Make mine Quantitative Easing please

The Tax Justice’s Network ran a blog on Thursday answering the journalists’ typical question (drawing, as usual, on journalistic domestic household experience) about additional government expenditure: “How are you going to pay for it?”

Long ago I tried to persuade my MP, who sits – I should now say used to sit – on the Health Select Committee (all of whose members were concerned at the mounting lack of resources being provided for the NHS) that he should suggest Quantitative Easing for the NHS. He didn’t, worse luck.

But if he had, I think it would have been a pretty easy ride. It might go something like this.

Journalist: Where will the money come from to pay for these extra resources for the NHS?
Response: Quantitative Easing.
Journalist: But isn’t that just for banks?
Response: Who said that?
It was provided as it was regarded as essential to the country’s survival. So it is not any different for the NHS.
J: How much do you need?
R: 4 or 5 billion.
J: That’s an awful lot.
R: Compared with the 435 billion for the banks it’s nothing.
J: When will it be paid back?
R: In the future possibly – but probably never.
J: How can you not pay it back?
R: in the same way as the banks have had ten times as much rolled over for the last 10 years. Which they’ve never paid back and are extremely unlikely to. And they are Private Companies.
J: But we cannot do it for everyone.
R: Well if you cannot do it for everyone we must ask the private banks to pay back our government’s money because we need some of it for the NHS.
J: But the banks are essential to our economy.
R: So are you saying the NHS is not essential to our economy?
J: Well not exactly. But it is a lot of money.
R: But just a tenth of what the banks are getting. And that is to provide extra care for everyone in the UK and not just for City financiers.
J: But the economy has to prosper in order to pay for the NHS.
R: Well we know it isn’t prospering if we can’t afford to pay for the NHS, so we need either some extra QE for the NHS or for the banks to pay back some of theirs – you’ve already admitted the economy isn’t prospering so clearly City QE isn’t working for the general economy. Use QE for the NHS and GDP would be bound to improve – by definition.

At the very least what could be called the QE response to the “How are you going to pay for it?” question should begin to frame a different discussion and shine a bright light towards the true origin of money.

But is John McDonnell – or indeed any politician – listening?

Posted in:Posted in: Money


  1. Richard Murphy -


    I wish John was listening

    Jeremy did for 15 minutes

    John was entirely wedded to the deficit narrative


    1. Peter May -

      Thanks, Richard. How very disappointing.

  2. Martin Kilgariff -

    Peter are we being a trifle elastic with the truth. Surely it would be more accurate to say that QE was paid through the banks rather than to them.

    QE was an asset swap – Bonds owned by a Pension funds with new money created by the BoE.

    The central bank reserves were created and credited to Bank account at the BoE of the bank which had the Pension companies account, and a matching credit was posted into the Pension companies account with that bank.

    When the Pension fund went and bought more Gov bonds (and they did in spades), the Gov would issued the bond and the Pension company paid the Gov for them from it’s Bank account – initiating another transfer of central bank reserves at the BoE from the Banks account to the Gov account at the BoE.

    At the end of the day it was the Gov’s account at the BoE which received this newly created money.

    Or at least that is what I understood to have been the mechanism!

    1. Peter May -

      You obviously have more knowledge of the method than I do – but I’m pretty certain the method is primarily in order to circumvent EU rules.
      The point to me is that:
      1 It was newly created money which was not ‘in the warehouse out the back’ – ie was created out of thin air.
      2. The banks are unlikely to have survived – or even still to be surviving (at least whilst still keeping their big business customers) – without it.
      3. It isn’t going to be paid back any time soon and probably never.

      So the conclusion is that money is not limited because we are on, say, a pseudo gold standard, but only because the government has decided it should be limited.
      We could therefore create money for the NHS, Education or wherever needed subject really only to limiting inflation.
      The idea was to acknowledge that by accepting the idea of QE, it must also necessarily be accepted that there was free money.

      1. Martin Kilgariff -

        The following article from 2010 is quite a good primer on QE –

        It includes the following passage:
        “The mechanism by which the Bank bought government debt was convoluted, for operational and legal reasons. On any given morning the debt management office (DMO), an arm of the treasury, sold billions of pounds worth of British gilts to the world. Then in the afternoon, barely 400 metres away, the Bank held a reverse auction where it, in effect, bought up billions of similar government debts. Under EU rules it would have been illegal for the DMO and the Bank to trade with one another. So instead the City stepped in, making profits on trading both sides of this bizarre monetary merry-go-round for over a year.
        Some of the commercial banks saw it another way. Appearing before the treasury select committee in January, Stephen Hester, the chief executive of Royal Bank of Scotland, was asked how RBS had been boosted by QE. He replied: “Quantitative easing so far has taken the form of the government effectively funding its deficit by printing money.”

        The only real point I was making is that the banks don’t have the new money for themselves, but they’ll be holding it on behalf of a customer, so their is no reservoir of QE money given to the banks which can be returned.

        That said the banks make lots of profits from handling the money passing through it’s hands as well as the interest it sucks out of the economy on created credit, so the bank levy needs to be maintained (not cut as planned) to raise the 2.5bn it was supposed to raise from their bloated profits (on which corporation tax has been cut from 28% to 20% now and 17% in 2020).

      2. Peter May -

        Many thanks for the link – I’ll take a look!

      3. Peter May -

        I see where you are coming from. I still do think banks have actually bought some of these bonds which I understand they then loan out to big companies who ‘borrow’ them when they have large deposits to bank. As the bank guarantees are only for personal cusomers not corporate ones. I agree they cannot be compulsorily taken back but as the bonds were issued as short term debt and I understand most have already been renewed once, the ‘threat’ would have to be to fail to renew them and use the money instead in the NHS or wherever.

      4. AMcG -

        “the banks don’t have the new money for themselves, but they’ll be holding it on behalf of a customer”

        Bank deposits become the banks money as soon as they are made. The bank assumes the liability to repay the customer but the money becomes theirs. That’s what happens with all bank deposits. QE didn’t stay in the banks of course some of it was used to buy bonds and some to buy other high value assets and according to the Economist a lot was bet on emerging countries in Africa. But I don’t think anyone expects it to be paid back. Clearly if the government called in the debt all at once the banks would simply crash again. There was obviously increased liquidity when the QE money arrived in the banks’ accounts. But I don’t think it is there now.

      5. Peter May -

        Quite so. Thanks too for the additional info.
        And the banks, if they bought any bonds, create the money to do so. If they then sell the bonds, they get their money back that they’ve just created to buy them. Nice work if you can get it.
        I think it is correct that the bonds could not be ‘withdrawn’ but they could just not be renewed. Or at least the threat would be not to renew them. As the money is already in the system actually not renewing them is unlikely to be advantageous unless the economy is very much more vibrant than it is now.
        in the end I was just hoping that the suggestion of not renewing would be a way of highlighting where money comes from and that QE for the NHS would be just as feasable and legitimate as QE for the City.

  3. Mark Crown -

    Love it – thank you Peter.

    As Richard has advocated, we’ve had QE for the banks, now normal people need some too.

  4. Tim -

    I really wish I could get my head round this so that I could explain it.

  5. Tim Worstall -

    The banks didn’t get the QE money. Martin is correct.

    the banks did get the Special Liquidity Scheme and so on. And that has been paid back.

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