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July 07, 2012



"It would help weaken sterling,"

And this would be disastrous for inflation and thus household income.

Surely what the UK needs more than anything is for some real wage growth. It isn't going to come from much higher nominal wages so needs to be driven by lower inflation.

Arthur Doohan

Buying debt (your own or other countries/banks) and thereby sustaining the notion that underlying assets are fairly valued is a futile exercise as has been repeated demonstrated by the umpteen previous attempts over the last 5 years.

1) improving bank solvency has not led to any noticeable increase in bank lending anywhere...because it is 'pushing on string', there is little demand from consumers or industry and the problems of valuation and debt/equity ratios remain.

2) resolving the 'euro crisis' does not automatically put is back on a growth path (regardless of whether such a thing is feasible).

3) It might weaken sterling temporarily but the 'position' would have to be unwound at some point...

4) Lastly, as you rightly point out, we are in a 'globalised economy' and therefore unilateral actions are likely to be insufficient in scale to have effect.....

So, I like the spirit of your contribution, admire the Swiftian hat-tip but doubt its efficacy

Warren Mosler

Good comments!
The ecb has to do it and address the moral hazard issue to the members' satisfaction

Account Deleted

We should invest in a smaller economy than Spain or Italy, as that way our intervention would have a greater local effect. Perhaps Greece would be suitable.

Instead of buying government bonds, why don't we cut out the middleman and just buy the rest of the Parthenon? Completing the set would surely boost the value of the asset.

The serious point is that the political barriers would be greater there than here, as Bild found when they suggested something similar in 2010.


It's ironic that macroeconomists spent so long thinking about how to escape a "liquidity trap" - and the deflation they presumed would be associated with it - only to find that reality at the zero bound has been anything but deflationary - in the UK at least. Leaving people with a great fear of the inflation monster, per Shinsei's comment above.

Anyway - right on, Chris! If we do this it would be best to follow Lars Svensson's "Foolproof Way" and couple an explicit CPI level target with a crawling peg on Sterling, thereby raising inflation expectations and lowering long-term real interest rates. The paper is very accessible:


Luis Enrique


Well there's the inflation monster and then there's deteriorating terms of trade. Currency depreciation in an economy so reliant on imports is no joke. I can't see why it would be accompanied by offsetting wage inflation.


Chris, you are the modern Alexander confronted with the modern Gordian knot.

I especially like the part in which the ECB and the Bundesbank would be completely unable to retaliate to prolong the recession, bound as they are by their ideologies.


(Your point is similar to Dani Rodrik's. As paraphrased by Cosma Shalizi, Rodrik says in "The Globalization Paradox: Democracy and the Future of the World Economy" that we - the world - will have to stop pursuing at least one of 'deep' globalization, national sovereignty, or democracy.)


Devaluation helps reduce the NIIP deficit, right? So another potential plus point there, from a UK perspective.

Richard Jones

You say "the fact that we suffer no material loss from conjuring money out of thin air", but is that really true? I am no economist, but I thought that printing this money devalues every pound in our pockets by some small amount, in effect a very spread out wealth tax?


And when the Euro fails despite all the effort going into saving it, that money just disappears, leaving the UK with yet another large hole in the public balance sheet.


Luis Enrique

Richard Jones,

what does "devalues every pound" mean? it means each pound is able to purchase fewer real goods and services. The measure of that is inflation. If printing money causes inflation, it devalues pounds, if it doesn't, it doesn't. Check inflation data to discover which is the case.

[and why do we care about devalued pounds, so long as our nominal wages increase proportionately, and we can receive interest on our savings that exceeds inflation?]

Richard Jones

Well I thought it was pretty obvious what I meant by "devalues every pound" but I'll spell it out: There are a certain number of pounds in circulation. If you increase the supply of pounds, then the "price" of each pound goes down, relative to other currencies which are not doing the same thing.

While the UK economy self-contained might be able to bounce along for a while like this, it would reduce my ability to buy tablet computers from abroad, and eventually impact anyone who imports anything or relies on any item that is made from imported components. This is separate from inflation, because it may well be that people for whatever reason are prepared to go without and won't ask for increased wages, and shop-keepers won't put up their prices. Or vice versa people might demand increased wages because they can even when there is no QE.

So there's my question: Do we in fact "suffer no material loss from conjuring money out of thin air".


Richard, yes, it is correct that it will take more pounds to buy a tablet computer - but won't we have more pounds knocking around with which to buy said tablet computer?

Nathan Gold Scammer

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your post. Thank you a lot and I'm having a look forward to touch you. Will you please drop me a mail?

Nick Leverton

Hah. I thought of this wheeze too but havn't been near the blog for months to comment. It is a perfectly capitalist thing to do to buy debt at a discount. When half the money we are buying back is ours anyway (Santander etc), is it not the obvious thing to do ?

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