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And Ritchie’s wrong about QE of course

From the Bank of England:

Unlike helicopter money, QE is reversible by its very nature. A central bank can respond to improving economic conditions by selling the purchased securities in the open market. Even without active sales, the government securities will eventually mature and automatically destroy the associated reserves.

18 thoughts on “And Ritchie’s wrong about QE of course”

  1. I am not sure about this. It doesn’t matter so much if the exact money released into economy can be withdrawn, what matters is if we still have the capacity to tighten if we need to.

    let’s start from scratch and suppose QE never happened.

    We do some helicopter money. Now, that monetary expansion cannot be reversed per se, but doesn’t the BoE hold some gilts on its balance sheet that it could sell to tighten money if it needed to? So we’d only lose the ability to tighten if we kept adding money via helicopter and cumulative episodes of tightening emptied the BoE of gilts?

    (I am sure I am missing something, been a long day)

  2. @ LE
    You are missing everything.
    Could the BoE not sell the gilts that you suppose they hold if QE had not happened? ER….

  3. Its perculiar that many ,if not most, economists dont actually understand how the moentary system on which the economy is based works.

    Its not an exact comparison but all electroics engineers are expected to understand how currents flows in wires , Ohms law. And they would have no credibilaty without that .

    I’m not suggesting that being particularly focused on the banking system would be a benficial pre requisit of being an economist , but noting its odd that the mainstream economists commentators arent interested and dont have an understanding of it.

  4. ‘Helicoptering’ is easily reversed either by large tax rises or reducing the money supply? So not that easy then.

  5. Rob reverses *means* reducing money supply.

    Yes, helicopter money is really more like fiscal policy and the means of reversing it are fiscal (even if govt borrows money and effectively stashes under mattress still need to service the debt) and fiscal contraction less politically palatable then interest rate rises.

  6. theoldgreenfascist

    I agree with you. On the subject of money and its creation etc you can ask 10 economists and get 20 answers.

    Mind you I don’t know how much credibility l should give to someone who can’t spell credibility (or electronics for that matter)!

  7. isn’t it odd how many non-economists think that economics is the study of money and how it flows. I guess it is because they are people who only studied physical sciences and think that everything in the human world is equally capable of rationalisation. As if a plumber is the match of an economist because he understands how pipes work.

  8. He’s now trying to argue that the 375bn of QE bonds don’t show up in the governments accounts and claims to have proof.

    Unfortunately for him, someone has just pointed out that his missing 375bn has been moved to another line item.

    Maybe he should learn some accounting (and to read) before shouting his mouth.

  9. “Rob reverses *means* reducing money supply”

    Right. As we currently endure massive political shitstorms about merely reducing the rate at which we are expanding the money supply, I maintain that reversing it is politically almost impossible, and ‘politically’ is all that matters. No party is going to get elected on a such a platform, even if they were ideologically inclined towards that.

  10. Rob

    sorry, must have mis-read you. But what political shitstorm are you referring to? QE has been frozen for ages, as have interest rates. Is there is shit storm about that? Is anybody even going to notice if the BoE starts selling the bonds it acquired via QE? What people notice is changes in interest rates, changes in tax rates. I reckon political sensitivity of tax changes is far greater. You may argue selling QE bonds will require a change in interest rate target, I am not sure on that.

  11. >Luis

    they can’t even tame the current amount of un tax funded spending and thats when they when they say the want to

  12. Ralph Musgrave

    “That BoE article is nonsense.”

    A central bank can respond to improving economic conditions by selling the purchased securities in the open market. Even without active sales, the government securities will eventually mature and automatically destroy the associated reserves.

    That makes perfect sense to me – the simple double entry book keeping (wrt reserves etc) works fine.

  13. I’m not seeing a great deal of difference between QE and helicopter money. QE is promising to unwind the position and unprint the money. Helicopter money is promising not to. What actually happens is another matter and the BoE could change its mind either way.

    Given low interest rates, large amounts of money creation by the BoE, the BoE revising the conditions needed for unwinding QE and the income from the assets being reinvested are we, in practice, in helicopter money mode?

    Asset Purchase Facility Quarterly Report 2015 Q2 (pdf)

  14. Bloke not in Cymru

    The Canadian govt has indulged in a little pre election sweetener (one reason gives like helicopter money and can’t be trusted to use it) and sent parents a cheque for a few hundred dollars per child (though you have to include it as taxable income on your next return).
    Amusingly it’s been pointed out that a religious leader awaiting trial for polygamy stands to gain over $40k from this initiative.

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