Yesterday, the Bank of England announced that it intended to extend its “quantitative easing” (QE – ie money-printing) programme by a further £75 billion, on top of the £200 billion programme initiated in early 2009.
From autumn 2008, a number of us on the Shadow Monetary Policy Committee, which is run by the Institute for Economic Affairs, advocated QE. The goal at that time was to prevent the money stock collapsing following the 2008 banking crisis and the regulatory response to it, thus preventing deflation from getting out of control, driving up the burden of household debts and inducing mass defaulting, which would drag down the banking sector even further.
QE worked in 2009. Deflation in the cost of living (the all-items retail prices index measure) peaked at just under 2 per cent (ie the price level fell about 2 per cent) in mid-2009. The money stock would have fallen something like 5-10 per cent without QE. Countries unable to deploy it experienced much worse money contraction and price deflation (in the case of Ireland, nearly 7 per cent deflation), and their banking sectors collapsed as a consequence.
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