Britannia Radio

It "may not work" they say but it will wreck the lives of everyone 
that has been saving for a pension  and all savers.  The only thing 
it is guaranteed to do is enable Gordon Brown to continue with his 
out-of-control spending thus ruining the lives of the next generation 
while they pay back Brown's excesses.

Then  Liam Halligan shoots down rthe whole justification for QE which 
he says is manna from heaven for inefficient banks.
xxxxxxxxx cs
========================
SUNDAY TELEGRAPH 8.3.09
1. Bank of England's £150bn injection may not work, economists warn
Economists have warned that the attempt by the Bank of England to 
revive Britain's fortunes by injecting up to £150bn into the economy 
is a high-risk strategy that might not work.

By Angela Monaghan

The concern centres on whether the banks will be prepared to lend the 
extra money sloshing around the economy to businesses and consumers, 
or whether they will choose to hoard the cash.

The programme's success will be judged by the extent that it boosts 
the supply of money and credit, the lack of which the Governor, 
Mervyn King, has described as the biggest single threat to the economy.

Fathom Consulting, set up by a group of former Bank of England 
economists, described the Bank's plans to buy Government debt and 
other assets with newly created money as "a step into the dark".

In a note it said: "It is very possible that the UK economy will have 
shrunk by between 5pc and 7pc in total by the time this recession is 
over.
"Is that really the sort of environment where banks are willing to 
expand lending? In such a nasty environment, earning 0pc on one's 
cash balances may be preferable to potentially earning much less by 
lending the money out. The crisp new bills could then simply end up 
gathering dust in bank vaults."

The economists conclude that the impact of the initial £75bn 
injection over the next three months is "likely to be modest".  [They 
will then panic and chuck the other £75 bn into the economy as well.  
Then the first lot WILL kick in and the second will trigger massive 
inflation. -cs]

The Bank will officially embark on the process, known as quantitative 
easing, on Wednesday by purchasing £2bn of gilts at an auction. 
Analysts warned that if the programme fails to improve conditions 
almost immediately, the markets may suffer another crisis of confidence.

Stephen Lewis at Monument Securities said: "The danger is that the 
authorities have set the bar of success too high. In claiming that 
quantitative easing will turn on the credit taps, they run the risk 
of despair setting in if it fails to generate a revival of bank 
lending."

Analysts have also suggested that despite being a big number, £150bn 
might not be enough to have sufficient effect, and the Bank may have 
to seek authorisation from the Chancellor to extend the programme.

Jonathan Loynes at Capital Economics said: "Even if bank lending and 
broad money growth increase, this may not translate into a 
significant rise in economic activity if firms decide not to spend 
the extra money.
"The upshot is that, while Thursday's adoption of quantitative easing 
is a welcome step, for now it does not alter our view that the 
economy will contract sharply this year, and perhaps further next year."
============= 
2, Quantitative easing is not the answer
Back in the late 1990s, economists like me who opposed UK single 
currency membership were called "bigoted" or "anti-European".

By Liam Halligan

So determined was the pro-Euro lobby to bury Emu-sceptics, it cast 
aspersions on the character of those who took an opposing view.
More recently, the same cowardly device has been used by deranged 
environmentalists. Anyone who dares to suggest "global warming" may 
not exist - that temperature changes could be driven by long-term 
climatic cycles rather than human activities - is dubbed a "denier".

That's an emotive phrase, used to describe anti-Semites who claim the 
Holocaust didn't happen. Rabid greens know that - which is why they 
use it. The idea is to undermine an argument not by providing 
conflicting evidence, but by insinuating that it's morally suspect 
even to hold such an opinion.

I mention all this because I've been on the receiving end of such 
tactics in recent days while doing broadcast interviews [ could they 
be on the BBC by any chance ? -cs] on "quantitative easing"(QE).

My character has been questioned just because I've had the audacity 
to argue QE will provoke serious inflation, making a bad situation 
much worse.
No matter that I have several centuries of policy evidence on my side 
- to say nothing of the compelling logic of common sense.

Printing money "is all about saving jobs" say my opponents. So if 
you're against QE, you're happy - even gleeful - to see decent people 
suffer the trauma of unemployment.

That's how we've got into the current situation - where history shows 
QE is nuts and almost the entire country thinks QE is nuts, but no 
mainstream politician has the guts to oppose it. The stage has, 
instead, been left clear for Gordon Brown to vandalise the UK 
economy, decimating our financial reputation in a vain bid to cover-
up his previous mistakes.

I'm not saying there isn't a problem. Last week, the latest CIPS 
(Chartered Institute of Purchasing and Supply) survey showed the UK's 
crucial service sector remains in trouble. Services are still 
contracting almost as sharply as they did during the final three 
months of last year. It now looks as if GDP has fallen 1.4pc during 
the first quarter of 2009, almost as bad as the 1.5pc drop when the 
credit crunch struck in earnest last autumn.

But check out  the increase in America's monetary base over the last 
three months. [presumably on a graph in the newspa[per but not - yet 
anway on the web -cs]  That near-vertical line on the right isn't a 
forecast - but the extent to which the US government has flooded the 
system with bail-outs and guarantees, expanding the money supply by 
as much in three months as it has in America's entire previous history.

And the comparable UK graph doesn't look much different.

But don't worry! Inflation isn't a problem. Despite massive monetary 
expansion, a 30pc drop in sterling that's pushing import prices up, 
deflation is the danger we face. New data shows food prices up 7pc in 
February and CPI inflation remains at 3pc - way above the Bank of 
England's target. Yet we're still "on the brink" of an era of 
prolonged Japanese-style price falls that threaten to lock our 
economy into terminal decline.

Does anyone really believe that?

City economists have been out in force lately, conjuring up the 
spectre of deflation. Would they be doing so if the banks they work 
for weren't desperate for "deflation-busting" soft credits from the 
Bank of England? Would they be arguing our monetary authorities had 
"no choice" but to expand the money supply by a further £150bn - a 
staggering 8pc of GDP - if much of that money wasn't going to end up 
in bank coffers, giving some of them a final (futile) chance to stop 
themselves being sucked under by the weight of their previous "sub-
prime" mistakes?

I leave it to readers to judge.

That doesn't mean we should "do nothing". On the contrary, for almost 
two years this column - often in strident tones, I know - has called 
for specific actions. We need to stand up to the banks, force them to 
"fess up" potential losses and let the weakest ones fold. Until that 
happens, and the inter-bank market reboots, credit lines will remain 
blocked and the UK will haemorrhage jobs.

We need to impose counter-cyclical reserve requirements, reverse 
Brown's tripartite regulatory structure and re-impose the Glass-
Steagall division between commercial and investment banking.

Doing all this is tough - and means tackling entrenched vested 
interests. Cutting government spending, and rebalancing our public 
finances, will also take grit and determination.

Little wonder, then, our political classes take the easy option and 
give us QE. No matter that investment will be stymied as the threat 
of double-digit inflation looms. No matter that savers will suffer.

For QE, and the price surge it will cause, will allow the UK, like 
some kind of post-Imperial banana republic, to inflate away its debts.

Am I allowed to say that? Or are such realities also taboo?