We were sold “quantitative easing” – QE – as a way of stimulating growth. Not so. And it will end in tears...
The reason given for the quantitative easing – also known as QE – between 2008 and 2012 was that it was a mechanism to try to revive consumer spending and stimulate economic growth. Not so. The real reason was that domestic lenders were not prepared to service government debt because of the conditions at the time.
So in stepped QE, creating £375 billion of electronic money courtesy of the Bank of England, topped up by foreign creditors lending £300 billion (according to the latest available figures).
Britain’s Gross National Product is still below 2008 levels, but total government debt now stands at around £1.1 trillion, a leap of £789 billion since 2007. That £789 billion, partly representing the cost of the banking bail-out, has largely been funded through printing money and borrowing abroad.
The eventual plan for the £375 billion of QE is to direct it to a captive domestic audience – us. It is to be paid off by our savings held in insurance companies and final salary occupational pension funds. At the moment it is stored in transit by the Bank of England, to be dumped onto our backs under the guise of “regulatory prudence” at a future date.
As for the £300 billion of foreign loans, Lenin knew exactly what that meant when he wrote Imperialism, The Highest Stage of Capitalism in 1916: “the most usual thing is to stipulate that part of the loan that is granted shall be spent on purchases in the creditor country.” What this means is that we buy foreign exports using their credit.
This long-standing practice has acquired a recent variation where foreign creditors demand Britain’s assets be sold at knockdown prices. That explains the discounted sale price of Royal Mail, where the Singapore government (a creditor nation) has ended up as a major shareholder.
We are supposed to believe the measures taken since 2007 will avert any further economic and financial crisis. For example, the Treasury recently committed loan guarantees of £130 billion to support the mortgage Help to Buy initiative at the drop of a hat. Depending on where you stand, the initiative is now stoking up the feel-good or feel-bad factor of rising house prices.
It’s nothing but a fool’s paradise. All the British ruling class has done since 2007 is to try to buy political time – at the cost of moving into a blind alley from which it cannot escape without tremendous upheaval, similar to 1914. That makes the situation dangerous.
Central Banks usually cut interest rates to raise lending and spending levels. But rates are at a historic low, with the Bank of England base rate 0.5 per cent. From here the only way is up. And when interest rates rise, bond prices tend to fall heavily. It is at this point that our pensions and savings, much of them already invested in bonds, have been earmarked to carry the loss.
What the government has actually achieved with its £375 billion of QE since 2008 has been to push up the price of bonds and temporarily diminish their yields. Talk of free markets is nonsense – the whole thing is contrived.
A by-product of QE has been artificially inflated pension costings, because the government’s cheap electronic money has lowered interest rates. This has led some workers to believe we have to work until we are 68 before we deserve a pension.
Recovery? Large-scale business does not want to borrow even at low rates – let alone invest its own capital – because there is no real demand in the economy.
Since September 2013 the US has been trying to “unwind” QE by slowing down the rate at which the government injects money into the banking system. This has begun to restrict the availability of cheap money that until recently had induced some countries (prime examples are Ukraine and Turkey) to borrow in dollars to prop up their own current account deficits.
But with the US now putting QE into reverse the “hot money” has now exited these countries. Here the investor logic has been, “I am not interested in a return on my money but I am interested in the return of my money.”
What workers in other countries make of all this is for them to decide. But in Britain the relationship between creditor and debtor with the creditor in charge has to be challenged as part of our need to rebuild Britain. Let the creditor beware! ■