Quantitative Easing

Bank of England ends one of the most remarkable economic exercises in history: quantitative easing | Economic news

It’s the end of one era – and the beginning of another. It’s one of the most important watershed moments in recent economic history – not that you’ve necessarily noticed.

Because this afternoon is when the era of quantitative easing (QE) gives way to the era of quantitative tightening (QT).

The bank of englandwho has spent the last decade and a bit buying the government debtin a concern, originally, to preserve economy afloat, begins the process of selling that debt.

You probably won’t notice it for the same reason you may not have noticed the asset purchases in the first place.

QE was one of the most remarkable economic exercises in history.

The Bank ended up buying almost a trillion pounds of public debt, financed entirely by the creation of money, that is, by printing it electronically.

This represented a huge amount of cash poured into the UK economy, but as it happened quietly in the government bond market, with the Bank slowly buying large amounts of so-called gold securities, the impact did not felt loudly but more slowly and indirectly.

It was partly thanks to QE and this influx of money into the capital markets that asset prices continued to rise after the financial crisis.

It is partly thanks to QE that the gap between rich and poor widened during this period.

It is partly thanks to QE (which was led not only by the Bank of England but also by the US Federal Reserve, the European Central Bank and other similar institutions) that we have seen bubbles emerge in many sectors different: real estate, tech and ventures.

QE was far from the only dynamic driving some of these perverse consequences, but it was certainly part of the story.

But at the same time it is also thanks to QE that the 2008 recession did not turn into a depression.

It’s partly thanks to QE that unemployment never hit the highs it had in the 90s or 80s, let alone the 30s.

Central bankers and most policymakers argue that all of these perversities were necessary to keep everything else afloat.

But this afternoon the Bank of England is gradually starting to sell off its pile of public debt, currently worth around £837bn.

It’s not without controversy: after all, you won’t have missed the fact that the very market at the center of this story – public debt – recently faced a serious crisis. The fact that the Bank is trying to sell him more debt has caused consternation.

However, the amounts are relatively small. Each time the government comes into the market to sell some of its debt, it tends to sell around £2bn each time (sometimes more). The Bank, on the other hand, will sell £750m a week for the next few weeks.

However, this is further proof of a reversal in the monetary cycle. Not only does the Bank raise interest rate; it is a matter of subtracting from the total amount of money circulating in the economy, rather than adding to it.

The era of easy money was already coming to an end. The era of quantitative easing is also over. At least, until the next crisis…