Britannia Radio

First today's Telegraph on 'QE' .  In these difficult times surely it  
is the height of foolish optimism to “hope that the eventual effect  
of the injection will be - - - - - [to] encourage investors who  
receive the money to go out and spend it in the economy”.  Most would  
be more likely to keep it under the mattress - or wherever  squirrels  
bury their nuts - against an even worse crisis!

Then O'm glad that the Tories are pressing for a proper debate.  The  
story and exchanges with the Speaker were given on the blog!

The final item -regarding Osborn’s speech later today  - shows that  
Inch by painful inch Osborne edges towards talking sense. The public  
still don;t comprehend the near terminal crisis we face.
See Iain Martin today in Telegraph  (already sent out)

This is a non-technical recital of the truth - the hard truth which  
we all must face and the sooner the better. Martin ends with the crux  
of the whole political situation “After a decade of being lied to, I  
suspect the Tories would be surprised at how eager the country is for  
truth.”

I think Osborne is sitting back playing for time - - disguised as a  
Baldrick 'cunning plan' of keeping his powder dry.

Things move so fast that specific policies would be silly. But he  
must come clean NOW and tell people how bad things are and stop  
supporting criminally dangerous government policies like QE [which  
gives away 10% of our entire national income on a monstrous gamble)

Why is nobody suggesting that major cuts in taxation AND spending  
would be vastly less risky and would not incur the same massive debts  
for the future and would stimulate the whole economy.   If interest  
rates were raised again savers - and NEW savers - would sdtrart  
saving again.  This despair makes everything grind to a halt!

XXXXXXXXXXXXXXX CS
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TELEGRAPH                 6.3.09
Printing money: £150 billion leap in the dark for Bank of England
The Bank of England has taken an historic "step into the unknown" by  
pledging to create £150 billion of cash and pour it into Britain's  
stricken financial system.

    By Edmund Conway, Economics Editor

It pledged for the first time in its 315-year history to start  
effectively printing money as its main means of controlling the  
economy, warning that this was the only way to prevent the UK from  
suffering a lengthy recession and potentially becoming mired in  
deflation.

The move means that for the first time, interest rates are no longer  
the primary tool for monetary policy, with the Bank instead directly  
pumping cash into the system.

The Bank announced the radical step after cutting rates by half a  
percentage point to an all-time low of 0.5 per cent yesterday - the  
lowest it judges they can go without causing the entire financial  
system to malfunction.

The decision to create more cash, announced by Bank Governor Mervyn  
King and the Chancellor of the Exchequer Alistair Darling yesterday,  
is regarded as a last gasp measure for the authorities to prevent  
Britain from sliding into a 1930s-style depression.

However, with little evidence that so-called quantitative easing has  
succeeded elsewhere in the world, experts voiced fears about the  
consequences of these "nuclear" economic measures.

Some fear that this extra infusion of cash will generate a tidal wave  
of inflation some years in the future, consigning Britain to many  
years of either high inflation or perhaps even Zimbabwe-style  
hyperinflation if left unchecked. Others voiced worries about the  
economic legacy the unprecedented move will leave future generations,  
with the economic policy textbook having been torn up amid the  
current crisis.

The Bank's own Monetary Policy Committee member Andrew Sentance has  
described the new post-interest rates world as representing "a step  
into the unknown". Under the new system, the Bank will keep interest  
rates at this close-to-zero rate for the foreseeable future. It will  
instead attempt to boost the economy by buying a variety of assets  
such as corporate and government debt from investors such as pension  
funds and insurance firms.

Importantly, however, it will pay for these assets not with a pre- 
raised cache of funds but by creating new money and transferring it  
to the investors. Mr King said the Bank will create up to £150  
billion of cash to spend on the scheme, with the first £75 billion to  
be spent in the next three months, starting next Wednesday. The total  
is equivalent to just under £5,800 for every household in Britain.  
However, should the scheme fail to spark any growth in the economy,  
the amount it will spend is likely to soar even higher.

"The world economy has turned down very rapidly since last Autumn,  
the amount of money is not growing at all, and the economy is in a  
recession, so we need to increase the supply of money," said Mr King.

The effect will be to funnel a significant amount of money directly  
into the financial system. Although the £150 billion is a significant  
figure, equivalent to just over a tenth of Britain's entire annual  
economic output, the Bank hopes that the eventual effect of the  
injection will be far greater since it will encourage investors who  
receive the money to go out and spend it in the economy, helping  
bring the credit crunch to an end.

The Bank has had a team of ten experts working on constructing the  
scheme just before Christmas, as it became increasingly obvious that  
interest rates were failing to stimulate the economy.

Graeme Leach, chief economist at the Institute of Directors, said:  
"We strongly support quantitative easing and think it will be most  
effective if the Bank is aggressive in its use.
"Markets need to see a shock and awe approach over the coming months  
but even then there is no guarantee of success."

Although America's central bank, the Federal Reserve, and the Bank of  
Japan, have undertaken to use these radical policies as well, the  
Bank has distinguished itself by taking what it considers to be a  
deeper and further step than any of its counterparts. Nevertheless,  
there are doubts over how successful the Japanese were with their  
money creation, while it remains too early to judge the Fed's success.

