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Quantitative Easing

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“Cancelling” QE debt. Rubik’s Revolutions. Don’t call it money printing, rubiks cube edition. Will central banks cancel government debt? | Gavyn Davies. On macroeconomics Welcome. If you have yet to register on FT.com you will be asked to do so before you begin to read FT blogs. However, our posts remain free. A blog on macroeconomics, economic policymaking and the financial markets. Gavyn usually writes about a key topic of the week on Sunday. Follow Gavyn Davies on the A-List. Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners.

He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics. Gavyn Davies is an active investor and may have financial interests and holdings in any of the topics about which he writes. To comment, please register for free with FT.com and read our policy on submitting comments. Buttonwood: Ben buys, bulls buoyant. How about quantitative easing for the people? | Anatole Kaletsky. Through an almost astrological coincidence of timing, the European Central Bank, the Bank of England and the U.S. Federal Reserve Board all held their policy meetings this week immediately after Wednesday’s publication of the weakest manufacturing numbers for Europe and America since the summer of 2009.

With the euro-zone and Britain clearly back in deep recession and the U.S. apparently on the brink, the central bankers all decided to do nothing, at least for the moment. They all restated their unbreakable resolution to do “whatever it takes” – to prevent a breakup of the euro, in the case of the ECB, or, for the Fed and the BoE, to achieve the more limited goal of economic recovery. But what exactly is there left for the central bankers to do? They have essentially two options. They could do even more of what the Fed and the BoE have been doing since late 2008 – creating new money and spending it on government bonds, in the policy known as “Quantitative Easing.” Is a revolution in economic thinking under way? | Anatole Kaletsky. Four years after the start of the Great Recession, the global economy has not recovered, voters are losing patience and governments around the world are falling like ninepins.

This is a situation conducive to revolutionary thinking, if not yet in politics, then maybe in economics. In the past few months the International Monetary Fund, previously a bastion of austerity, has swung in favor of expansionary fiscal policies. The U.S. Federal Reserve has committed itself to printing money without limit until it restores full employment.

And the European Central Bank has announced unlimited bond purchases with printed money, a policy denounced, quite literally, as the work of the devil by the president of the German Bundesbank. This week an even more radical debate burst into the open in Britain. King had to speak out because the sort of calculations presented here last summer started to catch on in Britain. King felt obliged to counterattack on behalf of traditional central banking. We could fix our economy by giving every man, woman and child £6,000 in cash. Have you heard the good news? The economy is “turning a corner”. Growth is back. Green shoots abound. Hurrah! OK, you get my drift. So how do we get growth beyond the Square Mile? Then there is quantitative easing (QE), in which the Bank of England, according to the official explanation on its website, “electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies . . .

We have had a massive £375bn of QE so far, which may have saved the financial sector but has done very little for the rest of us. There is, however, a way of using QE money in a bolder, much more daring way. QE of £375bn amounts to around £6,000 per man, woman and child in the UK. QEP, incidentally, isn’t my idea. QEP might elicit snorts of derision from the inflation hawks and deficit scolds, not to mention lazy references to hyperinflation and Weimar Germany, but it isn’t quack economics. QEP bypasses the tired and stale debate over austerity. UK needs to talk about helicopters. Turner: Time for helicopter money? 11 October 2012Last updated at 16:30 ET Lord Turner's speech was his last at Mansion House as head of the FSA Lord Turner warns that the process of businesses, households, banks and the government trying to cut their big debts built up in the boom years, what is known as deleveraging, may bear down on the British economy's ability to grow for many years yet.

He is also concerned that quantitative easing, or the purchase by the Bank of England of government debt, may be becoming less and less effective in promoting a recovery. So the City's top regulator, who is seen as one of the two leading candidates to be the next governor of the Bank of England, says that the government and the Bank may have to consider new unorthodox policies to overcome what he calls the powerful economic headwinds. Ellen Brown: QE for the People: Grillo's Populist Plan for Italy. Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of Feb. 24-25. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him "a kingmaker in a hung parliament.

