Printing more money a “Titanic disaster”

2:05 pm - October 6th 2011

by Newswire    

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The Bank of England is considering another round of Quantitative Easing – what we would call printing money.

This would be a “Titanic disaster”, said the Director General of Saga today – which looks at savings options for older people.

Dr. Ros Altmann said:

Buying gilts of corporate bonds is not what we need to revive the economy. It may be a short-term boost for bond traders and markets, but it risks a loss of confidence in the Bank of England’s policymaking, which ultimately will be damaging.

The last round of QE was supposed to stimulate UK growth and fight deflation, but instead it boosted prices, bank bonuses and borrowers’ balance sheets. It actually created asset bubbles and inflation, not sustainable growth. It aggravated the pensions crisis by forcing long-term interest rates down and inflation up, consequently, pension fund liabilities and deficits have soared, more employers have closed their schemes and British businesses are being forced to find more money to shore up their pension deficits, rather than creating jobs.

In fact George Osborne himself said Quanitative Easing was “the last resort of desperate governments when all other policies have failed” in 2009.

We couldn’t agree more.

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Reader comments

The serious danger is that £75bn more QE will do little to boost the flagging economy because it will be mostly swallowed up and hoarded for the proverbial rainy day by the banks and other financial institutions.

2. Luis Enrique

somebody needs to get their story straight.

How is QE causing inflation if it is not working?

One of the UK’s main problems is that old people have mounted a gigantic intergenerational wealth raid, with everyone under 40 utterly fucked and most people over 60 benefiting from vast house price appreciation and decent pension schemes. Inflation is great, because it transfers assets from them to the people who’re actually suffering.

4. Leon Wolfson

@2 – It’s possible for something to happen without it working. If a machine blows up, then there was certainly something going on. But the machine’s wrecked in the process…

@3 – Really? 10% effective inflation at the bottom? Benefits don’t grow by nearly that much.

5. Luis Enrique

[if QE inflates asset prices, don’t pension funds own assets?]

6. Luis Enrique


yes, I was asking somebody to explain how QE can cause inflation without also stimulating the economy.

why are producers putting their prices up if demand hasn’t risen?

7. Leon Wolfson

@6 – Inflation. They can’t afford to eat it. And generally it’s retail doing it, and stiffing the actual producers.

8. Luis Enrique

ah – I’ve thought of one channel – currency depreciates, imports prices go up.

but … although deteriorating terms of trade reduce the standard of living they are a change in real prices, not inflation and if you want to “rebalance the economy” manufacturer more, export more, import less, that’s what you are after.

I would like to believe that “newswire’s” opposition to QE has more basis than it’s now the bad guys doing it.

9. Luis Enrique

yes Leon – inflation. How does QE cause inflation, if it is not also stimulating demand?

10. Luis Enrique

It is important that liberals engage conservatives on monetary debates. Since the 1970s, liberals have entirely ceded this aspect of the economic agenda. Even now, calls from the left for more monetary action gain only a fraction of the support of arguments for fiscal stimulus. But the left needs to realize that there is no neutral position in monetary policy—even if President Obama’s jobs plan is passed, its effects can easily be canceled out if the Federal Reserve caves to the singular pressure being applied to it by inflation hawks.

Mike Konczal (a left-winger) trying to explain to left-wingers why they need to sort their ideas out.

GYAC it is the Tea Party that is against monetary easing.

11. Luis Enrique

why would retailers be putting their prices up, if demand hasn’t risen, if not because import prices have risen? Why, upon the announcement of QE, would retailers think, well, sales suck, I think I ought to put up my prices?

I see Luis shares my frustration.

13. Leon Wolfson

@9 – Er, by increasing the supply of money. Really, this isn’t hard…

Leon, “inflation” isn’t higher for the poor. Inflation refers to the general price level.

Poor people are getting poorer in real terms, we should give them money to stop this.

We shouldn’t use monetary policy to crush domestic demand so that prices don’t increase as much. That will make everyone poorer.

