telegraph.co.uk / By Ambrose Evans-Pritchard / April 3, 2013, 7:49PM BST
Readers of the Daily Telegraph were right all along. Quantitative easing will never be reversed. It is not liquidity management as claimed so vehemently at the outset. It really is the same as printing money.
It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy Photo: Alamy
Columbia Professor Michael Woodford, the world’s most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better.
“All this talk of exit strategies is deeply negative,” he told a London Business School seminar on the merits of Helicopter money, or “overt monetary financing”.
He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit.
“If we are going to scare the horses, let’s scare them properly. Let’s go further and eliminate government debt on the bloated balance sheet of central banks,” he said. This could done with a flick of the fingers. The debt would vanish.
Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. “We must tell people that if necessary, QE will turn out to be permanent.”
The write-off should cover “previous fiscal deficits”, the stock of public debt. It should be “post-facto monetary finance”.
The policy is elastic, for Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles.
Thanks to BrotherJohnF