United Kingdom: Is the Bank really addicted to quantitative easing?

It is the largest economic intervention of the past two decades. It had a significant impact on the wealth of millions of Britons. And its deployment may have helped save lives during the pandemic. But it is rarely debated – or even truly understood by politicians.

“It” is, of course, quantitative easing.

This is when the Bank of England and other global central banks buy back hundreds of billions of pounds of public debt using the newly created electronic money.

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But on Friday, parliamentarians warned that the Bank was becoming addicted to QE, which they described as “a serious danger to the long-term health of public finances”.

The House of Lords economic committee heard from central bankers around the world about a policy that was rolled out in Japan, the euro area and the United States, following the financial crisis and then again during the pandemic.

With the Bank set to hold £ 895bn of debt – almost all in government gilts – its peers have said it should be subject to further scrutiny.

They argue that the policy has undoubtedly pushed up the prices of assets such as houses – increasing wealth inequalities by shifting wealth from non-owners to those who own property. However, the Bank said young people benefited from QE because it shortened recessions.

But the Lords report argues that during Covid, the Bank went further. He was “widely perceived” to have bought out debts exactly as required by the government, matching the size and speed of borrowing to fund huge spending, he said. This risks undermining the Bank’s independence from the government and its fight against inflation.

The Bank’s response to this charge is? Essentially, he is saying he will end up selling the government bonds he has bought since the start of the crisis. And while QE has undoubtedly helped keep government borrowing costs very low, it does indicate that the real goal of the policy is to support the economy and meet its inflation target. by 2%.

But the peers are not convinced. They demanded more transparency around talks between the Treasury and the Bank of England on how the program’s losses will be financed.

“Clear plan”

They also want “a clear plan on how QE will be unwound” and, they say, “this plan must be made public”.

So far, rumors have been quite vague on this issue. In theory, the unwinding of such a policy could dramatically increase the long-term interest rates paid by businesses and homeowners. But if it’s ignored forever, peers fear the inevitable result is prolonged inflation.

It’s an argument that few people want to have right now, and that has been delayed because it can be delayed. T

This influential report puts some pressure on the Bank of England for answers on a little understood policy that has affected the general population.

More than almost any Cabinet decision.
Source: BBC


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