Thursday, November 05, 2009

Quantitative Easing

So, the Bank of England is to print another £25bn to pump into the economy, but it will be spent over three months (half the previous rate). By my calculations, that means a shortage of about £8bn/month between QE and the government's borrowing - previously they were about the same. Are the global money markets able to pick up the slack

Now, obviously, the BoE cash isn't going directly to public-sector borrowing - that would violate EU law - but it is going indirectly, giving the banks a profit margin from buying new-issued Gilts and then selling them on to the Bank. The net flow is the same, though - newly-printed money is supporting the government deficit, and there'll be less of it in the near future. The further dilution of Sterling is unlikely to appeal to potential investors, though the "small" delta here probably won't make much difference in the short term; likewise, it's probably too small to have a significant effect on exports.

Which all adds up to bad news for the hopes of getting out of the recession this quarter - if the government can't push enough money through the economy, it can't raise GDP, which means no "technical recovery"...

- KoW

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Blogger Angry Walrus said...

I had a look at this QE in terms of keeping the government debt rating at AAA

11/06/2009 11:03:00 am  
Blogger The King of Wrong said...

Heh... looks like our posts, and then our comments, overlapped :)

11/06/2009 12:49:00 pm  

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