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Thursday, January 08, 2009

Quantitive Easing

Today the MPC of the Bank of England will announce its decision wrt interest rates. The "smart" money is on there being a cut of between 0.5% and 1%. However, some pundits have noted that as the recent cuts have not eased the credit drought, using the same tool again will be pointless.

Either way, it seems that other weapons are needed in order to address the fundamental issue of a credit drought. Hence the solution being mooted in many quarters (and not being denied by the government) of printing money (quantitive easing), and using the money to buy assets ranging from government or commercial debt to private equities.

There is a danger of inflation. However, under the current circumstances a small dose of inflation may be exactly what is needed.

1 comment:

  1. Anonymous6:25 PM

    Some months ago, we have been making fun of Zimbabwe and it's money pointless printing. Now we do the same (oh no, sorry, it's quantitative easing actually!) and we act like we are doing some highly scientific economic surgery...