The monetisation of debt continues

Today, the Bank of England announced another £75bn of quantitative easing in an effort to boost the economy [BBC].

Much of this is likely to be used to purchase government debt, as the politicians are presumably too afraid to tax us directly.

Why do economists and politicians think this will work? The last time I checked, we’re still in recession, as is the US, and both countries embarked on significant QE schemes.

This money will end up in the hands of bankers and government, who didn’t have to work a single minute to earn it. It is simply entered onto a computer screen, and handed out to those favoured by the government. Wouldn’t it be wonderful if I could log on to my bank account and add a few zeroes onto my savings – a new car would come in handy. Creating this new money out of thin air does not create any new good or services, it simply raises prices as there is more money available to purchase the same quantity of goods in the economy. When I buy that new car someday, I am trading so many hours/months/years of my IT skills for a new car – just indirectly. The bankers who get their hands on this free money will have done nothing at all. Giving me freshly printed money to buy the car doesn’t add to the overall number of goods and services in the economy, it simply enriches me at the expense of those who didn’t have access to the new money. Small private counterfeiters rarely operate on a scale to impact on inflation, but central banks certainly do.

Even if we ignore the harmful effects of QE on the economy as a whole, and those on low and fixed incomes, the simple madness of being allowed to create money for yourself and your friends –  without trading anything of value for it –  is surely madness and utterly immoral.

If we believe it is right for central banks to do this, can we please repeal the laws we have against private counterfeiting? At least then there would be some consistency to the madness. Currently we are simply allowing those with power and influence access to a giant printing press. Why not allow everyone access to it?

As Daniel Hannan says (H/T Cobden Centre):

It’s a paradox. If I were to print counterfeit £20 notes and buy goods with them, I’d be perpetrating a fraud: I’d be buying something of real value with something I had magicked out of thin air. Yet when a central bank does the same thing, the half-educated economists who dominate our universities and television stations nod approvingly and mumble cliches about ‘boosting demand’.

You can’t keep boosting demand without producing anything, for Heaven’s sake. That’s what got us into this mess.

Economic growth occurs by producing goods and services, and by doing so more productively over time. Simply printing money does neither.

UPDATE: Little did I know my sarcasm regarding allowing everyone access to the printing press would be a ‘serious’ policy option according to some economists. Robert Murphy takes two of them to task in this article.

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