, and the credit edifice wobbles, the
central bankers counter with the only tool at hand: even more and accelerated
money printing. The central bankers are the arsonists of this crisis who now
pose as fire fighters quickly labeling further monetary debasement ‘stimulus’.
In June 2011, Mervin King, the governor of the Bank of
England, was knighted for his efforts during the financial crisis.
Sowing the seeds of instability is now stimulus!
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“Personally, I think we could well end up at £400 billion on asset purchases, even without a European meltdown. The recovery looks set to be far weaker over a longer time period than the MPC expects,” said Colin Ellis, chief economist at the British Venture Capital Association.”
Oh, I hear £400 billion from the gentleman from the
British Venture Capital Association. Do I hear 500? 600? Anybody?
“Economists at Citi expect an even bigger effort: they predict the BOE will eventually buy £600 billion of assets.
‘We believe the consensus understates the MPC’s willingness to use monetary policy to support the economy as inflation risks recede,’ Citi economist Michael Saunders said in a note to clients Friday.”
Ah, fantastic. £600 billion from the man from
Citi. Do I hear 800? Why not a trillion pounds of new money?
Well, here is my point: How do these experts come up
with those numbers? Do they simply pull them out of their hats? I mean if £275
billion wasn’t enough to fix the economy and now the BoE goes to £325 or £350
billion, why is £400 billion going to be enough, or why £600 billion? If
freshly printed money amounting to 20 percent of GDP wasn’t enough to
‘stimulate aggregate demand’, why should 30 percent be precisely the quantity
to do it?
More specifically, in what way will the economy be
different after another £150 or £250 billion of new currency units have been
created? Will its present problems be smaller? Will the banks, which overdosed
on the previous BoE-fuelled credit boom and had to check into rehab, be any
slimmer, soberer and healthier after more QE? – Hell, no. They will not only be
as bloated as today, they will be more bloated. That’s precisely the BoE’s strategy, to fight a
hangover by opening another bottle of booze. “There is not a credit boom that a
few trillion pounds cannot extend for a few more years.” That seems to be the
modus operandi.
Or, will the public debt situation be better? Will the
economy have deleveraged and rid itself of an unsustainable debt load? And will
the economy then grow without the burden of the accumulated debris from
previous cheap-money booms? –No, and no again! Deleveraging is verboten! Credit
contraction is verboten! Bringing the economy back to anything that resembles a
stable and sustainable structure is verboten! QE is designed specifically to
stop the cleansing of the economy’s imbalances.
‘Quantitative easing’ has one objective: to generate
headline growth through more money debasement, more credit creation, more
balance sheet extension, and more debt! More money, more credit, more debt! If
that sounds familiar, it is because that was the growth model of the past
twenty years, the growth model that has set us up for the crisis.
The central bankers and their supporters among
financial market economists have no other model. More money, more credit, and
more debt – that is the motto of the fiat money economy, and ever since the
last link between state money and gold was severed, all central banks have
constantly expanded their balance sheets, constantly bought government debt and
created new bank reserves, constantly encouraged bank credit creation and
borrowing.
In a fiat money economy, central banks are designed to
be ‘quantitative easers’. That is what they do. The only thing that has changed
recently is that the disastrous consequences of such a policy are now palpable
and that the private sector is reluctant to participate any longer. The drastic
acceleration in money printing that is now called ‘quantitative easing’ simply
marks the desperate attempt to outrun the system’s desire to shrink.
No, I am sorry, dear experts, but the idea that any of
this will stop at £400 billion, £600 billion, or £1,600 billion is silly. You
obviously failed to grasp the very essence of a paper money economy. We removed
the golden shackles so that there will NEVER be an end to credit expansion and
monetary debasement.
Although….there must be an end. But that will come not
through a calm measured decision by the MPC, the monetary policy committee that
is digging itself an ever deeper hole; it will come when the public begins to
lose faith in this charade. But whether that point is reached at £600 billion
or at £325 billion, nobody can say.
In the meantime, the debasement of paper money
continues.
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