QE ends; gilt market shrugs; the anniversary verdicts come out

So: did QE work?  The Guardian says that ‘The Bank of England deserves a little credit” for averting Depression.

In the event, the apocalypse never quite materialised. Last year was the weakest since the war, and the 18-month-long recession saw 6.2% wiped off economic output; but most economists believe it could have been much worse

In ‘Credit Where It’s Due“, we have a section called Armageddon Averted on this ‘much worse. Angela Monaghan also reports that we would still be in recession.  Heather Stewart in the Guardian goes on to highlight the way “the Bank was open about the fact that QE might work through several different channels”.  We have an entire Appendix 2 about how they have shifted their emphasis over time.

John Redwood is a consistent opponent of QE, and some of his criticisms mirror mine (more of the same not good enough) but this latest post almost toys with self-contradiction:

[The MPC] are likely to blunder on with cheap and easy money for the public sector … The current Bank rate bears no relationship to the structure of rates being paid by business, or even by the government itself for anything other than very short term money


If the government does not start to cut the deficit the Bank should raise interest rates. The fall in sterling we are witnessing is inflationary.

JR also calls on the Bank to write letters recommending what the Government does about banking regulation and fiscal policy – a classic exemplification of my concern that the Government may no longer be independent of the Bank (because can it ignore such letters, when the Bank has £200bn of its debt?)

I find a lot of this illustrates the confusion in the Conservative approach to fiscal-monetary policy.  JR  condemns a low exchange rate as inflationary; but warns against the higher rates that would come from loose fiscal policy.  But higher rates would boost the pound.  Does he want loose or tight money to compensate for tight fiscal policy? Does he want a high or low pound?    I thought the combination we needed was loose money and tight fiscal – but that ought to lead to lower sterling (as in the mid 1980s, when JR was an advisor to Maggie).

There are germs of a good idea in JR’s insistence that Banks be allowed to be counter-cylical in lending.  Ordinary businesses are not getting credit – yes, a key theme in the paper.  But all in all I find the insistence that it can be both highly inflationary and ineffective rather unconvincing.

In the meantime, the Bank continued to pause QE. As Richard W pointed out in a recent comment, this has not produced the adverse reaction widely expected in the markets, though to be fair, several MPC commentators have hinted that the policy may continue.  I still think the movements have been driven by some deteriorating expectations for growth, rather than any particular political story:

And I still believe the “hung parliament sterling crisis” story is largely hot air.  Clegg is doing a good job of projecting fiscal responsibility, though I doubt the stabilisation of sterling is much to do with any recent political pronouncements.

As an aside, am I the only person to note the irony of the Economist deluging us with another long report, this time about ‘managing information‘?  I normally end the week unable to finish the previous week’s Economist precisely because of information deluge.   It is a good introduction to how Google uses your behaviour to work out what you are like.  For example, using just the word ‘is’, I could see that Google had calculated how boring I am:

Who is Khloe Kardashian?

Published by freethinkingeconomist

I'm former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc, and formerly in my mid-40s. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

4 thoughts on “QE ends; gilt market shrugs; the anniversary verdicts come out

  1. From the Wall Street Journal, 2nd March:

    “Market has encountered resistance since hitting new highs Tuesday, natural in view of the sweeping rally up to then. Previous pauses in early Jan. and mid-Feb. were followed by renewed rallying; evidence this is a similar period of consolidation seen in pattern of declining volume on recessions, indicating line of least resistance remains upward.”

    March 2010? No, March 1931. That’s about the same length of time after the Wall Street Crash as we are now from September 2008.

    By 1933, just two years on, the Dow was one quarter the value it was in ‘31.

    FTSE March 2012????

    Or Nikkei 1990 peaks around 40k. Falls to 20k end of 1990 but rallies by a third over next six months to 27k. Now, after five nascent recoveries have been choked off Nikkei is at 10K

    FTSE March 2030?????

    The challenge has only just begun.

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