Quantitative easing – I.Doubt.It

Ireland’s government is considering making a deeper fiscal adjustment than planned next year in a bid to further distinguish itself from Greece and build on its recent bond market rally. – Reuters

Ah yes. I think they call that “masochism by proxy”. Our government stands ready and willing to show how much we can suffer.

The UK has taken a rather different approach, one not open to us as Euro members. “Quantitative easing” they call it. Sounds like a euphemism for a good solid dump, but it actually disguises something even more unmentionable – what they used to call “printing money”. Of course, they don’t actually print the stuff these days. Who uses cash, darling? Somewhere in some secret turret of the Bank of England, they push a button and simply magic £75 billion into existence.

Doesn’t seem right, does it? If you like, you could think of it as the B of E simply raising its own credit rating and lending itself that £75 billion. But if it’s a loan, who does it have to be paid back to? The future? An alternative universe maybe? I think it’s best to just grit your teeth and accept the reality. Money is fictional. What the B of E has done here is simply made some more up.

Yes, fictional. Money is nothing except what we pretend it is – not even power. Power after all is the ability to make other people do what you want, and money only has that effect if we all play the game, doing what someone else wants in return for mere tokens in the knowledge that other people in their turn will do what we want to get them. If you think about it too much it seems like an utter house of cards. Why do we go along with it – especially we who don’t have so many tokens to begin with?

Well, the only non-fictional way to make people do what they don’t want to do is the threat of direct physical violence. So playing along is preferable to that. Plus it’s hard to see how anyone could be scary enough to organize a whole society through intimidation, certainly not one of any real size.

The other thing that bothers people here is, who owns this £75 billion? Actual wealth like a resource is still there even when it goes unclaimed and unexploited, but money only exists by virtue of someone having it (and someone else wanting it). So when a government just wishes billions into existence, whose exactly are they?

Well the Bank of England gets to spend it, so I guess it’s theirs. What they do though, mostly at least, is immediately use it to buy government bonds. Not from the government, I hasten to add. Modern economics is insane, yes, but it hasn’t quite reached the point where a government invents money to buy the bonds it invented from itself. No, they buy them from people who have invested in them, thereby making those investors’ assets liquid again so that they can spend, spend, spend. Which is good for the economy.

Or so Tories always say when they need to justify the transfer of public funds to private friends.

Will it work? I’m not so sure. When a government makes money up they are unilaterally modifying the rules of the game. Or cheating, as we once called it. This may encourage other people to get creative too. Will markets play fair with the UK government, or will they say that this new stuff just isn’t as good as the old, and they need some more please?

I know where my fictional money is.