Quantitative Easing supposes to improve the economy through purchase of British Government bonds (gilts) and high quality (investment grade) bonds from private sector companies (banks, pension funds, insurance companies and non-financial institutions). By doing this the Bank is able to inject money directly into the economy and the companies that need it. This is in the belief that printing money and rising prices mean that they are creating value. But wait a minute ‘purchase government bonds’? That is, buy gilts to provide the exchequer with money that the government needs to meet a budget deficit! Gilts that creat more debt that the government needs to honour in terms of returning any capital invested plus any promised interest. A debt serviced through taxation. An article by Frank Chodorov with the title Don’t buy Government Bonds puts it this way: –
“When the State spends more money than it receives in taxes — a fact indelibly written into the bond — it is deliberately committing an act of bankruptcy. The use of the word investment in connection with a bond issued by the State is a treacherous euphemism. When you buy an industrial bond you lend your money to a corporation so that it can buy a machine with which to increase its output of things wanted by the market. The interest paid you is part of the increased production made possible by your loan. That is an investment. The State does not put your money into production. The State spends it — that is all the State is capable of doing — and your savings disappear. The interest you get comes out of the tax fund, to which you contribute your share, and your share is increased by the cost of servicing your bond. In effect, you are paying yourself.”
Regarding the Bank of England – Sadler would seem to agree with Chodorov, and I’m sure that they would both agree with above exchange in the video. Sadler puts it this way. “The Bank of England does not believe that there is any sacrifice today for an increase in wealth tomorrow, you do not need to sell something of value to get money in exchange, you can just print money instead. But printing up banknotes does not create anything of value, the increased supply of money will cut its purchasing power, meaning that the relative prices of consumer goods will rise over time. This will increase the cost of living for people in general, meaning their real wages will fall. Most of us become poorer but by printing this money and handing it over to a favoured few in society (i.e. the banks) this is in one sense, handing them nothing and in another sense, pure and simple counterfeiting. This is because, in the case of Quantitative Easing, the banks will trade this money for real or financial assets, or to their employees in exchange for their services.
Increased monetary demand for financial assets or banking services causes them to bid up their prices. The assets can then be sold in the near term at a profit and the banking employees will spend their increased salaries and bonuses on consumer goods before prices start to rise. Bankers will certainly feel wealthier. In fact, this whole process represents a wealth transfer from one group of people in society to the banks and a shadow tax on much of the population. This is because the early recipients of the new money (the bankers and the Government) will get to spend this money before the prices rise significantly. Slowly this new money disperses around the economy but the further you are from the source the less it will be worth when you finally receive it.”
“The main beneficiaries of Quantitative Easing therefore, are the Government and the banks. The banks purchase gilts from the Government and then sell them to the Bank of England (just under £200bn’s worth) at a profit. The Bank of England pays for these gilts with freshly printed money. Thus the Government has a ready buyer for its debt and the banks become more profitable and apparently more stable. Quantitative Easing has resulted in a transfer of wealth from society at large to the banks and the Government, and has vastly extended the length of what would have been a short but sharp recession. Quantitative Easing has made us poorer while benefiting a select few in society. This is a crime by any measure.”
Recent economic data convinced the Bank of England not to expand its Quantitative Easing program. According to the Office of National Statistics, annual CPI inflation rose from 3.3% in November to 3.7% in December, 2010 and is now currently 4%. The overall expectation is that CPI inflation will peak at 4.4% by the middle of 2011. This increase in inflation is coupled with poor economic data (with GDP contracting 0.5% last quarter). The foregoing includes extracts from an article published by the Cobden Centre and written by Robert Sadler. While the suggestion is that these figures come as something of a shock to the Bank of England, which assumes that printing money is the way to get the economy going, they are no shock to a lot of us.
Boadicea's Chariot 
All blindingly obvious to an engineer. 😆
Frighteningly plausible, both concept and video!
I did some quantitative easing this morning, after a rather nice curry las night. It had much the same effect as that described in the video.
To preserve what’s left of my sanity (not much according to Mrs J) I’ve stopped thinking about anything done by the state..it does my head in……………….or did I already say that.
Wise course, Jazz. I only hope they know what they are doing; I certainly don’t.
Economist thinking explained: A group of economists are trekking through the Alps when they discover they are lost, their leader, a Nobel Prize economist, grabs the map and pronounces “I know where we are.” The rest respond “Tell us please” he replies “You see that tall hill over there, well we are on top of it” He thanked by the group who now believe their problem is solved.