Quantitative Easing

A polite way of saying the Government's printing presses are churning out new money.  Now if I tried printing new money I would be put inside for forgery - for debasing the currency.   Wonder if my bank would oblige if I called and asked it to QE my account by adding some new money.

Of course, no new money is printed . The Bank of England electronically creates new money which it then uses to buy assets such as government bonds, or gilts, from banks. In theory, the banks then use the cash they gain to increase their lending to businesses and individuals.  The fact is that this is not what has happened in the past.  Banks have held on to the new money in order to build there assets and with exposure to sovereign debt may need to continue to hold on to it.

I am not convinced this latest round of QE will do anything, other than increase the rate of inflation.

I like this quote from Jeremy Warner's article (link below):

By switching on the printing presses, the Bank of England, which is 100pc owned by Her Majesty's Government, is buying up a third of the debt owed by Her Majesty's Government. The Treasury is becoming ever more in debt to itself. It's as strange as that.

QE1 was in the order of £200 billion.  The latest round (QE2) is an additional £75 billion. Some economists argue that QE will reach eventually  £500 billion.  These are huge sums.

Now I am not an economist, so I will defer to anyone who can explain the following to me:

• Why not use QE to reduce the Government's deficit rather than inflict a range of 'cuts' which depress demand as jobs and services are lost?
• Why not simply use the money for major infrastructure projects rather than the tenuous route through the banks?

Links:

http://www.telegraph.co.uk/finance/financialcrisis/8812260/World-facing-worst-financial-crisis-in-history-Bank-of-England-Governor-says.html

http://www.telegraph.co.uk/finance/comment/jeremy-warner/8812051/Bank-of-England-hits-the-panic-button.html

http://www.telegraph.co.uk/finance/financialcrisis/8811210/Quantitative-easing-by-the-Bank-of-England-printing-more-money-wont-work-this-time.html

http://www.telegraph.co.uk/finance/comment/damianreece/8812247/We-know-were-in-trouble-Sir-Mervyn-now-we-need-government-action.html