In the US more than $4.5 trillion of quantitative easing purchases have taken place.
In Japan it is more than US$1 trillion.
In the UK £375 billion.
In the EU it will be more than €1 trillion.
And Yvette Cooper is sure it will all have to be repaid. Every penny of it, apparently. That is what she is saying of People’s Quantitative Easing (the scale of which will be modest compared to the above) and implies the same must be true of conventional QE in that case.
Let me assure her then, none of these sums will ever be repaid.
And we have worldwide 0% inflation, or thereabouts despite the markets knowing that.
It is true there is some growth right now: the US looks a bit like the real thing. The UK looks like an extended housing bubble. The EU and Japan just dream of it.
All told though the consequence is that not only has no QE been repaid, but the chance it ever will be is remote, in the extreme. Because repaying it would mean that the deficits that have been funded by QE (because that is what it has done) would actually have to be paid for out of higher taxes or by all investment funds being directed to government bonds, and not to create new investment but just to reshape the Bank of England balance sheet. Both actions would have a profound impact on the economy: they would create a massively negative environment in which growth would become a distant memory, there would a shortage of government created money to underpin credit in the economy, and there would most likely be heavy deflation – exactly what QE was meant to prevent. No government of any persuasion is ever going to pursue such a policy: it would be economic suicide.
So let’s be clear about three things:
a) QE has not created inflation, try as people might to suggest it has
b) QE has delivered modest growth, but not universally
c) QE will forever remain on central bank balance sheets, never to be unwound.
The chance that Yvette Cooper is right that People’s Quantitative Easing would have to be repaid is so remote that no-one, anywhere, need ever worry about it. In fact, all they should worry about is that someone in such authority thinks it might be wise to even countenance such a thing. I am deeply baffled as to why she should. The harm from doing so would be enormous.
So shall we move on?
4 December 2015.
More than $4.5 trillion (£3.3 trillion) of bonds have been bought, with the policy being used to combat the credit crunch from late 2008 onwards under the plan to lower interest rates and stimulate the economy.
Until now, the Fed has reinvested the money released when the bonds matured.
But now Ms Yellen will only reinvest part of those funds, gradually increasing the amount which is redeemed and not reinvested.
At first the Fed will allow $6bn of maturities of government bonds per month and reinvest any bond payouts above that level. The monthly rate will rise in increments of $6bn at three-month intervals until it hits $30bn per month.
It will do the same with its stock of mortgage backed securities, with a cap of $4bn per month initially, rising to $20bn per month.
“Never” is apparently 21 months in Richard J Murphy’s world.