Quantitative Easing Explained

The UK can afford a £7bn loan to the ROI because it can just print it.
Here’s a great video explaining the US $2.6bn QE programme. (“Is this an episode of the Twilight Zone?”).
Here’s some Q&As from the BBC.

Why are the UK’s actions different from 1920s Germany and Zimbabwe?
Printing money can be defined as the central bank financing of government debts. This is what happened in both 1920s Germany and Zimbabwe and what the British government will insist it is not doing, although the short-term effect is similar.
According to the Maastricht Treaty, EU member states are not allowed to finance their public deficits by printing money. That is one reason why the Bank of England will buy government bonds from financial institutions, not directly from the government.
The Bank believes this form of QE is different because it is “printing money” as part of monetary policy – to prevent deflation. It is not printing money to help the government finance its deficit.
Also, unlike Zimbabwe, this is a temporary policy: the Bank expects to sell the government bonds back into the market when the economy recovers.

Hmmm this is beginning to feel a bit terrifying.
The UK Debt Clock ticks on…, increasing by £6,500 a second, at this rate will reach a trillion quid on January 27th….as the site explains that’s about £16,000 for every man, woman and child in the UK. As a comparison the projected Irish National Debt of Ireland (which still has some state assets left to flog) could reach £200bn – an astonishing £45k per head.

  • Winston Smith

    > “The UK can afford a £7bn loan to the ROI because it can just print it.”

    Actually, they don’t even print it. It’s created electronically simply by incrementing a value in some system.

    The ‘money’ never exists as anything more substantial than an electrical signal and the rearrangement of some magnetic ions on a disk or tape, and of course a future burden on Irish taxpayers.

  • drumlins rock

    Dewi, the question is has either country a) the assets to back up the debt, and b) the cash flow to service the debt.

  • pippakin

    Dewi

    I don’t care what the Brits do. I am still trying to get my head around the £45k per head here. Besides the British debt would look very different if their population were the same as ours. Yes?

  • JR

    Am I right in saying that if you try to trace this 6 bn in money back to it’s origin you will eventually come to thin air or about £1,000,000 in gold bullion?

    With the fractional reserve the bank holds 20,000 in gold to lend 100,000 to a man. But then the man who borrowed the 100,000 can then spend it with five different people. each of those 5 can lodge their 20,000 money back in the bank and then the bank can lend 100,000 to five more people. So each time a pound goes through the loan cycle it turns into a fiver.

    I herd an economist on raido 4 saying that this was one of the primary reasons for Britans loan, to create money.

  • JR

    The economist also said the money lent to Ireland would never be used, it is a confidence trick to appease the bond markets. The more I read and hear on this economic crisis. The more it seems like alice in wonderland or through the looking glass. I wonder where the rabbit hole ends.

  • DC

    Yes have to say I was like that once now not so sure, I’m wavering still – holding out hope Merkel and the EU forces a haircut on bond holders; failing that it’s SOS time for taxpayers.

  • Winston Smith

    That’s the normal way of things in the fractional reserve system. However, QE is different. QE ‘money’ is not backed by anything at all, it is simply imaginary money which is translated to a debt on future taxpayers.

    Basically, it’s a way of borrowing from future taxpayers without their consent.

  • RepublicanStones

    Quantitative Easing Explained…http://tinyurl.com/2dc5r9v

  • Drumlins Rock

    forgot to add, if you want the Irish “debt clock” there is one on http://www.finegael.ie

  • RepublicanStones

    I thought that was the cost of Enda Kenny’s stylist. How long do you think that clock will last come the next election results ?

  • Davros

    All UK banks maintain accounts with the Bank of England. What the BoE does is transfer money into these accounts in return for bonds issued by these banks at very low rates. Lets say the BoE give 10 banks £1b each. Each of these banks now has an extra $1b to play with and given banks only keep at most 5% of the money they lend out on hand at any time it means they can then lend out multiples of this. The problem is when banks don’t use these cheap rates to pump the money back into the economy but use it to pay of other debts at taken out previously at higher rates or send it somewhere else for a higher return.
    The second problem is when the amount of money in the world increases and the amount of actual stuff stays the same we get inflation (though a bit of inflation never hurt anyone. A lot of inflation has though).

    What of gold? The problem with gold is that’s it just as crazy to limit the amount of stuff you can do by the amount of gold you can dig up. Fiat currency is certainly the least bad idea.

    As with all of these things the best thing to do is to stop worrying and live your life as best you can.

  • Archie Noble

    As far as I can see there are two reasons for printing unsecured money, or ‘worthless’ as your Ma might of said.

    Firstly it eases paying back what you owe to richer foreign speculators. Secondly it means you can artificialy depress interest rates so that those sections of your electorate who would otherwise default on their mortgages are not motivated to vote you out.

    However once you have slashed the public sector thereby bringing about the collapse of your property market through mortgage default you are left only with easier national debt payments.

    So the NI public sector is what % of its economy? Can the private sector fill the gap? No, it cannot, nor in the bigger island either.

    Is this a problem for ordinary folk? Yes, hugely.

  • “Actually, they don’t even print it. It’s created electronically simply by incrementing a value in some system.

    The ‘money’ never exists as anything more substantial than an electrical signal and the rearrangement of some magnetic ions on a disk or tape, and of course a future burden on Irish taxpayers.” ….. Winston Smith 25 November 2010 at 1:31 pm

    Quite so, Winston Smith, but it is credited and converted into Spending Currency for Favoured Proxy Account Holders, who lately have been Performing Poxily. And Casting Further Pearls before Ignorant Swine does not Answer the Need Feed.

    What is needed are Big Long Time Spenders …… Smart LOVEnvironMentalists.

    And that is but one Titanic Task easily accomplished in Smart Circles and Live Operational Virtual Environments.

    See Present Active Handler for Revised Program Details is Flash Critical Advice.