A notional number

Does the following story give you any confidence that the Monetary Policy Committee know what they are doing? Do they fully understand the implications of what appears to be unrestricted monetary creation by the central bank?

June 8 (Bloomberg) -- Former Bank of England policy maker David Blanchflower said the central bank may expand and widen its program of buying assets with newly created money as the British economy keeps shrinking.

The bank may seek to spend more than the 150 billion pounds ($240 billion) authorized by Prime Minister Gordon Brown’s government, as well as buying different types of bonds, Blanchflower said in an interview on Bloomberg Television. Britain will be mired in a recession for another year, he said.

The Monetary Policy Committee entered its fourth month of money printing last week and recommitted to spending 125 billion pounds. Blanchflower, the Dartmouth College professor who left the panel at the end of May, said that the biggest concern is still that the deepest recession since World War II will cause an extended drop in consumer prices.

“The 150 was just, if you like, a notional starting number,” Blanchflower said in a June 5 interview from Hanover, New Hampshire. “The forecast the bank produced essentially said that at constant rates, and with the amount of quantitative easing that we’ve actually voted for, that still doesn’t bring inflation back to target” at 2 percent. “If you read it that way, the assumption would be there is more QE to come,” Blanchflower said.