In LibDemVoice, arguing for how QE can be changed to be both more Liberal and more Democratic.  Neat, huh?


4 thoughts on “Me, elsewhere

  1. Giles, your warning about the potentially unaccountable extra power that has been collected in the office of the Governor of the Bank of England through his version of QE is timely. I am sure he’ll be careful to consult the Government and be accountable to Parliament, but let’s hope the Chancellor and our MPs are extra vigilant on our behalf.

    My concern is both that the opportunity cost of King’s QE includes the economic alternatives foregone and, as further action will surely be required, that this QE will either be used again at the cost of an alternative or that any accusation of the failure of this QE will prejudice some better alternative.

    Is QE some special and very large form of OMO?

    If so, OMO initially destroys as much money as it creates. Therefore, it’s affects on the money supply, if any, must be indirect and transmitted through an increase in the banking sector’s ability to give loans (that is, if any credit worthy supplicant wanted a loan and any bank wished to take the risk at this particular time on any supplicant for a loan). It also looks as if those loans that have been made have largely been used to buy second hand assets.

    Has any analysis been done on the affect on aggregate demand of the choice of how to fund the PSBR i.e. between bond-financed and money-financed borrowing?

    By placing the emphasis on bond-finance at these levels the Government has ensured certain power over fiscal policy has shifted to those in the bond market. I suppose that by changing that emphasis to money-finance the Government would empower foreign exchange dealers. But there is no debate on this; no discussion of that option and what it would mean for both economics and democracy.

    1. I thinkthat with QE, more money is created, though my head is too sore to come up with a decent comparison. There is no prospect of capital loss with OMO, the Bank shoulders little inflation risk.

      Reading back about the 1970s the leading thinkers would find it bizarre that we might struggle to achieve inflation. But the consequences of just bank-financed borrowing are also making my head hurt. I still think too much in terms of real variables. If no-one thinks much is going to happen, more liquidity is a bit of a nonevent is my rather conventional view

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