The tiny fraternity of monetarists who track esoteric M1, M3, M4 “aggregates” warned in late 2020 that the money supply across the West was becoming unhinged, and that this in turn was incubating double-digit inflation — or something close — with the typical lag of one to two years.
They argued correctly that the “velocity” of money would recover as western economies reopened, turbo-charging the enlarged stock of money. They expected the price shock to hit with full force more or less now.
After all, MV = PQ is a definition. And as V increases it’s necessary to reduce M. QT that is.
“And as V increases it’s necessary to reduce M. QT that is.”
Inflation is fast approaching double digits and all the BoE are doing is not rolling over their stock of gilts as they come to maturity. It’ll take until gone 2030 to reduce its gilt pile to just the pre-pandemic level. That’ll show inflation!
When are they going to start selling gilts into the market in the same sort of quantities that they bought them in order to drive up interest rates? Answer – they won’t. And what they are doing will do fuck all to stop inflation either.
Don’t forget, even that run off of maturing gilts is something that Spud confidently predicted would never happen. It also makes all his calculations about the size of the public debt entirely nonsense.
“Don’t forget, even that run off of maturing gilts is something that Spud confidently predicted would never happen. It also makes all his calculations about the size of the public debt entirely nonsense.”
I don’t give a flying f*ck about Spud and his mad ramblings, I am worried about 10% inflation and the fact the BoE is doing the square root of FA to combat it. You have consistently defended QE as ‘not money printing’ on the basis that when inflation showed up they would reverse it and start selling the gilts to extract the excess money out of the economy. Well inflation is here and they aren’t doing that, and have no plans to do so. Allowing the gilt pile to slowly run down over the next 50 years (yes that is the plan) is really not going to reduce inflation right now one jot is it?
So your promoting QE as ‘the right thing to do’ is being proved as wrong as Spud is when he rambles on about printing more money to reduce inflation. Allowing the BoE to print money to let the State continue spending like a drunken sailor during the 2008 financial crisis just gave the politicians the idea they could do it whenever they liked. Just as people like me predicted. So when covid came along (which didn’t require any more action than the Swedes put in place) they immediately decided they could afford to spend hundreds of billions they didn’t have, and the BoE just let them. And now refuses to take the action required to right the situation.
So the inflation induced destruction of people’s savings, incomes and living standards is entirely down to people like you who supported QE when it was proposed and let the genie out of the bottle. A moron could have predicted that politicians would spend the printed money like water but then not do anything about about the consequences, and that moron would have been more prescient than all the economists who supported QE put together.
The run off – not replacing maturing gilts – is the first stage of QT. If things do get worse then they’ll sell non-maturing as well. Trust me on this one.
” If things do get worse then they’ll sell non-maturing as well. ”
How much worse than 10% inflation does it have to get before they act then? Their statutory target is 2%. They are only 500% over target. If they aren’t acting now, why would they act in the future? And even if they do, it’ll be too late, the damage is done.
It just goes to show that the BoE is not really independent. If it was it wouldn’t have allowed all the money printing for covid, and even if it had, it would have started to raise rates and reverse QE as soon as inflation started moving up, which occurred before all the Ukraine shenanigans. But it didn’t. It was obviously given the word on the QT by the politicians – ‘Do as we say or else’ and rolled over.
What Jim says. Also, that debtors like inflation because it reduces the size of the debt in real money. By rights at the moment, interest rates should be higher than inflation because otherwise saving is just a way of getting poorer. But…
Jim, well put.
It’s a similar argument that people here made against MMT. When push comes to shove, which politician is going to raise taxes when giving away free stuff is what gets you re-elected. Hence, don’t ever provide the bastards with the tools / ability to steal. Ensure that the public spending part of the equation is kept within rigorous constraints.
I’ve been saying exactly the same about Pigou Taxation. Very popular with the management here.
@bloke in spain – “interest rates should be higher than inflation because otherwise saving is just a way of getting poorer”
Only if you keep your savings in cash. If you buy something with savings, inflation doesn’t matter. For example, you could buy property, shares, or gold. The right kind of gold is free of CGT, so as long as the price of gold keeps up, your savings keep their value.