" Grillo's is the party of "no. " In a candidacy based on satire, he organized an annual "V‑Day Celebration," the "V" standing for vaffanculo ("f--k off"). He rejects the status quo -- all the existing parties and their monopoly control of politics, jobs, and financing -- and seeks a referendum on all international treaties, including NATO membership, free trade agreements and the euro. "If we get into parliament," says Grillo, "we would bring the old system down, not because we would enjoy doing so but because the system is rotten. " But being against everything, says Mike Whitney in Counterpunch, is not a platform: "To govern, one needs ideas and a strategy for implementing those ideas. Major C.H. Qui a encore besoin des banques ? Les déboires de nos économies n?

Ont pas commencé avec la crise financière des années 2007 et 2008. Loin de là puisque, en réalité, une redistribution substantielle des richesses et des revenus s? Est opérée depuis le début des années 2000, au détriment des salaires et en faveur des profits enregistrés par les entreprises, par le secteur financier et par leurs actionnaires. Pour autant, n? Est-il pas étrange et contradictoire de constater que les investissements dans l? Outil de production (quel qu? Il soit) se maintient à des niveaux anémiques, alors même que les profits atteignent des records et, ce, dans une conjoncture de coûts de financement au plus bas historique ?

Les programmes massifs de création monétaires ont engendré un monstre Ne nous étonnons donc pas si nos économies subissent une déprime quasi-chronique, si la consommation est en berne et si les revenus des ménages se dégradent. Une politique sans conséquences pour l'économie réelle Loin d? Si d? L? Assumer d'être irresponsables. Monetary policy: Trickle-down central banking. Britain's richest 5% gained most from quantitative easing – Bank of England | Business. The richest 10% of households in Britain have seen the value of their assets increase by up to £322,000 as a result of the Bank of England's attempts to use electronic money creation to lift the economy out of its deepest post-war slump. Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn quantitative-easing (QE) programme, under which it has been buying government gilts for cash since early 2009. The Bank of England calculated that the value of shares and bonds had risen by 26% – or £600bn – as a result of the policy, equivalent to £10,000 for each household in the UK.

It added, however, that 40% of the gains went to the richest 5% of households. Although the Bank said it could not come up with precise figures for the gains from QE, estimates can be produced using wealth distribution data from the Office for National Statistics. "Economic growth would have been lower. Unemployment would have been higher.

MPs launch quantitative easing inquiry | Business. MPs are to launch an inquiry into the government's decision to pump £375bn of new money into the economy, amid growing concerns that the policy has not worked and could cause rapid inflation in future. Conservative MP Andrew Tyrie, chairman of the cross-party Treasury select committee, said they were taking action because "some people may be worse off as a result" of the policy, known as quantitative easing, or QE, and that it required "careful scrutiny". He added that the committee would look at the "winners and losers" from QE and its cost to the taxpayer. There is growing concern that the four tranches of QE between 2009 and this summer have not worked, that they could have caused more damage to the economy than good, and that it should not be repeated.

Economists expect another £50bn of QE to be announced next month. Business secretary Vince Cable has admitted ministers are unsure QE is working. The report also mounted a robust defence of QE, addressing emerging criticisms. Quantitative Easing only benefits the financial sector, finds research. A review of evidence into Quantitative Easing (QE) has shown that the Government’s hope that it will pull the UK out of recession may be unfounded. Professor Chris Martin, from the University of Bath’s Department of Economics, has looked at the impact of QE not just on financial markets but also the ‘real’ economy of jobs, inflation and output and concluded that there is no lasting benefit in continuing to pursue the policy.

He concludes that QE has produced a limited but temporary gain for the financial sector, but it has been of no help to the wider business community or individuals and families struggling against inflation and unemployment. His review has looked at studies of the performance of QE by central banks, including numerous historical studies of small scale QE purchases and studies of the large contemporary QE programmes. He said: “QE is serving to help the financial sector, such as banks and insurance companies. “The fundamental problem in the UK is the lack of demand. The Distributional Effects of Asset Purchases - Bank of England. Section 1: How quantitative easing affects financial markets and the real economy The MPC began QE in March 2009 following the intensification of the financial crisis after thecollapse of Lehman Brothers and the associated sharp contraction in output.

