21 Sept 2011

Quantitative Easing - Just say No

Vincent Cable, the UK governments Business Minister, is pushing for another round of quantitative easing - printing money to put it another way. I think this is seriously misguided. Richard Murphy has a report on Green Quantitative Easing on the Tax Research UK blog site that explains how the previous round of Quantitative Easing (£200 billion between March 2009 and February 2010) increased profits for the banks, but had almost no useful effect on the economy.

The problem is that when Central Banks use Quantitative Easing to inject money into the economy, the money goes to the banks and there is nothing to specify what the banks use the money for. As a result, the banks will (quite rationally) use the funds to make profits in the most effective way possible. With the economy in such a depressed condition, investing in business is not attractive. Instead, the banks have realised that they can make much more profit by speculating on the commodities markets, with the result that inflation in the UK (food, clothing, energy etc) has increase to 4.5-5% - way above the value in other countries. This is obviously a disaster for the general public who are trying to make ends meet under conditions where either their pay is severely restricted, or they may well have lost their jobs. And if you are a pensioner trying to live on your investments, forget it - interests rates are at an all time low.

No, quantitative easing is absolutely not the answer. The answer is, wait for it.... imposing a Financial Transaction Tax that could replace all the current taxes and remove public sector debt within a couple of years. Is anyone listening out there?

One other new item caught my eye today.There was a report on the BBC news claiming that "Currency exchange is too costly", according to a consumer group.  I had noticed!



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