THE power of central banks over the economy is so great that the debate over the effectiveness of recent policy changes will rumble on for many years. This is all to the good, in a democratic society. But it is important to get the facts right. As my post earlier this week pointed out, the left seems to argue that quantitative easing (QE) was a handout to the banks. In particular, that QE was used to buy assets off the banks. (This post will focus on Britain, but the arguments apply elsewhere.)
There was reader scepticism about my contrary view, with one claiming that the banks had bought £100bn of gilts in the first quarter of 2009 to "front run" the Bank of England. But here is a link to the Debt Management Office website which has the details of gilt ownership (you have to open the spreadsheet entitled "distribution of gilt holdings"). At the end of 2008, the banks owned £25.7 billion of gilts; at the end of 2009, they owned £38.7 billion. They were buying, not selling. On the latest figures, they own £157.8 billion worth - largely because they need to hold safe assets like gilts to meet regulatory-imposed "liquidity ratios". These regulations are good for the taxpayer in two ways. First, they make...Continue reading
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