Quantitative easing: The latest windfall from us all to “country London”

Ranjit Sidhu explains why a second round of quantitative easing means more funding of London, with its isolated economy, by the rest of the country.

By Ranjit Sidhu

This morning when discussing the extra £75 billion quantitative easing taken by the Bank of England and its effect on the commercial property market, Nick Leslau, the manager of Max Property Group Plc, made the interesting observation (22 minutes in) that there is two countries in the United Kingdom: London and the rest.

In the rest of the UK commercial property prices fall, but in “country London” commercial property prices are not just ok, but are acting “robustly”.

Wow! We are living through a double-cycle world crisis which is mostly due to the banks over-leveraging on sub-prime loans and now government debt and one of the world’s financial capitals is confident enough to have a “robust” commercial property market? Not a sniff of a commercial property crash or housing price crisis?

The question has to be asked: How could an area whose main industry was not just near the precipice, but has had both feet hanging off the cliff, be so different to the everyday world of industry, where when the steel yard, coal mine, factory collapses it is followed by a ghost town, boarded up properties, an area in strife?

The plain fact is that the “country London” institutions had not simply been “bailed-out”; regardless of the benefits on the economy, it can be argued that quantitative easing has meant that the Bank of England has watered down every pound in our pockets – wages, pensions and savings – by increasing the money supply so that financial institutions could have an extra £275 billion pounds to prop up the markets and increase profits.

Wondering how the banks made record profits a year after the crash? It was almost impossible for the banks not to make money after the first “windfall” of quantitative easing, expect record banking profits next year again.

Lets get the figures into context; if we cut out the middleman, the Bank of England has created enough extra money through QE to purchase from the banks an extra £4,600 worth of government bonds and shares for every man, women and child in this country. Putting it into an alternative context the bank could have “guaranteed” every year since 2009 the £76 billion they now have targeted commercial banks to loan to small and medium size businesses under “Project Merlin” without commercial banks ever getting involved.

These are astronomical amounts which make it even more unbelievable that we still don’t know whether quantitative easing does really make a positive effect on the economy, how much it will actually cost the government, let alone what/if there is a “trickle down” benefit to the economy or simply eaten up by de-leveraging banks and profit taking- all moot points.

If the two banking crisis since 2008 have taught us anything it is that we must not be put off by the mesmerizing smokescreen of complex financial jargon and a Kafka-esque banking system not to question why £275 billion was needed to be given so freely to the banks in an obligation free way. The Bank of England has not just magicked up £75 billion of money yesterday, but is creating it on the back of and at the risk of our whole countries’ wealth.

We should have the right to demand to know whether it is a wise choice or if the Bank of England is acting as an anti-Robin Hood stealing the value of everyones’ pound and throwing a sack of gold to the financial sheriffs of country London.

See also:

Economic update – October 2011Tony Dolphin, October 7th 2011

One-club Osborne drives economy further into the roughWilliam Bain MP, October 6th 2011

Just who WILL Osborne listen to?Cormac Hollingsworth, October 3rd 2011

Vindicated Balls gives absent Osborne an economics lessonShamik Das, September 15th 2011

Osborne set to U-turn on QE – so why not on Plan B?Shamik Das, September 12th 2011

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64 Responses to “Quantitative easing: The latest windfall from us all to “country London””

  1. Property Solutions

    Quantitative easing: The latest windfall from us all to “country …: In the rest of the UK commercial property … http://t.co/NHrwjd5r

  2. Susan Carter

    Quantitative easing: The latest windfall from us all to “country London”: By Ranjit Sidhu This morning when disc… http://t.co/JhUKnXtw

  3. Guido Fawkes

    Ranjit, was hoping for a left-wing critique of QE. Instead it is some demented bank bashing that doesn’t make sense.

    Pretty huge error of understanding. Try to grasp that £275 billion hasn’t been given to banks.

  4. Ranjit Sidhu

    The most amazing thing I find about writing blogs is the comments. Thanks for your contributions. I will however say that I do find sometimes people read what they want to read rather than what is written.

    Dear Guido Fawkes, at no point have a written that 275 billion was “given” to banks. I completely understand that QE is used to buy government bonds. I am simply saying that the QE means that the banks will benefit from this transaction in many different ways- this is widely accepted analysis, of QE 1. Please understand that and read the article before making what can be said is a rude comment- its just good manners. Thanks

    Dear Louis, I feel you are are so concentrated on making your point that monetarist policy is something that should be taken up by the left you are not listening to my comments. I refer to my central point above.

    This massive project of QE could have been used to better effect to boost the economy, in my view.

    Time to move on – work, family and other issues to write about means I cannot reply again. Thanks again for all your comments.

    Cheers

    Ranjit

  5. Luis Enrique

    Ranjit,

    you’re right – I don’t think you actually thought QE involved just giving money to banks, otherwise you’d hardly need to cite the NEF as evidence for it being a “windfall”; it would be self-evident.

    But look at the words you used:

    “why £275 billion was needed to be given so freely to the banks in an obligation free way”

    “so that financial institutions could have an extra £275 billion pounds”

    I don’t know how to put this without causing further offense, but I don’t think you expressed yourself terribly well there.

    you also describe QE as “watering down every pound in our pockets”, and as I have tried to point out, this is both factually incorrect (re-read the Krugman post) and the rhetoric of the Republican Party.

    I have also tried to point out that “throwing sacks of gold at London” isn’t quite the right way to characterize something that lowers the government’s cost of borrowing, to the benefit of taxpayers, and that worries about loses incurred by the BoE are misplaced.

  6. Ranjit Sidhu

    My article in LFF on quantitative easing has caused a bit of a stir – direct emails etc… madness http://t.co/cIKlcw2g

  7. Will quantitative easing work this time? | Left Foot Forward

    […] also: • Quantitative easing: The latest windfall from us all to “country London” – Ranjit Sidhu, October 8th […]

  8. Guido Fawkes

    You NOW say “at no point have a written that 275 billion was “given” to banks.”

    In the text you query “…why £275 billion was needed to be given so freely to the banks in an obligation free way”

    You also say “I do find sometimes people read what they want to read rather than what is written.” My conclusion is that you are an idiot.

  9. Bachu Ramji

    rich people will get more richer by throuing 275 billion. It want creat any extra GDP. has government heard the word NATIONALIZE????
    In the name of Nations sicurity.????

  10. RupertRead

    http://t.co/qwiOGVwN Terrible but true: how QE is benefitting the rich.

  11. carboncoach

    http://t.co/qwiOGVwN Terrible but true: how QE is benefitting the rich.

  12. Gus Hoyt

    http://t.co/qwiOGVwN Terrible but true: how QE is benefitting the rich.

  13. Sophia

    Sickening RT @RupertRead: http://t.co/i1GQbCbN Terrible but true: how QE is benefitting the rich.

  14. Quantitative Easing is stimulating commodity trading, not the real economy | Left Foot Forward

    […] Quantitative easing: The latest windfall from us all to “country London” – Ranjit Sidhu, October 8th […]

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