15. Luis Enrique


yes … and how does increasing the supply of money cause inflation, without increasing nominal demand?

when people say QE won’t work, they mean the banks will just swap bonds for cash, and keep the cash in reserves, so although the quantity of high powered money will have increased, the money supply will not have increased.

The reason people think that increasing the money supply causes inflation is that it causes nominal demand to rise.

If QE is causing nominal demand to rise it is WORKING

But what happens to the money Leon?

If people want to hold more money (which is what a recession is, I suppose, people want less real services and stuff and want more money) then printing more money doesn’t push up prices.

Also, without wage growth we aren’t going to get inflation, it is self-limiting. I’ll worry about inflation when I get a pay rise above the rate of inflation (or nominal GDP growth). Needless to say, it’ll be a little while before I start worrying.

17. Luis Enrique


quote: “Because people have more cash, they are willing to spend more to buy the goods in the economy”

THAT is the transmission mechanism, that is why increasing the money supply causes more inflation that is what QE is trying to achieve for crying out loud

@ all of the above

QE inceases the money supply. The next few bond auctions get bought up by the BOE and the cash then sits with banks.

The purchase of bonds drives yields lower – this is the bit that hurts pension funds as they are the major holders of gilts (not least because gordon brown forced them to).

Banks tier 1 capital ratios go up. Some of the cash is free to be loaned out, but to keep liquid most banks simply go out and buy liquid equity assets – hence stock markets tend to go up after QE.

With the increased money supply, sterling will devalue (as it did today). This means commodities and other imports will be more expensive – which is why inflations tends to go up….as well asing lower long term rates meaning inflation expectations also go up.

QE is *supposed* to spur demand as well…which would also drive inflation. In practice that’s no so clear though….

Simple enough, right?

19. Luis Enrique

Paul Krugman

Go Adam! Adam Posen studied Japan during the 1990s, and was a member of the club (also including yours truly) that worried that Japan was an omen for other advanced countries. And I have to say that the Bank of England is showing a lot of intestinal fortitude right now, holding to expansionary policies despite an inflation bulge it knows is temporary, but which nonetheless puts it under pressure.

Then again, BoE monetary policy committee members don’t fear being charged with treason, or lynched in Texas.

Why has LC joined the Tea Party?

20. Leon Wolfson

@14 – Real inflation can be quite different from the nominal rate. It depends on the basket of goods and services you measure.

@17 – NONE of that cash is going anywhere, like previous QE, than bank balance sheets.

And no, this isn’t an inflation “bulge”, it’s long-term far-higher-than-is-healthy inflation, which is *crushing* the purchasing power of the poor at a time of high rises in basic prices.

@18 – Yes, it is.

@11 I do know a couple of retailers that actually do that and turn a profit. They’re selling to less customers but making more from those that they do sell to. It’s not what I would think would be a stable long term strategy for survival though, course I don’t actually own and run a retail company, so what would I know?

22. Luis Enrique

NONE of that cash is going anywhere, like previous QE, than bank balance sheets.

madres de dios … then how can be causing inflation?

as I said, get your story straight. Is QE stimulating nominal demand or not?

23. Leon Wolfson

@22 – You’re the one with a wild ass bug about nominal demand. To which I reply: Kittens. Just as relevant!

24. Luis Enrique


I think most businesses know that if they put prices up, they get fewer customers but make more per customer. Works for some. I don’t see how that calculation is affected by QE.


Shorter Liberal Conspiracy: less stimulus, more austerity please.

26. Luis Enrique

WTF? demand is not relevant?

“The last round of QE was supposed to stimulate UK growth and fight deflation, but instead it boosted prices”

The stupid! It burns! Does this guy know that the opposite of deflation is boosted prices?

We do not need to talk about Gordon, or Tony, we need to talk about Money.

