It appears that a Financial Times survey found investors believe the central bank’s quantitative easing programme is a thinly veiled attempt to finance the government’s deficit to keep its borrowing costs down.
They seem to feel they’ve been ‘had’. The City would much rather government borrowing costs went up of course, but charts like this one (click to enlarge):
have convinced them they’ve been sidelined. They don’t believe the Bank of England when it says that all this is an effort to keep inflation as near to 2% as they can. Frankly nor do I. But it would certainly be good if the City began to realise that they’ve been rumbled and, in the matter of government money are not actually in the driving seat.
The Independent has understood in a piece by their Ben Chapman in what must be the best economic commentary in a newspaper ever since the beginning of the Covid crisis:
In these uncertain times, there are billions of pounds of savings ready to be pumped into the safety of government bonds. This is not a burden on future generations, as the chancellor has suggested.
In any case, every pound that the chancellor has spent in the past year has been matched by a pound created on a keyboard by the Bank of England. There is no reason to believe that the government will ever pay it back. It is money we owe to ourselves. There is no chance that the government will go bust.
Despite £450bn of new money created this year at the tap of a button, inflation has remained low. Why?
What this crisis has demonstrated is that a better measure of the government’s ability to continue spending is not the total level of the public debt, it is the productive capacity of the economy into which public money is spent. There is no reason that this capacity should be permanently reduced by a temporary crisis, but that is exactly what will happen if the government does not grant more support to businesses in need.
That the UK’s future is dependent on a Chancellor who was an ex Goldman Sach’s banker is unfortunate. He really does need to be told by the rest of the Mainstream media that money creation is no obstacle whatsoever to the protection of a functioning economy.