The role of Quantitative Easing

This post is part of “The role of…” series that I am writing to describe an immoral and unstable monetary system that drives all human activity to service debt. This post will highlight a key process used to currently prop it up.

Quantitative Easing (QE) has been implemented by 4 of the world’s most prominent central banks (FED, BoE, ECB, BoJ) since the economic crash in 2008. But what is it? A common preconception is simply the government prints bank notes and uses it somehow. Mainstream media attempt to explain it as pumping money directly into the financial system to encourage lending. The Bank of England whose laughable motto is “Promoting the good of the people of the United Kingdom by maintaining monetary and financial stability” describe it in slightly more detail:

  1. QE is a tool used by our Monetary Policy Committee (MPC), where the Bank purchases assets such as gilts or corporate bonds.
  2. QE operations are carried out by the Asset Purchase Facility, and are financed by creating central bank reserves.
  3. The aim is to boost economic activity, keeping the UK on track to meet the Government’s 2% inflation target.

Below is a chart that I composed via data published by a UK government department called the Debt Management Office (DMO). It shows the huge purchase of government gilts/bonds (debt) by the BoE beginning in 2009 Q1 as shown by the light blue line. To date this currently totals £435bn!

ukBondHoldingsChart

The following options are available to financiers to achieve their goal of debt collection via the monetary system:

  1. Lend more but demand austerity.
  2. Do not lend more and take the assets.
  3. Suspend/Write off debt but demand austerity.

I shall expand on this further on a future post, “The role of Money”.

So its time to explain my take on QE. Does QE reflect any of the 3 options above? Option 2 does not seem to be the case. Option 1 seems close, central banks after all are lenders of last restort and to date it seems that they have lent the government money by purchasing their debt. We have then been told by our government that austerity (massive cuts in public services) has to be implemented because we as a nation have been living beyond our means, spending more than we can afford. However the aim of QE as stated by the BoE is to “boost economic activity” which basically means they want an increase in spending, that is a massive contradiction! However as explained in another post money is produced as debt plus interest the only way existing debt can be serviced is with future debt (spending). Its the sole reason why our governments require economic growth!

Option 3 has not been suggested in the media, however the following links suggest a portion of debt payments have been suspended.

  1. when you drill down into the accounts you find out it is!!!!!!!!
  2. Richard Duncan (economist) explains QE debt suspension/cancellation here.
  3. interest payments to BoE held bonds are being paid back to the government.

Let me explain the above. As a result of QE we are in a nonsensical position where a government body, the BoE has purchased a mixture of existing and newly issued government debt totaling 20% of current debt. Essentially the uk government owes itself £435bn! By this action they are stating to investors that the UK government cannot service this debt (pay the interest and potentially principal). The BoE has in affect suspended £435bn of debt, interest payments are being paid back to the government. Total cancellation will only occur if upon debt maturity the principal is not demanded back, now the question is will that happen?

How does the government service its debt? Through further borrowing and taxation, which the people have to pay via the capitalist system. One way is via income tax. So essentially government debt is actually another form of the people’s debt, we all have to attempt to pay it off! The financiers are therefore conceding that this process of stripping the Earth of vital resource to be manufactured and sold cannot create enough debt to service previous debt! Far from being a sovereign debt crisis just in Greece its all over the world. This debt suspension has been applied to the US, Europe and Japan to. Unfortunately the same process has not been applied to all countries and instead further loans have been forced on countries by the IMF.

If this is made clear to the public and the resulting implications set out below then the consequences of this on the corrupt financial elite could be massive.

  1. This is an admission the system is massively broken, there is no way that debt can be serviced by the people under this capitalist and monetary system.
  2. I assume when the bond matures the principal will not be paid back either. If huge percentages of debts of the richest governments can be wiped away just like that why can’t this be done for the poorest who have not a chance in hell of paying back IMF/World Bank loans. Also why do we require austerity then?
  3. In effect interest free money (and potentially completely debt free) has been pumped into the system in an attempt to stabilise an inherently unstable system. (Has this ever happened in history? where money is now electronic fiat this can easily be done. It doesn’t require stealing, digging out of the ground, minting or printing any more.)
  4. After huge amounts of money creation high inflation/hyperinflation under conventionally taught economics is a natural consequence. This has not happened in the West, why? Huge amounts have been invested in the stock markets which should mean an increase in wages which would lead to more borrowing and higher inflation but this has not happened so what has it been used for? Was the QE money used to pay towards previous debt and now held in secret offshore bank accounts by the creditors?
  5. Pension funds may seem fine now but as they are now invested in riskier areas the next financial bust will make the black hole even larger than before. Potentially unpluggable!

Along with QE, interest rates have been slashed causing lower mortgage payments but people think instead of saving, lets spend! Its the capitalist message that has infected and created this materialist consumer world, you only live once so buy something now that will make you happy! Just remember money has to move up the chain to eventually pay interest, that’s the only reason you are required to spend!

So to conclude QE is just a stop gap until another crisis hits and potentially a new monetary system is ushered in just as Bretton Woods was imposed while thousands were dying during World War II or the Petrodollar system post the 1973 oil crisis.

Author: pursuitofsatya

In pursuit of truth

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