A someone deeply concerned about the consequences for us all of our currency being continually diluted by central banks printing money with the doomed intention of gerrymandering our economy, can I say that I am delighted to see the leftie stalwarts here joining me in opposing yet more quantitative easing.

Even if they don’t understand why they’re doing it.

(That noise you hear is Left Outside spontaneously combusting).

BTW, how it actually works in practice is like this:

BoE buys long gilts from pension funds etc.

BoE balance sheet expands. BoE funds acquisition of asset by issuing liabilities, aka “reserves”, just like in a standard OMO.

Reserves (outside money) stay inside the banking system.

Pension fund gets a bank deposit in exchange for its bond. Supply of inside money increases, cet par. Supply of gilts decreases.

Now, pension fund has cash (a bank deposit) instead of a bond, so it goes and spends that cash on another bond. And so on.

BoE drains reserve balance in accordance with its everyday management of the payment system. Supply of outside money is basically irrelevant. BoE always supplies as much outside money as banks need.

31. Robin Levett

@Leon passim:

If you measure inflation by measuring the size of the money supply, then clearly quantitative easing by definition causes inflation.

If however you are measuring inflation by rises in prices, then it is only if the extra money is translated into demand that QE can cause inflation (or growth or a combination of the two). You are specifically arguing that the extra money is not translated into demand; that the money does nothing but sit on bank balance sheets. How does it cause price inflation sitting on a bank balance sheet? What is the mechanism?

Yum yum, more corporate welfare. Free money for rich people.

Why not just give everyone free money, not just the corporate whores?


I’m sceptical about how effective more QE will prove to be in boosting Britain’s flagging economy but I’m also agreeing with your analysis:

How can more QE both fail to boost the economy and yet stoke inflation? Btw that is what Lilico (of Conservative Home) seems to be claiming in the Telegraph

In Thursday’s FT, Posen – a member of the BoE’s MPC – is quoted by Chris Giles as saying that if QE offers only marginal relief we should increase the dosage.

I’ve two kinds of worries about that prescription.

(1) The additional QE may be largely hoarded by financial services institutions for the time being, perhaps to boost reserves, perhaps because the institutions are currently too pessimistic to make make additional loans to SMEs: large corporates are mostly carrying relatively large liquid balances so funding new business investment isn’t really a problem. Eventually, sentiment becomes more optimistic and the institutions start to lend to SMEs but at a time when inflation is starting to rise.

(2) Another reason why more QE may not boost the flagging economy is possibly because too much productive capacity has already been lost through the recession and its aftermath. As a consequence, supply elasticities are very sluggish so a boost to aggregate monetary demand is more likely to stoke inflation than increase output.

Any comment?

34. Leon Wolfson

@29 – If you think that bumping inflation via corporate welfare isn’t something the left can understand, then you’re not far from zombiehood yourself.

22. Luis Enrique

NONE of that cash is going anywhere, like previous QE, than bank balance sheets.

” madres de dios … then how can be causing inflation? ”

It is the old ‘ Doctrine of the Immaculate Transfer. ‘ QE will not do anything, except on the occasions when it does.

Not convinced here that the broad M4ex, which is the Banks’ closely watched measure of the money supply was actually calling out for more monetary easing at this time. I struggle to see much evidence that the problems in the UK economy are clearly related to a lack of money in the economy. The Bank have access to more complete data and they seem worried, but not convinced. Are interest rates positive? No. Is NGDP growth too low? No, but RGDP is too low and the Bank can’t influence RGDP. King denies that he was pressured by the government, however, with the PM, Chancellor and Business Secretary all intruding on monetary policy in recent weeks one wonders.

Yet again we have the Bank allowing the media to report that QE is about lending to SME businesses. There is no direct connection between QE and business lending. QE adds to the quantity of money, so it is a stock. Any boost in business lending will be indirect, but there is no transmission mechanism and no should expect that there is a mechanism to boost business lending. If QE only boosts inflation with no effect on real output, then clearly the UK economy has supply-side problems that can only be resolved with supply-side solutions. Altmann’s diatribe is clearly ignorant drivel, but she is a self-serving rentier so par for the course.

