A little economics

Steve says:
July 12 2021 at 12:56 pm
@Jonathan

The point is that QE money injected by banks can easily be unwound as and when the time is right.

Reply
Richard Murphy says:
July 12 2021 at 2:28 pm
If it’s so easy tell me why it has never happened?

And tell me what would be the consequence of it?

How would you make it work?

OK. So, we created more money and injected it into the economy through QE. Now, the crisis being over, we’ve got inflation as a result of injecting more money into the economy via QE. In order to get rid of the inflation caused by the rise in the money supply we can – should, could – reverse the rise in the money supply.

The way to do this is to sell the gilts owned by the Bank of England back into the markets. Collect the cash and feed it back into the computers in the basement where it was originally created.

A slightly lighter version would be as the bonds mature, instead of buying more of them simply don’t. Collect the maturing amount and feed into the computers. If government still needs to roll over the borrowing then they must issue new bonds to the market.

This has been done, the Federal Reserve did it for a bit. This is also why QE was designed the way it was, so that this could be done.

But then, you know, that requires some knowledge of monetary economics.

Richard Murphy says:
July 12 2021 at 3:55 pm
I did not ask how it might be do9ne

Why should it be done?

What would be the consequence be?

Could the economy survive it?

What would the interest rate consequence be?

Come on – show you know what you are talking about

Well, the effect upon the money supply would be just the same as the P3’s preferred solution. Less money in the economy because some has been withdrawn and cancelled and so less inflation. The macroeconomic effect is the same whether it’s tax which does this or reversing QE.

Except, of course reversing QE is finer, more granular, better controlled and so on.

3 thoughts on “A little economics”

  1. Except we all know its never going to happen. The politicians have got used to spending free money created by the electronic printing presses, and they have only just got going. And the more they print the smaller the chance of QE reversal gets, as the more debt the government has (and the bigger the annual spending requirement gets) the more any rise in rates would crash the whole edifice. We have long passed the point where there can’t be any rise in rates because to do so would bring the economy crashing to the floor, so that won’t ever be allowed.

Leave a Reply

Your email address will not be published. Required fields are marked *