How the news would look if everyone stopped waffling and told the truth.
Friday, 13 July 2012
What Is Quantative Easing?
Mervyn King has promised another £50 billion in "quantitative easing" this month, putting the total quantity so far eased at £325 billion. But what is it? Essentially the Bank of England purchases government bonds from the banks, the intention being that this "money" will then find its way into the wider economy and boost demand. There are, however, a few problems with it. First, no extra money is actually printed - the "cash" is actually "fiat" money, an electronic transaction that simply transfers credit from one place to another. Secondly, the banks have absolutely no intention of passing this "money" on to the wider economy through loans because they would rather use it to pay their bonuses and as stake money for their gambling addiction. In other words nothing is transferred from nowhere to nowhere else and achieves absolutely nothing in the process. Why then do they do it? The Bank of England likes it because it looks as if they're doing something without risking an increase in inflation. Politicians like it because it looks as if they're doing something without actually spending any real money at all. It's as if the government has a steam engine, the boiler of which is filled with water and all that is needed is to light the furnace. Unwilling to invest in the coal necessary to make a fire, however, the government simply keeps adding more cold water to the boiler. The result of all this is stagnation. Except for one group of people that is. The bankers charge management fees for all this non-movement of non-existant money - a deserving cause I'm sure you'll all agree.