36. Leon Wolfson

..Supply Side. Trickle Down. Right.

“..Supply Side. Trickle Down. Right.”


No, QE is quite clearly DEMAND SIDE! Also, yes you’re right it relies on trickle down, because legislation doesn’t allow the BoE to do anything else. So this seems to be the best of a bad lot, no?

@8 “although deteriorating terms of trade reduce the standard of living they are a change in real prices, not inflation”

Sorry if I missed the answer to this, but surely increase in “real prices” = inflation ?

“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.”

This erodes purchasing power, thus reducing effective demand even further in the general mass of the population, or am I missing something?

We cannot live by plutonomy alone.

It has already been drawn to attention the fact that Mervyn King has been careful to ensure that he has an index-linked pension before this inflationary swindle was embarked upon.

This is nothing but counterfeiting. It is stealing money from everyone and giving it to the bankers. What the f*** is the point of saving the banks if everyone else goes to the wall?

The Bank of England right from the very beginning of its existence has been a rip-off fraud. This is their masterly plan to save the economy? Let’s print lots of money, then everyone will be rich! But not everyone, just the select few.

Sally is correct. If you are going to print money then give it straight to the people. If you must have socialism, have it for the people, not the f***ing bankers.

36. Leon Wolfson

” ..Supply Side. Trickle Down. Right. ”

Leon, a few weeks ago you were complaining about how games companies were being badly treated by the government. You said that they should get tax breaks. I agree. Games companies are in a fast growing market providing high quality employment for their employees. If we do not do all we can to encourage more to develop and keep the existing ones here they will piss off to more welcoming shores. What kind of reform policies do you think you were calling for, supply side or demand? Hint for you, Leon. You were advocating supply-side reforms. Presumably because you think it would help games companies and the wider economy.

@40 He only said that cos he wants Skyrim released quicker.

42. David Hodd

“One of the UK’s main problems is that old people have mounted a gigantic intergenerational wealth raid, with everyone under 40 utterly fucked and most people over 60 benefiting from vast house price appreciation and decent pension schemes. Inflation is great, because it transfers assets from them to the people who’re actually suffering.”

– you get to the heart of why Saga think QE is bad. Low interest rates are currently the only other way that the huge intergenerational wealth disparities, are being reversed.

And you forgot to add Health Service provision. And that emerging generations will pay for the clear up of the Baby Boomers environmental mess. It seem’s they have still never had it so good.

43. Chaise Guevara

@ Cylux

“He only said that cos he wants Skyrim released quicker.”

And we all pray it will be!

44. Luis enrique

Richard W.

Well, you might be right. But if the money is going nowhere, it’s not doing anything. I don’t think the bank controls what idiot journalists write. It has been quite plain about what it is doing.


Sorry I wasnt clear and used jargon. A real change in a price is a relative change. If bread used to cost the same as 2 apples or 2 oranges, it now costs equivalent to 4 apples or 4 oranges. Inflation is when the price level rises, as you say, the the nominal prices of bread, apples and oranges all rise. A rise in the price of imports means they cost more relative to domestic goods. It means our standard of living falls. But it’s one off, and is what rebalancing the economy looks like. Inflation is something that happens year after year. Inflation indexes like CPI cannot distinguish between real price changes and changes in the price level.

Leon. It has been pointed out to you that your view is incoherent. Your problem is that when you encounter somebody explaining you are mistaken, you do not see an opportunity to learn something but somebody to argue with. Pay attention. You are siding with the Tea Party against Paul Krugman.

Je fonce, Alphonse.

Sally is correct. If you are going to print money then give it straight to the people.

Agreed. but is better not to print the money at all.

If I didn’t give all my spare cash to the state, I’d buy gold.

“If I didn’t give all my spare cash to the state, I’d buy gold.”

Why gold? Isn’t platinum a better long term bet?

