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Phillip Inman is an idiot

It is well known that a major prong of the rescue operation following the banking crash – the Bank of England’s £375bn quantitative easing scheme – was designed to generate bank lending, pumping fresh money into the economy.

No, it wasn’t. And even at The Guardian you’d expect someone writing an economics column to know that it wasn’t.

QE money didn’t even go to the sodding banks, because it wasn’t the banks selling gilts to the BoE. It was pension and insurance funds.

Just to take the point of QE from the horses’ mouth, the Federal Reserve:

In December 2008, as evidence of a dramatic slowdown in the U.S. economy mounted, the Federal Reserve reduced its target for the federal funds rate–the interest rate that depository institutions charge each other for borrowing funds overnight–to nearly zero, in order to provide stimulus to household and business spending and so support economic recovery. With the funds rate near its effective lower bound, leaving little scope for further reductions, the Federal Reserve made a series of large-scale asset purchases (LSAPs), between late 2008 and October 2014.

In conducting LSAPs, the Fed purchased longer-term securities issued by the U.S. government and longer-term securities issued or guaranteed by government-sponsored agencies such as Fannie Mae or Freddie Mac. The Fed purchased the securities in the private market through a competitive process; the Fed does not purchase government securities directly from the U.S. Treasury. The Fed’s purchases reduced the available supply of securities in the market, leading to an increase in the prices of those securities and a reduction in their yields. Lower yields on mortgage-backed securities reduced mortgage rates as well. Moreover, private investors responded to lower yields on U.S. Treasury securities and agency-guaranteed mortgage-backed securities by seeking to acquire assets with higher yields–assets such as corporate bonds and other privately issued securities. Investors’ purchases raised the prices of those securities and reduced their yields. Thus, the overall effect of the Fed’s LSAPs was to put downward pressure on yields of a wide range of longer-term securities, support mortgage markets, and promote a stronger economic recovery.

Note that there’s fuck all about supplying banks with cash to make loans with.


8 thoughts on “Phillip Inman is an idiot”

  1. That’s rather different, even if still garbled. Yes, buy up risk free assets meaning that people will then go and buy riskier ones, thus bringing down interest rates. That’s the point of QE.

    That’s not the same as more loans though. And it’s still not the banks which were the sellers to the BoE.

  2. Witchsmeller Pursuivant

    But they both agree; QE is supposed to stimulate the economy by encouraging banks to make more loans. Do you disagree with that premise?

  3. So the purpose of QC is to protect the pensions of imminent retirees (all those asset-rich baby-boomers who had their mortgages paid off by inflation) while trashing the pensions of those further from retirement (i.e. generation rent)?

  4. No, it ain’t to make more loans. It’s to reduce long term interest rates. This makes companies more likely to invest. For it lowers the cost of capital.

    Sure, some of that investment might be financed by loans. But not all that much: the UK corporate scene is largely funded by internal resources/bond markets/equity.

  5. I wonder if there is also some confusion between QE and Funding For Lending – perhaps some commentators have garbled the two together?

  6. What they’re actually doing is confusing three things. Some because they’re idiots and some it’s deliberate.

    Unrestricted emergency liquidity to stop the banks falling over. All paid back with interest.

    Funding for Lending.


    Different things, different effects, different costs, different aims.

  7. Tim

    You’re right re the emergency liquidity, actually. I’ve definitely heard campaigners calling the QE figures a “bailout” for the banks…it’s all getting mixed up.

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