As the Bank of England announces more new money, we indicate counter arguments.
Via Bank of England|Publications|News|2009|Bank of England Maintains Bank Rate at 0.5% and Increases Size of Asset Purchase Programme by £50 Billion to £175 Billion, 6 August 2009:
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to continue with its programme of asset purchases financed by the issuance of central bank reserves and to increase its size by £50 billion to £175 billion.
As Anthony Evans, writing for The Guardian, has explained:
[D]espite the obfuscatory terminology, QE is nothing new. It is simply an exotic label for a discredited policy – one arm of government buying up the debt of another. Although we are not monetising the government debt in the same way that Zimbabwe has, it is hard to make any clear distinction. Yes, the Bank of England is purchasing assets on the secondary market (not directly from the Treasury). Yes, the Bank has every intention to mop up this additional liquidity once the economy recovers, but “directness” and “intentions” are largely semantic.
And as Toby Baxendale has written here:
[T]his practice of “Quantitive Easing” — creating money out of thin air — is always a tax on the poor in favour of the richest members of society. It is truly a regressive tax; it works away silently in the background in the name of “stimulating the economy”. It is based on a faulty understanding of economics.
Our present circumstances are to be lamented. As Hayek explained in his 1974 Nobel Prize Lecture, injecting new money cannot create sustainable prosperity:
The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.
- Jésus Huerta De Soto, Money, Bank Credit, & Economic Cycles (download)
- Ludwig von Mises, The Theory of Money and Credit (download)
- Friedrich A Hayek, Prices and Production and Other Works (download)
- See also our literature
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