And, as the Bank of England has now acknowledged, the chance that any of the debt that it has bought back from the financial markets will ever be resold back into those same financial markets is remote, in the extreme. None ever has been. In that case, for all practical purposes this debt has been cancelled. UK national debt should, then, be stated net of all quantitative easing because that debt does, in effect, no longer exist.
So, I had a look at the link where the BoE acknowledged this and guess what? I didn’t find it. Surely Snippa cannot be lying to us? Although:
If we were the central bank of the Weimar Republic or Zimbabwe, the mechanical transactions on our
balance sheet would be similar to what is actually happening in the UK right now. That is not where you
would find the smoking gun. The difference would be that government would be telling the central bank what
to do, implicitly or explicitly, in order to achieve fiscal objectives while subordinating any inflation objectives, a
situation also known as fiscal dominance. Why would that ultimately lead to inflation? Because, once a
government decides to prioritise its fiscal objectives above its inflation objectives, it is likely to involve
removing central bank independence implicitly or explicitly, and crucially keeping short-term interest rates
lower than would be appropriate to meet the inflation target. The real ex-post financing cost of government
debt could be lower,27 because the debt reduction would be in part achieved via higher inflation. Weimar and
Zimbabwe had central banks that issued however much central bank money was required to achieve the
government’s financing needs, without any credible action to meet inflation objectives.
Yes, that’s right, they do say that explicitly moving to monetary financing of fiscal policy would lead to inflation.