Last week’s news that the Bank of England had stopped Quantitative Easing early because it was not needed was a load of rubbish. The truth is that it was stopped early because MORE COUNTERFEITING WAS NEEDED, and the BOE figured out a way to directly monetize the debt, while out of public scrutiny.
QE will continue TO INFINITY….AND BEYOND!!! on both sides of the pond.
The MSM story actually compares the practice to Weimar Germany.
As the Telegraph reports:
So now we know why the Bank of England’s Monetary Policy Committee called a halt to more Quantitative Easing this week – it’s because the Chancellor and the Governor of the Bank of England have concocted a backdoor way of doing the same thing.
The latest little (actually quite big at a tidy £35bn) money printing wheeze comes about as close to outright monetizing of government spending as it is possible for the Bank of England to go without simply creating the money and handing it by the lorry load to the Treasury, a la Weimar.
What the Treasury has decided to do is take the accumulated interest payments on the stock of government debt the Bank of England has bought under quantitative easing, and credit it to the Government’s books rather than the Bank of England’s. The total is £35bn, of which the government intends to take £11bn this financial year and £24bn next.
It is now full blow QE or instant collapse:
The Government excuses its actions by saying that it is only bringing itself into line with practice in Japan and the US, the other major economies to be practicing substantial QE right now. It might also be argued that to the extent the European Central Bank indulges in bond purchases, it practices something quite similar too.
In any case, you might reasonably think that it doesn’t really matter how the government accounts for the interest on the Bank’s stock of gilts. Since the Bank of England is 100pc owned by the Treasury, the government has in essence only been paying interest to itself, so why not just stop the charade and save the money?
Wrong, wrong, wrong.
Even the MSM now realizes that the BOE is in effect defaulting on gilts:
Never the less, a reasonable argument could be made for QE as a mere liquidity operation – the swapping of one asset, gilts, for another, cash – that could quickly be reversed when the economy picks up momentum again. But this is very different. A key part of the contract under which gilts are sold – the coupon – is now in effect being waived. Though the government vehemently denies the notion, the Treasury is in essence defaulting on the gilts held by the Bank of England. Not good, not good at all.
This is a slippery slope, and I regret to say that the Bank of England is now very much on it.