Adam Lovejoy writes from London: You have to hand it to Sir Merv and the boys from the Bank of England (BoE): they are sure demonstrating some impressive consistency in helping banks out in these difficult times. And in case you have been too busy last week, worrying whether Andy Murray would win Wimbledon or not, I would like to inform you that the BoE has decided to pump another £50 billion into the markets as part of its exciting programme of quantitative easing – all in the name of saving the economy of course, what else?
Up to now the BoE has already spent £325 billion of newly created money to buy up government IOUs from banks and other financial institutions, at good market prices, to allow them to share these new found riches with others. And although it didn’t work and Britain is now in a full blown recession, the thinking is that it would be a great idea to blow some more money and hope for the best. And if that doesn’t work, then drastic measures would be taken and another fifty billion would be thrown at the money men – to shame them into starting lending properly. And if that doesn’t work, then another fifty billion would be coming. And then some more.
The beauty of the situation is that the BoE exists in a parallel universe where the rate of inflation is actually falling, even though newly printed money is flooding the nation, and where the base rate of 0.5 per cent only works on paper and statements made by government officials, whilst in this universe the interest rate charged by lenders is sometimes a thousand times higher and more.
The directors of the BoE, including the boss himself, Sir Mervyn King, are obviously under the impression that giving money to banks instead of channelling it directly to businesses makes perfect sense. It’s easier, it looks funkier and it puts a smile on the bankers’ lips that can mean all sorts of benefits for the boys at the BoE in the future.
Sir Merv obviously has the full support of Chancellor George Osborne, who has not said a single word against the disastrous QE. Mr Osborne, mind you, has never been involved directly in finance in his life, having been appointed Chancellor by PM David Cameron simply because he’s a great bloke and a good friend. And if that is not enough for anyone to be Chancellor then it is difficult to imagine what is.
Some people, who support the idea of QE, say that it would be a great idea if the BoE which now holds 40 per cent of the national debt buys up all of it and eventually owes money to itself, raising the mouthwatering prospect of writing it off and releasing Britain from the debt burden. And if you think that this is pure fantasy, then imagine for a second that with the base rate of interest at 0.5 per cent lenders charge up to 4000 per cent interest and you will realise that buying Britain out of debt is a perfectly reasonable plan.