It's called expectations management

Just to point out to Polly Toynbee - and all too many others - the point of central bank intervention is not how much is spent. It’s the insistence that so much will be spent if necessary.

That is, what matters is what the markets think the central bank is willing to do - expectations management.

Markets are, after all, forward looking. Therefore if someone - someone believable - says so and so then that event becomes incorporated into market prices. This is why share prices move so much on management forecasts of likely future sales or profits - it’s not the immediate past that determines share prices, it’s expectations about the future.

which crashed the economy and sent sterling spiralling down and gilts soaring, costing the Bank of England £65bn to prop up pension funds.

The Bank hasn’t spent £65 billion. What actually happened was that the Bank stated that it is willing to spend up to £65 billion to gain a certain result. That willingness to do the spending to gain the result is what has, in large part, caused the desired thing to happen. Rather than the actual spend itself:

The Bank said yesterday it bought £22.1 million of long-dated gilts, bringing the total purchased to £3.66 billion in the first four trading days of the stabilising operation.

The £65 billion is made up of up to £5 billion a day over 13 trading days. The actual spend, after 4 days, is not £20 billion but that £3.66 billion. And if we take that £22.1 million (with an m) figure as being accurate then it does seem to be, well, rather tailing off, no?

This isn’t to say that everything is hunky dory, nor to prance with glee at the joyousness of monetary policy. It is though to point out that central banks work by expectations management. If they’re independent and the markets trust them to remain so of course. Failure to understand that means that monetary policy will remain a complete mystery - as, unfortunately, it seems to be for many people.