QE: What if...

DRFC1879

Sorry if this topic has already been covered but it's something that I've thought about a few times.


Since 2010, The Bank of England injected £375bn of cash into the economy through QE. This was meant to stimulate lending, drive demand and restore shopper confidence but a fair old wedge of it seemed to end up stuck at the top of the system with the banks and bankers.


The sum involved equates to almost £6000 for every man, woman and child in the UK. Had it been shared equally amongst the population surely it would've been much more effective at driving spending and preventing deflation.


Ok, some people would've saved/invested it but others would have spent at least a portion of the cash. Then there would be people like me with a few grand of loans and credit cards who would've wiped out their debt and started contributing more to the economy through increased consumption each and every month.


I know that's a simplistic view but I'd be interested to hear some thoughts on it.

antrobus

DRFC1879 wrote: »

...Since 2010, The Bank of England injected £375bn of cash into the economy through QE. This was meant to stimulate lending, drive demand and restore shopper confidence but a fair old wedge of it seemed to end up stuck at the top of the system with the banks and bankers....

QE had little or no effect on banks and bankers.

DRFC1879 wrote: »

.....The sum involved equates to almost £6000 for every man, woman and child in the UK. Had it been shared equally amongst the population surely it would've been much more effective at driving spending and preventing deflation.
.

The whole point of QE is that it does not drive spending.

CLAPTON

DRFC1879 wrote: »

Sorry if this topic has already been covered but it's something that I've thought about a few times.


Since 2010, The Bank of England injected £375bn of cash into the economy through QE. This was meant to stimulate lending, drive demand and restore shopper confidence but a fair old wedge of it seemed to end up stuck at the top of the system with the banks and bankers.


The sum involved equates to almost £6000 for every man, woman and child in the UK. Had it been shared equally amongst the population surely it would've been much more effective at driving spending and preventing deflation.


Ok, some people would've saved/invested it but others would have spent at least a portion of the cash. Then there would be people like me with a few grand of loans and credit cards who would've wiped out their debt and started contributing more to the economy through increased consumption each and every month.


I know that's a simplistic view but I'd be interested to hear some thoughts on it.

indeed so
QE has clearly failed to provide the expected stimulus to spending.
Maybe just printing money and giving us all some would be more effective (at least for a while)

princeofpounds

You seem to be confused as to what QE is (don't worry, even half the people in the City don't understand it).


It is not a literal cash injection. It is actually cash being lent to banks, with collateral on those loans heading in the other direction. - (Edit: sorry, accepting corrections, this is not right. It is buying of assets, not lending on assets.)


This is very very very different to money being given to individual people to spend.


Sorry I don't have time to engage with your question fully, but I wanted to make the key point that whilst your comparison scenarios sound plausibly similar on a superficial basis, they are not remotely the same.


It's a bit like saying 'we wanted this car to go faster, so why did we put some petrol in the tank when we could have put explosive rocket fuel in there instead?'. Both are things that 'make vehicles go'. but the results would be very different and not necessarily give you the sort of stimulus you want.
(OK, it's a superficial and not that accurate analogy, but I hope it gets the basic point across. Nor is it a comment on the wisdom of either policy).

mwpt

antrobus wrote: »

The whole point of QE is that it does not drive spending.

Maybe I'm missing a subtle point you're trying to make but, huh?

From BOE:

QE initially increases the amount of bank deposits those companies hold (in place of the assets they sell). Those companies will then wish to rebalance their portfolios of assets by buying higher-yielding assets, raising the price of those assets and stimulating spending in the economy.

CLAPTON

QE had a purpose to stimulate the economy

printing money and giving it to us to spend might have achieved that goal

Thrugelmir

How much have the UK banks balance sheets shrunk by? A figure far bigger than £375 billion. QE was injected to maintain stability in the banking system. Not as the ECB is intentionally doing to boost inflation and encourage banks to lend.

lvader

QE basically paid for some of the of the deficit (taxation - government spending). Without it the extra sale of gilts would have choked the economy, although it's debatable if there would have been enough demand.

antrobus

princeofpounds wrote: »

..It is not a literal cash injection. It is actually cash being lent to banks, with collateral on those loans heading in the other direction.....

No, not banks. Banks held more gilts after QE than they did before.

Try the helpful little graph shown on the link below under the title 'Trends in ownership of UK debt'
http://www.economicshelp.org/blog/1407/economics/who-owns-government-debt/

mwpt wrote: »

Maybe I'm missing a subtle point you're trying to make but, huh?

From BOE:

OK then. The whole point of QE is that it does not drive spending on consumption.

Is that better?:)

CLAPTON

antrobus wrote: »

No, not banks. Banks held more gilts after QE than they did before.

Try the helpful little graph shown on the link below under the title 'Trends in ownership of UK debt'
http://www.economicshelp.org/blog/1407/economics/who-owns-government-debt/



OK then. The whole point of QE is that it does not drive spending on consumption.

Is that better?:)

it's somewhat difficult to see how QE would achieve on target inflation 2% without affecting consumption

easy to see how it affects asset price inflation however.

mwpt

antrobus wrote: »

No, not banks. Banks held more gilts after QE than they did before.

Try the helpful little graph shown on the link below under the title 'Trends in ownership of UK debt'
http://www.economicshelp.org/blog/1407/economics/who-owns-government-debt/

OK then. The whole point of QE is that it does not drive spending on consumption.

Is that better?:)

No, not really. Sometimes you actually have to spell things out. If I'm understanding you correctly, you're specifically referring to the 2009 UK QE which your link shows was the BOE buying government debt, only? In which case, it is a means of both suppressing government borrowing costs while also providing funds to central government. That is instead of QE aimed at buying commercial bank assets to provide liquidity to lend into the economy? The latter being the type of QE targeting consumer spending?