[R-G] [BillTottenWeblog] Finally, A Correct Move

[Bill Totten]

This article indicates that the Bank of England has finally turned to
what should be the first prerogative of any nation: To coin and print
the nation's money instead of allowing private banks to print most of
it. Please see the comments I have interspersed. Bill Totten


We must print more money, says Bank

Governor appeals for urgent action to salvage Britain's shrinking economy

by Sean Farrell, Financial Editor

The Independent (February 19 2009)

The Bank of England is to start 'printing' new money for the first time
in thirty years as it runs out of options to kick-start the economy. The
Governor of the Bank of England will write to the Chancellor within days
to get permission for the unprecedented action.

The Bank will create the money by buying government and corporate bonds
from financial institutions for new supplies of sterling. Termed
"quantitative easing", it is the modern equivalent of printing money. It
is designed to put more cash into the economy, creating more money for
companies to spend and for banks to lend.

The move marks the most dramatic step taken yet by the Bank as it tries
to stop the deepening recession turning into a slump. One of the main
reasons for the financial crisis has been the unwillingness of banks to
lend money after the sub-prime losses in the US.

Critics have branded the action irresponsible and said it could stoke
inflation and spark a run on the pound but the severity of the recession
has driven the usually conservative central bank to throw caution to the
wind.

TOTTEN: What per se is irresponsible for government coining and printing
its own money? The US Constitution reserves that function for the
government. Is it more responsible to let private banks, that are
addicted to making as much profit as possible as fast as possible to
enrich their shareholders and executives, to print most of the nation's
money in order to maximize the interest income they reap by loaning it
into circulation? The "critics" who claim it is irresponsible for
democratically elected governments - instead of profit-maximizing
private banks - to coin and print the their nations' money are arguing
against democracy itself: they are arguing, without saying so
explicitly, that we can trust the greed of private banks more than our
own ability to elect responsible government.

The minutes of this month's Monetary Policy Committee meeting, released
yesterday, showed a unanimous vote to request the go-ahead from the
Chancellor. Alistair Darling is expected to reply immediately to the
Governor's letter in an exchange that will cap urgent work at the Bank
and the Treasury to allow purchases to start as soon as possible.

Andrew Goodwin, a senior economic adviser to the Ernst & Young ITEM
Club, said: "It is crucial that the Bank be allowed to swiftly and
boldly implement this policy. The lack of supply of credit is the
biggest problem facing the UK economy and increasing the supply of
central bank money via purchases of government securities should help to
loosen these restrictions", Mr Goodwin said.

Under measures announced last month, the Bank is already authorised to
buy up to GBP 50 billion of assets to help unblock frozen markets but
without increasing the supply of money to the economy. The Bank's rapid
move to the extreme option of creating new money in exchange for the
bonds underlines the increasing sense of crisis.

TOTTEN: What is "extreme" about democratically-elected government
coining and printing a nation's money instead of allowing
profit-maximizing private banks to print most of it and reap the
interest they gain when they put it into circulation via loans?
	
The Bank's nightmare is a sustained period of deflation - general
falling prices - which would prolong and deepen the recession by
encouraging consumers and businesses to delay spending. A short period
of falling prices is expected later this year, driven by dropping energy
costs, but with inflation falling and the economy contracting quicker
than forecast, the Bank wants to act to prevent a downward spiral.

The results of a CBI survey released yesterday showed manufacturers'
order books shrinking at their fastest rate since 1992 and companies
expecting to cut output at a pace not seen for nearly thirty years. The
measure of export orders slumped to its lowest since November 2001,
quashing hopes that sterling's recent sharp fall would boost overseas
sales for British businesses.

The Bank has never taken such a radical step to boost the money supply
before but similar measures were used by Japan in the early 1990s and
during the 1970s when the supply of sterling was increased. Critics
argue that creating new money did not prevent Japan's "lost decade" of
stagnation.

The Bank has started a softening-up exercise to rebuff accusations that
quantitative easing amounts to recklessly turning on the printing
presses in a way that has driven countries such as Zimbabwe into
hyperinflation.

Charles Bean, the deputy governor for monetary policy, said on Monday
the aim was to boost the supply of money and credit to achieve the
Bank's two per cent inflation target and not to finance a government
budget deficit as happens in corrupt regimes.

With the economy "undergoing a significant and sustained adjustment" and
inflation heading for negative territory, the Monetary Policy Committee
decided it would need more than rate cuts to limit the recession and
keep inflation close to its two per cent target in the medium term. The
minutes showed doubts growing about the impact of further interest-rate
cuts as the committee agreed to slash borrowing costs to a record low of
one per cent.

It voted 8-1 in favour of the half-point reduction. David Blanchflower
called for a one-point fall but the majority rebuffed his call for a
bigger cut because it could deter banks from lending.

"There was a great deal of uncertainty about what would happen to banks'
and building societies' ability and willingness to lend at low levels of
interest rates", the minutes said. "There might even be a point where
further cuts in bank rate could have an adverse impact on the economy".
Mr Blanchflower said past errors were due to cutting too late and not
too soon.

(c)independent.co.uk

http://www.independent.co.uk/news/business/news/we-must-print-more-money-says-bank-1625947.html


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