Bank of England injects further £75bn into economy

[Omah]

http://www.bbc.co.uk/news/business-15196078

The Bank of England has said it will inject a further £75bn into the economy through quantitative easing (QE).

The Bank has already pumped £200bn into the economy by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

But this is the first time it has added to its QE programme since 2009. There have been recent calls for it to step in again to aid the fragile recovery.

http://www.bbc.co.uk/news/business-15198789

What is quantitative easing?

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates.

Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank's only option is to pump money into the economy directly. That is quantitative easing (QE).

The way the central bank does this is by buying assets - usually financial assets such as government and corporate bonds - using money it has simply created out of thin air.

The institutions selling those assets (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply.

Is this printing money?

These days the Bank doesn't have to literally print money - it is all done electronically.

However, economists would still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base.

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.

I wish we could all do that ..... but then it would be disastrous, wouldn't it ?

So it's just the banks that can use our money to create their own money as well as taking billion-pound handouts from the government so they can pay the "bankers bonus" ..... :rolleyes:

[Omah]

http://www.bbc.co.uk/news/business-15202246

If you're not sure of the quality of your ammunition, it's best to fire first. Some will see that as the explanation for the slightly early launch of QE2 from the Bank of England today.

Even a week ago, the betting was that the Bank would hold fire this month. Senior Bank officials have always said they would need a good reason to press the button on more money creation - that good reason being that the UK was at risk of a prolonged period of economic weakness, not a "soft patch" which might force them to reverse the policy in a few month's time.

Unfortunately, the events of the past few weeks appear to have given them that reason. They didn't need to see it in black and white, in the new quarterly forecasts that will be completed for next month's meeting.

Yesterday's GDP figures - and the mood music in the eurozone over the past week - probably sealed the deal. There is an explicit reference, in the statement, to the economy having more spare capacity - for a longer period - than previously thought.

Some say QE distorts the economy - and pushes up inflation - without doing much to increase real economic activity (more technically, it raises the cash value of GDP, but not necessarily the real volume of output.)

In a recent study, the Bank of England disagreed: it reckoned that that creating £200bn as part of QE had raised real GDP by 1.5-2%, while increasing inflation by 0.75-1.5%. If this additional £75bn works in a similar way, you could say today's move would have a roughly similar impact to maybe a 0.5-1 percentage point cut in the base rate.

Or that's the theory. In the City these Bank estimates of the impact of QE are considered pretty generous, at least when it comes to real output.

Some say that QE is all a confidence trick - albeit, an important one. What, exactly, the Bank does is less important than the fact that it is seen to be doing something.

BIB - That's what I say ..... :idc:

[MTVN]

QE is all a bit too risky if you ask me, and just printing out money is never really going to be a long-term solution

[Tom]

So the obvious thing to do to get the economy going again is to effectively put the prices up for everything ... idiots

This is being done for media headlines and to get the public on side, nothing more.