Posted 6th October 2011
The rationale for this second round of quantitative is similar to the justification for the first round undertaken in 2009. According to the Bank’s leaflet, Quantitative Easing Explained, by buying government and corporate debt (currently held by banks) it will inject £75bn into the financial (banking) system which will foster economic activity.
The £200bn of quantitative easing in 2009 had little effect on the real economy but was certainly beneficial for banks, helping to repair their balance sheets and make profits. It created an illusion of recovery as stock markets steamed away driven by the liquidity provided by the Bank of England and the US Federal Reserve Board. But in the real economy people continued to suffer falling living standards and bleaker employment prospects. The leaflet explains that banks will use this capital injection to increase lending to businesses but, since 2009, the banks have fallen woefully short of expectations in this regard. Why should QE2 be any different? Meanwhile the debt/leverage bubble continues to grow and this £75billion merely adds fuel to it.
Yes, QE2 may result in a few quarter’s of positive GDP but it wont alter the longer term trajectory. Global debt will become unsustainable and the system will collapse (see: Destined to fail – the world’s financial system).
Meanwhile, the three week long occupation of Wall Street receives little mainstream media attention in spite of its growth in numbers. If you really want to know what the early stages of revolution look like, try this:
Similar demonstrations are breaking out in cities all over the US. The strike in Greece this week and civil disturbances elsewhere are signs of growing awareness and discontent.
Essential reading: mysteryofbanking by Murray N. Rothbard