The MPC hadreduced interest rates sharply, with reductions of 3 percentage points in Bank Rate during 2008Q4 and a further 1½ percentage points in early 2009, such that by early March 2009, Bank Ratehad been reduced to 0.5%. But, despite this substantial relaxation of policy, the MPC judgedthat, without additional monetary easing, nominal spending would be too weak to meet the 2%CPI inflation target in the medium term. The aim of QE was, therefore, to ease monetaryconditions further in order to boost nominal spending and thus help to achieve the inflationtarget. The MPC completed £200 billion of asset purchases between March 2009 and January2010, and a further £125 billion of purchases between October 2011 and May 2012.

Portfolio balance. The Fed’s secret QE equivalent. La trappe du taux d’intérêt « Zéro » Le taux de croissance de la masse monétaire (M3) aux États-Unis est faible. Le niveau extrêmement faible du taux des fonds fédéraux (0,25%) a étouffé la croissance monétaire qui, à son tour, a étouffé l’activité économique. Car les taux d’intérêt « faibles » imposés par la Réserve fédérale contribuent à un resserrement du crédit et à la croissance anémique de la masse monétaire. Mais, ce raisonnement n’est-il pas contre-intuitif ? N’est-ce pas le contraire de ce que les manuels d’économie nous enseignent ? Alors que la Fed a injecté d’énormes quantités de monnaie dans l’économie, les États-Unis font paradoxalement face à une crise du crédit. Leurs banques ont utilisé leurs liquidités pour amasser du cash et empiler des bons d’État. Pour comprendre pourquoi, dans l’océan de liquidités de la Fed, l’économie est freinée par un resserrement du crédit, un «credit crunch», nous devons nous concentrer sur le fonctionnement des marchés de crédit.

Why are banks hoarding so much reserves? Que penser du Quantitative Easing 2. Les banquiers centraux sont friands de jargon complexe pour exprimer des idées simples, et le Quantitive Easing ou « assouplissement quantitatif » est un bon exemple. Aux USA, cela signifie que la banque centrale, la Federal Reserve, va acheter des bons à long terme du Trésor américain. La Fed a déjà pratiqué une telle politique : de décembre 2008 à mars 2010, elle a acheté 1700 milliards de dollars d’obligations du Trésor et des titres adossés à des hypothèques. Comme l’achat qui vient juste d’être annoncé de 600 milliards de dollars (75 milliards de dollars par mois pendant huit mois) de titres du Trésor constitue un second tour, il est appelé QE2 (Quantitative Easing 2) pour faire court.

La Fed espère avec ce « QE2 » réitérer le succès du « QE1 ». Mais il y a de bonnes raisons d’en douter. L’objectif immédiat de l’achat d’obligations est de faire baisser les taux d’intérêt – ce qui, espère la Fed, stimulera les dépenses, dopera la croissance économique et fera reculer le chômage. Thought Offerings: How the Loan/Bond Choice Helps the Private Sector Self-Determine the Money Supply — AND Yet Another Reason QE is a Non-Event for the Economy. NOTE: Just to be clear, this post does not describe any established theory.

It was intended as a thought exercise to elicit feedback (with no results so far). What it describes may or may not be accurate — it does seem logical to me, but I am not an expert on the banking system. UPDATE 11/11/2010: Thanks to commenter Ramanan for pointing out that the concepts in this post overlap to some degree with existing Post Keynesian / Circuitist work, such as by Marc Lavoie. UPDATE 4/28/2011: If you read this post and are interested in further details including a graph of QE's impact on bank versus non-bank lending in the US, please also read this more recent post. Two fundamental types of lending enable the private sector to borrow money. However, this conclusion only holds to the extent that bank loans and other debt such as bonds can be used interchangeably to fulfill the needs of prospective borrowers.

This conclusion also has implications for what to expect from quantitative easing. QE creating an opportunity for peer-to-peer lending and crowdfunding. Thoughts Offerings blog has an interesting piece on how QE actually does not encourage traditional bank lending via deposit creation, but instead encourages lending through security issuance. I recommend the reading, it ties a lot of things together neatly. If we take this post a little further, given that lending via security issuance is currently frozen on the consumer debt side, those benefiting from QE are those with access to capital markets: large corporations, financial intermediaries (who take fees on issuing, buying/selling securities), and the Government, but not the consumer or small business (except as recipient of Government welfare or subsidies).

As a result, domestic demand is poor, which leads companies to invest and grow their revenues abroad (BRIC in particular), bringing rampant inflation in emerging economies and taking the dollar down. This is a self-reinforcing feedback loop. Two things follow: