Friday, 6 July 2012
With the economy in reverse gear ever since the Financial Sector blew up, the Bank has just kept printing more money. Now nearly 50% of Gilts are owned by the Bank of England.
How will this ever be unwound. Back in April Andrew Tyrie, so well known after this week, as the BOE what preparations had been made - umm, none, came the message from the Debt Management Office - its too far off to bother.
One option is to hold these gilts to maturity, but this would mean a huge build up in debt as more are issued over time, before these all mature. Another way is to only offer long-term debt and make QE the short -term paper - that way it unwinds quickly, but the longer dated issues sink in value too.
Or you can try and dump it on eh market and see interest rates rocket and inflation fall back rapidly as liquidity is withdrawn. There is no good way to do this, although Japan did well in 2006 when it withdrew all its QE in just a few months, conditions were very benign, nothing compared to the cataclysm we have today.
It is not surprising there is no plan to unwind QE, but with more and more QE being done, it is worrying that yet again we have no plan. As usual in the UK, this will be a problem left to our children to sort out.
The lessons of the Baby Boomers - i.e. a boom for them and a bust for their children, are going to be repeated again.
(The picture is £500 shredded, how many bowls for £375 billion pounds - so only 750 million bowls needed of this then....)