The early tranches of QE stayed largely within the financial system – so didn’t cause serious inflation. But the Covid-era variant, funding furlough and an avalanche of business support loans, has fed directly into the real economy – helping to explain today’s inflation predicament.
Well, asset and house price inflation, not consumer price inflation…
I recall discussions, five or six years ago, of the possibilities that the world was entering a destructive debt-deflationary spiral, and comments that the response would be entirely the one described above: QE directly into the economy, under state supervision. There were warnings even then that the result would be hideous inflation.
Few foresaw what has actually transpired: QE directly into the economy via the state, but without any recession-caused destruction of inefficiencies beforehand.
I don’t know how you unwind this. Look at what the Bank of England ended up doing last week.
“Tory tax cuts”. It’s such an easy and convenient scapegoat. The truth is we’re in for a sustained period of painful adjustment – one which our political and media class must urgently start to explain.
Tax cuts are the new “austerity”.
Why not treat consumer price inflation as money demand then, and costlessly print as much as demand asks?
@TW, Thx. I whad this lined up:
@Jim
“The early tranches of QE stayed largely within the financial system – so didn’t cause serious inflation. But the Covid-era variant, funding furlough and an avalanche of business support loans, has fed directly into the real economy”
So let me see. In QE1-3 the State issued hundreds of billions worth of gilts, which the BoE bought with printed money. The State then spent that money into the real economy, paying civil servants wages, benefits, pensions etc etc etc. Fast forward to QE5, the Coviding. Here in complete contrast to QE1-3 the State issued hundreds of billions worth of gilts which the BoE then bought with printed money. The State then spent said money on paying everyone to stay at home drinking wine and wanking, and saved a few tens of billions to give fat PPE contracts to its mates.
Yes I can see there’s nothing comparable about these two episodes whatsoever……..
I really don’t understand why there’s any arguement about this. The first post-PFC rounds of QE created inflation. We just didn’t see it because what it prevented was deflation. Absent the State spending printed money into the economy at that point we’d have had a Depression and deflation the likes of which not seen in 80 odd years. Thus when the same QE (and more) was done into an economy not in the throws of a financial debt destruction event, the result is more inflation on top of the inflation we would have had anyway. Why anyone would think that doing exactly the same thing twice could result in two completely different outcomes escapes me entirely.
Why anyone would think that doing exactly the same thing twice could result in two completely different outcomes escapes me entirely
Because it was not “exactly the same thing”