The people who started QE are now members of the committee criticizing QE
After the Economic Affairs Committee of the House of Lords issued a rather nasty report, the Bank of England will be a little angry this morning. From Valentina Rome, an economics reporter at the Financial Times:
After an in-depth investigation into quantitative easing (the central bank’s attempt to stimulate spending by creating money and injecting it into the economy by purchasing assets), the House of Lords Committee on Economic Affairs stated that the Bank of England did not provide sufficient reasons for it. Flagship policy.
The committee’s report will sting Threadneedle Street because one of the authors is former Bank of England Governor Mervyn King, and the other is former Treasury Chief Economic Advisor and World Bank Chief Economist Nicholas Stern.
Yes, you are right. It was Mervyn who introduced controversial policies during his tenure at the bank and is now laying the groundwork for his successor. We want to know what Merv has to say about Lord Forsyth of Drumlean, Chairman of the Economic Affairs Committee, that the bank is “obsessed with” bond purchases. shocked……
The committee accused the bank of facing too few problems and acting too little to justify the use of quantitative easing, despite its “dazzling” scale. At the same time, we went back to the past press conferences from the time. The governor’s sharp rebuttal is almost unheard of. During his time at the helm, the bank was not known for its openness.
To be fair, we are now in a very different position than when banks first started buying bonds in November 2009. The £895 billion stock is also quite high. Most importantly, more than a decade after the introduction of quantitative easing in western developed economies, quantitative easing can no longer be regarded as a panacea for solving macroeconomic ills.
We think the central bank is right to use it. But there is no doubt that it has increased inequality by raising asset prices, while wage growth has been stagnant. We also believe that during events such as the pandemic, the reasons for using it as the main lever for economic decision-making are far less than when the world fell into a banking crisis. At the time, quantitative easing was critical to alleviating market tensions and keeping lenders in business. This time, the banking system is in relatively good health.
However, we believe that no central bank governor claims that quantitative easing is a panacea. There is consensus that fiscal policy now needs to play a bigger role. The direct transfer from the state to the workers is indeed the main feature of economic policy in response to the pandemic. The question is more whether quantitative easing can supplement these fiscal transfers, and whether doing so poses the risk of jeopardizing the central bank’s independence from politics. In the end, they are fair. It doesn’t matter if the person who asked them also played an important role in the beginning of the whole thing.