The new money 'printed' by the Bank of England is going towards buying back the gilts it issued. Official figures show that more than a third of gilts are owned by foreigners. So much of this new money, perhaps even all, will leave Britain. It will not serve as a stimulus to the economy because the foreign holders, aware that we are printing new money, will want to be out of sterling and into gold or the dollar. The move is likely to depress sterling even further.
So why are we doing it? It is whispered that the only effect will be to firm up the price of gilts, thus perhaps putting off the day when the government can no longer finance the massive debts it has committed us to. Gordon Brown is using our money to improve his credit rating and let him continue his policy of spending, perhaps until he is re-elected and can put up taxes.
The way to use quantitative easing is to send a cheque to each family in the country. Send them John Lewis vouchers. Get them spending.
A better alternative would have been to cut government expenditure on all but essential items and reduce taxes, but you can't see Gordon doing that.
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