Right Action, Wrong Narrative

Here we go again. More mumbo-jumbo about lowering borrowing costs by quantitive easing.

The Bank of England has launched a fresh £150bn stimulus package for the UK economy amid the second Covid wave and the reintroduction of lockdown across England.

Threadneedle Street’s nine-member monetary policy committee (MPC) voted unanimously to ramp up its quantitative easing bond-buying programme to soften the economic fallout from rising infections and tougher restrictions.

The move is designed to lower borrowing costs to help struggling businesses and households. The central bank said there had been a rapid increase of Covid infections and its decision reflected the launch of stricter measures across the UK.

(Guardian, 5 Nov 2020)

Quantitive easing means the Bank of England pays off the money the government has ‘borrowed’ from corporations and financial institutions. What that means is that the government owes the money to the BoE, not to the institutions it borrowed it from. And since the government owns the BoE, that means it owes the money to itself.

This is just a roundabout way of allowing the government to ‘print money’ without breaking its self appointed rules that prohibit it from borrowing from itself—i.e. printing money!

So why don’t they say so, instead of all this nonsense about ‘making borrowing easier’? Banks don’t need reserves in order to lend, and in any case the institutions it pays off are not the banks that we (as opposed to financial institutions and major corporations) would borrow from anyway.

Now look, if, for the sake of tradition—or because they have to use existing operational procedures—they prefer to do things in this round-about way, who cares as long as it’s the right thing to do (which it is, for once)! It doesn’t really matter—particularly as they charge themselves a zero rate of interest.

But wouldn’t it be nice if they treated us as grown-ups instead of promoting this nonsensical narrative about making lending easier!

Actually it would be nice if they behaved like grown-ups themselves! Do they really need a ‘nine-member monetary policy committee’ to ‘agree unanimously’ to do what the government has told them to do?

Good grief!