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Friday, October 22, 2010

More Quantitative Easing

Judging by signals from both the Chancellor and the MPC, the Bank of England is gearing up to increase its level of quantitative easing (currently around £200BN).

The Telegraph quotes George Osborne:

"The country needs a decisive plan, we've set out the decisive plan.

It has some caution built into it, there is of course the freedom for the Bank of England to deploy monetary policy tools as well
."

QE is where the government "prints" new money and uses it to purchase gilts, corporate bonds and commercial paper. Thus it ends up paying the interest owed on the government debt purchased to itself.

As and when the cuts cause excessive political problems, or simply do not work, the government (in the guise of the Bank of England) will print money.

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