Bank of England hits the panic button
Who was it who said that QE – printing money by another name – is the last resort of desperate governments, when all other options have failed?
By Jeremy Warner
06 Oct 2011
As Labour’s Ed Balls gleefully points out, it was indeed George Osborne, the current Chancellor. It is the sort of thing politicians say in opposition and then bitterly regret when they get into government and have to take the decisions.
Yet in a sense, his words are even truer today than they were then. You wouldn’t choose further to expand the Bank of England’s purchases of government debt unless you were desperate, and all other options had been exhausted. The Chancellor condemned it then; now he welcomes it.
Since nominal interest rates are already as low as they can realistically go and the Government has, rightly, ruled out easing back on deficit reduction – more QE is about the only thing left in the locker as the world slides, inexorably, towards depression.
As regular readers will know, until quite recently I’ve argued steadfastly against QE2, but on the never say never principle, I was always careful to add some riders. When faced by an extreme deflationary threat, almost anything can be justified, and that’s precisely what we are seeing now. As the Governor of the Bank of England, Sir Mervyn King, put it on Thursday, “when the world changes, we must change our response”.
Long-standing supporters of more QE will say that it has been obvious for some while that the economy was stalling anew, requiring some form of fresh stimulus.