Barely more than an hour after the Bank's announcement, the European  
Central Bank cut its own interest rate by half a percentage point to  
1.5 per cent and indicated that it will keep cutting borrowing costs  
and may soon embark on similar unconventional policies.

Tony Dolphin, senior economist at the Institute for Public Policy  
Research said: "Such a policy has never been tried before in the UK,  
so it is impossible to gauge the likelihood of its success. But  
desperate times require desperate measures and with the UK and global  
economies in the midst of their worst recessions since the War, and  
in the absence of inflation pressures, it is right that the Monetary  
Policy Committee is doing everything in its powers to support  
economic activity."

Charles Goodhart, a former MPC member, said: "We're moving into a new  
world in the UK from interest- rate adjustment to quantitative  
easing. It's a great deal more uncertain how things will be done.  
This month what the MPC says is going to be much more important than  
what they do."
\
Mr King pledged that as soon as the policy appears to be effective he  
will reverse it by selling off the assets and effectively destroying  
the £150 billion the Bank is creating in the coming months. However,  
many economists are sceptical that the Bank and Government will be  
able to resist the temptation to allow inflation to run out of control.
======================
CONSERVATIVE HOME Blog         6.3.09
Tory MPs lobby Harriet Harman and Speaker for debate on 'quantitative  
easing'

Alan Duncan, Shadow Leader of the House at Business Questions, and  
Anne Main, Julie Kirkbride and Christopher Chope later, all pressed  
yesterday for full parliamentary scrutiny of the Bank of England's  
momentous decision to start printing £75bn of extra banknotes: [It’s  
about time the Commons stopped going on holiday and did their job of  
“holding the government to account” -cs]

Alan Duncan: "Why are we not being given a statement, even today, on  
the economy? Can we not have a statement from the Government and a  
full debate on quantitative easing, so that Members can question the  
Government on how they intend to steer a course through inflation and  
deflation? The decisions being taken today are of the utmost gravity  
and will have profound effects on the economy for many years to come.  
They are desperate measures designed to address economic failure and  
collapse. When can we be told in clear terms exactly what the  
Government are doing and why?"

Harriet Harman: "The hon. Gentleman asked for more opportunity to  
discuss the economy. There will be a written ministerial statement  
later today about the decision by the Bank of England’s Monetary  
Policy Committee to ensure that the inflation target is met and that  
the economy does not fall below that target by putting extra money  
into the economy, which is described as quantitative easing. There  
will be an opportunity to debate the economic situation in Government  
time next Monday, as well as an Opposition debate on Tuesday on  
unemployment and a debate on business rates on the following  
Wednesday. On Monday week there will be a debate on industry and  
exports and on Tuesday week there will be a debate on the Welfare  
Reform Bill. There will be a great deal of further discussion on the  
economy in the next week or two."
======================
FINANCIAL TIMES            6.3.09
Tories stress fix for ‘broken economy’
    By Jean Eaglesham, Chief Political Correspondent
[This partial account of what Osborne WILL say today may accountr for  
some of the frustration that it engenders in me !  We’ll have to wait  
and pray -cs]

The Conservatives will propose reform of corporation tax on Friday in  
a significant shift that reinstates fixing the “broken economy” as  
the priority for a Tory government. George Osborne, the shadow  
chancellor, will use a major speech to ditch David Cameron’s  
suggestion that economic issues did not take priority over mending  
the “broken society”.

The Conservative leader’s stance, such as his March 2007 assertion  
that “it’s not economic breakdown that Britain now faces but social  
breakdown”, has been overtaken by the recession.

Mr Osborne will set out a new approach, calling for substantive  
changes to corporate and individual attitudes to achieve a new growth  
model, powered by savings and “real returns on effort”, rather than  
growth.

“Our economy is broken and Gordon Brown’s sticking plasters won’t  
mend it,” he will tell a Birmingham business audience. In an effort  
to massage voters’ expectations of what a Tory government could  
achieve with the dire public finances it is likely to inherit, Mr  
Osborne will warn of the need to “confront some uncomfortable truths”.

“Britain is going to have to work hard and save hard to get out of  
this hole. The Conservatives are ready to tell people these home  
truths, and the country is ready to hear them.”

Mr Osborne will suggest these “home truths” include the necessity of  
“difficult reform” to the public sector by a government that “can’t  
just spend money on every worthy cause that comes knocking on the door”.

His speech reflects a belief among Tory strategists that voters’  
attitudes on tax and spending are being shifted by the recession.  
After more than a decade in which voters punished any party seen to  
threaten lower public spending and were tolerant of higher taxes,  
poll evidence suggests people now want a more austere approach from  
the state.

Mr Osborne will call for behavioural changes from companies as well  
as individuals.

He is expected to use the speech to signal a rebalancing of  
corporation tax to remove an incentive for companies to borrow. He is  
considering fiscally neutral reforms to end the system of offering  
tax rebates for debt but not equity finance.

Tax experts warned any loss of tax relief on debt finance would be  
unpopular with companies that lost out. The nature of the reform  
could also have a significant effect on Britain’s attractiveness as a  
corporate base.

“Most economists would agree that getting away from a bias in favour  
of debt finance is a good idea,” said Stuart Adam, senior res-earch  
economist at the Institute for Fiscal Studies. “The question of what  
you do about it is a more difficult one . . . There isn’t really a  
consensus.”