Sunday, October 17, 2010

Bank of England to Embark on Its Own QE2

Bloomberg reports:

"The Bank of England will increase its emergency bond-purchase plan by 100 billion pounds ($160 billion) to aid the economy as the government cuts spending, the Centre for Economics and Business Research said.

"The central bank will also keep its benchmark interest rate at a record low of 0.5 percent until at least “late” 2012, the London-based group said in an e-mailed statement today. The bank kept its stimulus plan at 200 billion pounds this month.

"Britain faces the largest public spending cuts since World War II as the government tackles the record budget deficit. The British Chambers of Commerce earlier this month backed a call by policy maker Adam Posen for the central bank to expand its bond stimulus plan as recent data indicate the recovery has slowed.

"“We expect the authorities to push the monetary policy levers hard in the opposite direction to the fiscal policy levers,” the CEBR said in the statement." [The article continues. h/t 'mizesaw']

So as the UK government tries to remedy decades of resource misallocation by slashing the bloated budget, the "independent" central bank will pour in more fiat money to be freshly misallocated.

The Bank of England's quantitative easing has been done at its wholly-owned subsidiary, Bank of England Asset Purchase Facility Fund Ltd (BEAPFF), and the amount spent for asset purchase is accounted for on the Bank of England balance sheet as "loan" to BEAPFF.

The balance sheet size of the Bank of England was 223 billion British pounds as of February 28, 2010 (the latest annual report), of which 200 billion pounds were for the asset purchase by BEAPFF.

By the way, the Bank of England policy maker cited in the Bloomberg article, Adam Posen, is an American who used to work for the Federal Reserve, the ECB, the US Treasury, the US State, the European Commission, the Japanese Ministry of Economy, Trade, and Industry, the UK Cabinet Office, the IMF, the US Congressional Budget Office (he still works here). He is a member of the Council on Foreign Relations and of the Trilateral Commission. (For more of his illustrious career, go here.)

In other words, Ben and Timmy have their man inside the Bank of England. Of course the British central bank will embark on the quantitative easing again. We can't let Brits succeed in reducing the deficit and repair the damage to the economy, can we?

"We'll all go together when we go", I suppose.


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