47. Leon Wolfson

@44 – No, it’s quite coherent. Feel free to defend corporate welfare, though. Gotta screw poor people, after all.

I don’t give a shit that a broken clock might be right occasionally, I care that higher inflation is going to hammer people on benefits even more severely, especially now they’ve been CPI-linked.

48. Leon Wolfson

@37 – No, actually read my post. I was pointing out RICHard’s supply-side views.

@40 – So, you don’t understand what the tax break the film industry has works (and the games industries was to be identical) I see.

You’re the supply-sider, not me. The one who believes is the laugher curve. (deliberate miss-spelling)

Why gold? Isn’t platinum a better long term bet?

You may be right, but neither is going to depreciate in value like a paper currency in the current climate.

Not so easy to print more of it……….

51. Leon Wolfson

@50 – Sure, ignore inflation, it’ll all be FINE.

Shame about those people…what were they called…oh yes, the *poor*.

We’re not at any kind of risk of deflation, inflation is running at well over twice it’s target, and will possibly crack three times after this round of QE.

Leon, we lower control inflation by tightening monetary policy of course.

But you lower inflation be reducing the amount of money in circulation and by putting people out of work. As less people are working they spend less money so prices are bid up more slowly (or not at all, or bid down).

You can’t pretend that a vigorous anti-inflation position is pro-poor, unless by pro-poor you mean you want more of them.

I am also not saying, *ignore* inflation. I am saying that monetary stimulus will produce more good in terms of real goods and services than bad in terms of increased prices.

If the UK is still fundamentally sound we will get more output and people will be happy because they will have jobs etc.

If I am wrong then inflation will increase and suffering will be slight and widely spread, unlike as it is now focussed tightly on the unemployed and disabled especially. Even if I am wrong, then inflation will help people escape their debts and will help the economy return to normal more quickly (although that is distinctly 2nd or 3rd best option really).

@ 44. Luis

The problem as I see it with how the Bank are conducting monetary policy is the policy target is undefined. Many people believe that the Bank had implicitly moved from targeting 2% CPI in the medium term to targeting growth. Some comments from the MPC have clearly suggested that they are targeting growth. That is fine and a target of 4.50-5% of annual NGDP growth would be far superior to inflation targeting. However, it has to be a defined target otherwise monetary policy is indeterminate. Therefore, the government need to give the Bank an explicit NGDP remit.

The problem with inflation is ignorance is endemic. Of course, Leon is waffling a load of drivel. Yet, in many respects he reflects the ‘ common sense ‘ view that inflation means becoming worse off. Higher wages leads to higher prices goes right over his head. As I told you before lefties stopped doing economics 20-30 years ago so they now just make stuff up. Hume worked it out for Leon a quarter of a millennium ago and it appears that our understanding has not progressed in over 200 years.

“If the coin be locked up in chests, it is the same thing with regard to prices, as if it were annihilated.” David Hume

The idea that monetary policy will cause inflation and make everyone worse off and higher government spending will not is incoherent. Yet, so many on the left believe that woo. It is some sort of magical government spending that apparently has no effect on prices. An explicit target of 4.5-5% NGDP growth would be the same thing as targeting higher incomes and overcomes the inflation baggage. Higher incomes for workers is surely something that the left could support. The right should not have a problem with such a target when it is pointed out that was Hayek’s preferred monetary policy after he rescinded his mistaken 1930s views.

If the split in such a monetary policy regime was too much inflation and poor real growth that brings us back to clear inflexibilities and supply-side problems in the UK economy. Those problems can only be addressed through government policy and are beyond the scope of the central bank.

@ 48. Leon Wolfson

You are doing your usual thing of making stuff up that other posters did not say, Leon. I was agreeing with you that games are being badly treated. However, I was pointing out that tax breaks are supply side.

54. Leon Wolfson

@52 – For the rich. Right. And you’re…oh, right.

