Quantitative Easing

When the Bank of England responded to the 2007-8 financial crisis with Quantitative Easing, I thought it was the right thing to do. Yes, they eased too much, but the markets needed liquidity. My main doubt was whether the Bank would ever be brave enough to rein things in after the crisis was over. It wasn’t, of course, and the result was a chronic dependence on the drug of monetary laxity that peaked with the raging inflation of 2023-4.

Another doubt was the risk of asset bubbles, and we got those aplenty. QE works through the Bank buying financial assets, which enjoyed a Klondike boom. And with interest rates pushed down to ‘emergency’ levels for years, plus the lubrication of too much liquidity, the Bank encouraged excessive risk-taking that further inflated those asset bubbles.

Which was fine for rich folks with assets. But not much benefit made its way down to the real economy. Instead, those persistently low interest rates were very bad news for ordinary people — like pensioners with savings and younger people trying to save to buy their first home amidst spiralling house prices.

It was fine for the government too. With the Bank buying up government securities, it could carry on spending like Croesus, with not a notch of belt-tightening in sight. And when Covid came, Rishi, Boris & Co had no concerns about letting out another £280 billion notches. Which again will burden ordinary taxpayers for a very long time.

We really can’t let the ‘independent’ — meaning unaccountable — suits in the Bank of England mess with our money. We must remove their latitude and instead maintain a monetary rule that targets long-term price stability. Take your pick of the candidates: any would be better than the incontinence that got us to our present sorry state.