Quantitative Easing

The US Federal Reserve has announced that it is to apply 1.15 trillion dollars to the purchase of long term US Treasury Bonds as the latest move to repair damage to the banking system. This involves the creation from nowhere of the necessary funds in order to increase the volume of money in circulation. They are seeking to make good money irresponsibly created by banks without proper regard to security and with the consequences that are plain for all to see. Something similar on a smaller scale is already being done by the Bank of England.

However this operation is wrapped in opaque terminology like ' quantitative easing ' what is being done is printing money.We are potentially back to the days of what Dennis Healey, a former UK Chancellor of the Exchequer, described as confetti money.

This may hardly affect the very elderly depending on how long they have to live. For the very young and the not so young it is a serious matter although the consequences will be disguised. The number of noughts in the account will remain unchanged but the purchasing power will not.

For the latter, money in the bank or under the bed is not a good idea. The odd Rembrandt or even a house ( in the long run) may be a better alternative. Anything is desirable whose paper value will appreciate as the purchasing power of currencies declines.

Taken to extremes governments would be able to discharge their debts by printing money. It is not likely to happen to that extent.For one thing China and Japan hold vast reserves of dollars. For the value of their holdings to be eliminated in this way would not be regarded with favour. There must be a limit which they could tolerate with equanimity for the general good.

Already banks are being allowed to hold balances belonging to the public at zero or little cost.That is a liberty considering the rates at which those funds are being employed. There is even talk of banks charging to hold deposits which happened at one time in Switzerland. If that were to be done at the same time as currencies were being debauched it would be difficult to avoid suspicion of fraud.

Governments are fondly imagined to have the safety and well being of their citizens as a first responsibility.In recent times it has been difficult to see even a common interest.













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