@53 – The way the subsidy I’m talking about works ISN’T supply-side. Really, you’re not reading that…

You’re a waffling iron insisting people stick their finger in and it won’t hurt, really. That benefits being reduced in value by RPI’s margin over CPI doesn’t MATTER, they’re only the poor, that you’ve made your views about them entirely plain now.

You agree with me on NOTHING.

The moment you align yourself with the supply-siders you take a running jump into tea-bagger trickle-down land.

In Keynes’s General Theory, there is an aggregate supply function as well as an aggregate demand function:

“Let Z be the aggregate supply price of the output from employing N men, the relationship between Z and N being written Z = ?(N), which can be called the aggregate supply function. Similarly, let D be the proceeds which entrepreneurs expect to receive from the employment of N men, the relationship between D and N being written D = f(N), which can be called the aggregate demand function. . . .” [General Theory chp.3 – but see also Keynes’s employment function in chp. 20]

Be warned, there is a substantial interpretative and critical literature about Keynes’s aggregate supply function in the GT before we get to the later, so-called supply-side literature – try the entry in Wikipedia for: “Supply-side economics”. Victoria Chick on: Macroeconomics After Keynes (1983) is an illuminating step.

It’s unwise IMO to just dismiss supply-side economics wholesale even if some of it is nutty – such as the Laffer curve, where tax revenues rise and then eventually fall as the rate of income tax rises. On this, the productive approach is to follow Mirrlees and the literature on optimal taxation – the latest contribution being: The Institute for Fiscal Studies: The Mirrlees Review.

56. Leon Wolfson

Yes, but anyone with a clue avoids the term.

“Yes, but anyone with a clue avoids the term.”

As do the clueless too.

But what happens as and when the parameters of Keynes’s aggregate supply function change as that alters the systemic responses to changes in aggregate demand?

Keynes’s was evidently aware of this contingency even if those whose understanding of the issues is very limited. How can we understand the possibility of cost-inflation and the systemic implications of that except through changes in the supply function? That is but one important reason why it matters. Many modern macroeconomic texts explicitly introduce and discuss aggregate supply conditions and the implications.

I’ve checked. There is extensive discussion of the aggregate supply function in Olivier Blanchard et al: Macroeconomics – A European Perspective (Financial Times, June 2010) – including an analysis of the consequences of the rise in global oil prices. As Blanchard is currently chief economist at the IMF and this book is warmly endorsed by Charles Bean, deputy governor to the BoE and previously the chief economist there, I take it that counts.

Btw it’s worth listening IMO to the (longish) interview of Blanchard on what’s happening in the world economy in this Saturday’s The Economist

I agree with George in his 2009 remarks. QE is idiotic. The economy will continue to suffer while growth is thwarted by a lack of consumer confidence. Whats needed is a cut in VAT and a huge reduction in fuel duty. The country can’t afford NOT to take this action immediately.

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  1. Pete Phillips

    “@sunny_hundal: Director Gen of Saga group attacks strategy of printing more money as a "Titanic disaster" <- old hat?

  2. Gael

    RT @sunny_hundal: Director general of Saga group attacks strategy of printing more money as a "Titanic disaster"

  3. Zara Lockwood

    RT @sunny_hundal: Director general of Saga group attacks strategy of printing more money as a "Titanic disaster"

  4. Chris Paul

    Director general of Saga group attacks strategy of printing more money as a "Titanic disaster"

  5. Cllr Muhammed Butt

    Director general of Saga group attacks strategy of printing more money as a "Titanic disaster"

  6. francesca garman

    Director general of Saga group attacks strategy of printing more money as a "Titanic disaster"

  7. Christopher Snowdon

    Dan Hannan and Liberal Conspiracy agree on something! Printing more money is bad idea.

  8. seddaka

    Printing more money a ?Titanic disaster? | Liberal Conspiracy: The Bank of England is considering another round …

  9. Zadok Day

    Dan Hannan and Liberal Conspiracy agree on something! Printing more money is bad idea.

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