In summary: QT need to stop, now. Our financial stability, the decline of inflation and the chance of avoiding recession all depend on it.
QT is the method by which we reduce inflation.
The first thing to say is that the size of a central bank’s balance sheet is almost utterly inconsequential, unless it is too small. All that the size in question indicates is the amount of money that the central bank has created on behalf of the government for whom it acts to support the functioning of the economy for which that government is responsible. Let’s be clear: someone has to create that money.
QE created lots of money. As Spud would agree. We then got inflation – the result of too much money. Which even MMT agrees is possible. Therefore, QT reduces the amount of money, reduces the inflation.
It’s entirely true that MMT suggests increasing taxes in order to reduce the amount of money. Run a bidget surplus (say) and cancel the money that way. But it’s still, at heart, the same thing. Reducing inflation by reducing the amount of money.
“We must stop QT in order to reduce inflation” is simply ignorant. But then Spud…..
Yes, yes but the BoE carried on with QE for too long and now seek to compensate by reducing the money supply too sharply, leading towards recession. You would think that such brainy people would understand the length of lead times between tugging at a lever and observing its effect.
Didn’t he also claim that QT was never ever going to happen as it was some kind of economic impossibility?
He did, he did. He’s now come around to the thought that it’s possible but a bad idea. Without – of course – acknowledging that it was always impossible.
You can never have too many bidgets.
“the BoE carried on with QE for too long and now seek to compensate by reducing the money supply too sharply”
Not at all, the rate of QT is pretty slow. So far they have reduced the total of Gilts they purchased from £875bn at peak to about £750bn. In just over a year. So to get back to just the pre covid total it’ll take another 3 years, if they keep up this pace, which they won’t once the Uk falls into recession, which it will. At which point they’ll almost certainly turn the QE taps on again. When you consider during covid they bought over £400bn in 18 months they aren’t exactly tripping over themselves to get rid of them now.
https://www.bankofengland.co.uk/speech/2023/july/dave-ramsden-speech-on-quantitative-tightening-chaired-by-money-macro-and-finance-society#:~:text=In%20the%20UK%2C%20the%20stock,19%20crisis%20and%20its%20aftermath.
https://www.ft.com/content/b556a91b-99a1-48f9-b3c3-b0e1c0731859
Total layman here, but if QE causes inflation, why did it take 11 years to manifest itself?
Year: Rate:
2020 0.80
2019 1.40
2018 2.00
2017 2.70
2016 1.80
2015 0.50
2014 0.70
2013 1.90
2012 2.40
2011 3.70
2010 3.10
2009 2.10
2008 3.00
Surely it was the £400+ Billion spunked on covid that caused most of the damage?
As I’ve been saying for some 15 years around here. If the new money goes into the banking system and markets only then we’ll see inflation there and not in the general economy. But if the money gets spent into the general economy (and this was one of the major critcisms of “Green QE” etc) then it’s in that general economy that we’ll see the inflation.
Which, you know, is pretty much what did happen. And I really have been saying it seince 2010 sorta time.
QT is the method by which we reduce inflation.
Is it really? QE was government fiat money. Future money.
Current inflation is the supply of goods & services not matching demand. Thanks to shutting the country down for a year. How does pissing around with the volume of fiat solve that?
“As I’ve been saying for some 15 years around here. If the new money goes into the banking system and markets only then we’ll see inflation there and not in the general economy. But if the money gets spent into the general economy (and this was one of the major critcisms of “Green QE” etc) then it’s in that general economy that we’ll see the inflation.”
You keep saying this, but there is absolutely no difference between what the BoE did between 2009 and 2016, and what it did in 2020 and 2021. In both cases it bought gilts the UK government had issued and the government spent the money it raised into the real economy.
So how exactly did pre-covid QE ‘only go into the banking system’ but covid QE ‘go into the real economy’?
As far as I can see there are two differences between the two – in the immediate post GFC period there was a risk of a falling money supply. The QE printed money replaced the losses arising from the GFC, and was not that inflationary. Covid QE on the other hand was spent at a time when the money supply was not falling, nor likely to. And Covid QE was a massive amount more in a very short period of time. Its the difference between putting too much salt in someone’s food over several months vs making someone eat a cup full. One is survivable, the other isn’t. The problem was that the politicians (and central bankers) believed that if QE was ‘OK’ in relatively small amounts over a long time previously it would be fine in massive amounts in a short space of time too.
Which is why the support for QE in the beginning from people like you was so dangerous – it gave the keys of the henhouse to the foxes. Even if they content themselves with taking the odd one to start with, you can bet you bottom dollar they’ll take the lot eventually, its what they do. The way to prevent the loss of your chickens is never give them the key to start with.
QE really should stand for “Qualitative Easing”.
Jim:
One difference is that they didn’t shut society down before 2020. More dollars with no more goods to spend them on equals much faster inflation.
You can never have too many bidgets.
A Bidget is what the NZ Finance Minister delivers every year.
Why is the government responsible for supporting the functioning of the economy, as he claims?
The economy existed before the government did, it will exist after it’s gone.
The economy exists despite the government. (A small miracle every day)
Be kind, the lad’s traumatised
“UK politicians must call for a ceasefire in Gaza today
Posted on October 28 2023
I awoke in the night, panicking about Gaza.”
Well, I’d panic at the thought of two and a half million Palestinians being dumped on the UK too, BraveFart.
Jim @ 12.53: “Which is why the support for QE in the beginning from people like you was so dangerous – it gave the keys of the henhouse to the foxes. Even if they content themselves with taking the odd one to start with, you can bet you bottom dollar they’ll take the lot eventually, “
Ditto nulabour and their use of PFI…..
“One difference is that they didn’t shut society down before 2020. More dollars with no more goods to spend them on equals much faster inflation.”
Yes, there’s that as well. But all the differences were in the state of the economy/nation at the time of the QE happening, there’s no actual difference in how QE was conducted in practical terms in 2009-16 vs 2020/21. So saying the former ‘went into the banking system’ (doesn’t all money ‘go into the banking system’?) and the latter ‘went into the real economy’ is pure bullshit.