What our host has obviously forgotten, or maybe never got, is that economics is as much about human beings and their foibles as numbers. In logical economics world, QE works just fine, because its run by some sort of human robot with perfect decision making processes, a set of rules to be followed and infinite power to do exactly as is required when it is required.
Whereas in the real world, the person tasked with overseeing the QE/QT process is a human being with all the human failings. And is constrained by being part of a society of millions of other flawed human beings. Which is exactly what we have seen in the Covid situation. Logically the Governor of BoE should have told the politicians ‘No, you can’t print hundreds of billions to pay people to stay at home to avoid a case of the sniffles’. And he would have been right. But imagine in March 2020 when the entire Western world was going batshit insane trying to be the person telling everyone else ‘Sorry, you’ve just going to have to deal with this head on, because the alternative is contrary to my statutory instructions to maintain inflation at 2%’. You’d either been hung or thrown out of office faster than you can say ‘Herd Immunity’.
Thus we see that all the rules that economists think they can constrain money printing with are useless, because ultimately they require human beings to do things that are contrary to what they really really want to do right now, and are prepared to kill (possibly literally) anyone standing in their way to get.
Thinking we 21st century clever dicks can make money printing work (call it QE or MMT, its all the same shtick) and not end up in catastrophe, is arrogance in the extreme, disregarding the experience of all the people who have tried it before and it always having ended in tears. ‘But we’re so much cleverer than all those historical hicks!’ they think, ‘We really can make an economic perpetual motion machine!’. Well we aren’t and we can’t. It would be nice if some people had the humbleness to admit when they were wrong.
It’s “your host” who has been saying that MMT will never work for exactly these reasons. Who has been saying that Keynesian stimulus doesn’t for the same reason. This is not a revelation to me.
“It’s “your host” who has been saying that MMT will never work for exactly these reasons. Who has been saying that Keynesian stimulus doesn’t for the same reason. This is not a revelation to me.”
But you have supported and indeed extolled the process of QE on the grounds that when the inflation comes those in charge of such things will do the thing that no-one ever wants to do and take the punch bowl away. Which we now see they aren’t prepared to do. So your ‘scientific’ QE process is exactly the same as MMT, and suffers the same fatal flaws. Instead of politicians not wanting to tax people when inflation is already reducing their incomes, QE faces central bankers not wanting to drain liquidity out of the system because to do so would be unacceptable to the politicians and wider society, and because bankers are humans, and don’t want to be reviled and hated by everyone, they don’t do what they should do.
Both processes suffer from the ‘jam today, pain tomorrow’ flaw – the human condition will take the jam today, but try and put off tomorrow’s pain, because when tomorrow comes its already discounted the jam, so the pain provides no extra gain. The advantage of the ‘tax then spend’ model of State financing is that the pain comes first – people pay extra taxes, then they get extra spending (new schools’n’hospitals etc). That works with the human psyche, people don’t like the taxes so there is always resistance the ‘lets spend more’ brigade. Giving them free stuff and then expecting them to to the work for it afterwards is always going to be doomed to failure. Its why employers pay you at the end of the week, not the beginning.
Are you not beginning to get even the slightest feeling that you’ve been wrong about QE? Not that its doesn’t work in theory, but that its one of those things (like MMT and indeed socialism) that is great on paper but cannot be executed by real human beings without catastrophe ensuing?
” on the grounds that when the inflation comes those in charge of such things will do the thing that no-one ever wants to do and take the punch bowl away.”
I’ve said they “should” and also that they “probably won’t”. Thereby getting both the theory and human nature right.
“I’ve said they “should” and also that they “probably won’t”. Thereby getting both the theory and human nature right.”
Bollocks you have. You’ve spent the last 10 + years defending QE as ‘not money printing, because the central banks will act to remove the excess cash if/when inflation turns up’. You’ve now been proved wrong, inflation is here and they refuse to remove the injected cash, other than at a glacial pace that will have no effect whatsoever.
Point me to anything you’ve written about QE (not MMT) where you said that the central banks ‘probably wouldn’t’ reverse it when inflation hit.