Hit me one more time with that QE

David Miles, who unfortunately sits on the Bank of England's monetary policy committee, wants another generous helping of quantitative easing. He claims that an £50 billion is needed to "kick start" the economy.

Haven't we been here before? The Bank of England has already undertaken two previous rounds of quantitative easing. Did the previous efforts "kick-start" the economy? Does England win football matches by taking penalties?

The previous two efforts went something like this; the BoE created billions of pounds of cash. It took the newly minted money to the UK government bond market. It purchased a ton of bonds. If the bond holder was in the private sector, the cash was deposited into a commercial bank, who then placed it on deposit back at the Bank of England. If the bond-holder was a bank, the transaction was even simpler. The cash receipts were transferred directly to the Bank of England.

The upshot of QE was that the balance sheet of the Bank of England increased. Cash deposits of Banks held at the BoE, and so has BoE holdings of government bonds. If you find any of this difficult to believe, then just take a look at the published balance sheet of the BoE. It is called the bank return; it is published every week, and it is available on the BoE website.

QE was supposed to rejuvenate bank lending. Has that happened? Nope. Commercial bank lending to the private sector has not increased; actually, it has shrunk. In aggregate, firms are paying off loans, investment has stalled and the economy hasn't grown in five years.

By any reasonable standard, QE was an utter failure. The obvious British response to that kind of empirical regularity is clear. It failed once, so lets do it again. No need to re-evaluate the strategy; there is no time for a rethink. Failure should not discourage us.

Let us plough on regardless.....