Keep Calm And Print Money Essay

636 WordsOct 8, 20113 Pages
FRIDAY, OCTOBER 8, 2011 Keep Calm and Print Money It is not often Central Bankers get carried away with emotive language, but the governor of the Bank of England recently wrote: "This is the most serious financial crisis we've seen at least since the 1930s, if not ever," As if aware of his stark comparison with the great depression, he adds basically - 'keep calm and print money' "We're having to deal with very unusual circumstances, and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy. What is Happening? The Bank are worried about a global slump in demand and so are electronically creating an extra £75bn to buy bonds and securities. The aim of this quantitative easing is to reduce bond yields - encouraging spending and investment Increase money supply to boost economic activity. See: Quantitative easing Why the Need for More Quantitative Easing? Fears over state of eurozone have led to a rise in global saving rates as people hold back from consumption. Bank liquidity remains stretched as fears of sovereign debt default in the Eurozone threaten balance sheets of many European and global banks. Squeeze on household's income (e.g. VAT rise of 15%) has led to fall in spending in UK, growth has been much lower than expected and has barely been positive. CPI inflation in the UK has spiked recently and is most likely to rise to over 5%, but the bank feel in medium term inflation will undershoot the inflation target of 2%. Is this extra Quantitative Easing good for the government? It is helpful for the government because it will produce extra demand to offset their fiscal squeeze. Without quantitative easing, the government would be faced with lower growth and higher unemployment. They should be grateful, they don't have the ECB to push through a monetary tightening and

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