King defeated on QE
Mervyn King, Governor of the Bank of England, was defeated in his attempt to extend so-called quantitative easing (QE) to £200 billion, according to the August minutes of the Bank’s monetary Policy Committee.
QE is the process whereby the Bank buys up Treasury bonds (gilts), issued by the Government to fund its borrowing requirement. An alternative, less savoury, description is “printing money”.
The process is a bit like a snake eating its own tail, with one part of the government process buying up the debt of HMG. What does the snake do when it reaches its own stomach? A dilemma indeed.
King’s move has already spooked the markets, with the pound sinking against the dollar.
Stock markets around the world are also retreating on a general wave of disbelief that all the talk of green shoots can be sustained. The reality of the world’s huge over-capacity will bite in the autumn on the back of more massive job losses.
The Governor’s pessimism arises because the risk of “another large stimulus might be less than the possible costs of acting too cautiously.”
This “Great Recession” is not over yet.
