How Much Money Was Created By Quantitative Easing

[first]Most of the money in our economy is created past banks when they make loans. But in the aftermath of the financial crisis, banks stopped lending, and and then stopped creating new money. [/first]

At the aforementioned time, people were nevertheless repaying their loans, meaning money was being 'destroyed' and the total amount of money in the economy was shrinking. To counter this and to 'supersede' the money that banks were destroying, the Bank of England created £445 billion of new money through a scheme chosen Quantitative Easing (QE). As the Governor of the Depository financial institution of England said at the time:

"[A] damaged banking system means that today banks aren't creating plenty coin. We have to practise it for them."

– Sir Mervyn Male monarch, and then-Governor of the Bank of England, speaking in 2012

How does Quantitative Easing work?

In the press, QE was mostly presented as "The Bank of England prints money and lends this to banks and then that they can increase their lending into the economy", merely this is completely inaccurate.

In reality, through QE the Banking concern of England purchased financial assets – near exclusively government bonds – from pension funds and insurance companies. It paid for these bonds by creating new primal bank reserves – the type of money that bank use to pay each other. The pension funds would sell the bonds to the Bank of England and in substitution, they would receive deposits (money) in an account at one of the major banks, say RBS. RBS would end up with the new deposit (a liability from it to the pension fund), and a new nugget – key depository financial institution reserves at the Bank of England.

Quantitative Easing therefore simultaneously increased a) the corporeality of central depository financial institution coin, which is used in the system that banks utilize to pay each other, and b) the amount of commercial banking company money (deposits in the banking concern accounts of people and companies). Only the deposits can actually be spent in the real economic system, every bit central depository financial institution reserves are just for internal use between banks and the Bank of England.

(See the further reading department below for a more in-depth explanation of the process).

Why was Quantitative Easing ineffective in boosting GDP?

The problem was that the money created through QE was used to buy government bonds from the fiscal markets (pension funds and insurance companies). The newly created coin therefore went directly into the financial markets, boosting bond and stock markets nearly to their highest level in history. The Bank of England itself estimates that QE boosted bail and share prices by around xx% (Source). In theory, this should brand people experience wealthier then that they spend more. However, 40% of the stock market place is owned past the wealthiest 5% of the population, and so while about families saw no do good from Quantitative Easing, the richest 5% of households would have each been up to £128,000 better off (according to Strategic Quantitative Easing, p28, by the New Economics Foundation).

Very fiddling of the money created through QE boosted the existent (not-financial) economy. The Banking company of England estimates that the beginning £375 billion of QE led to 1.v-2% growth in GDP. In other words, through QE it takes £375 billion of new money merely to create £23-28bn billion of extra spending in the existent economy. It's incredibly ineffective, because it relies on boosting the wealth of the already-wealthy and hoping that they increment their spending. In other words, it relies on a 'trickle downwards' theory of wealth.

A far more constructive way to heave the economy would have been for the Banking concern of England to create coin, grant it direct to the regime, and let the regime to spend information technology direct into the real economy. This is the approach we have advocated in our newspaper "Sovereign Coin: Paving the Way for a Sustainable Recovery", and pound for pound of stimulus, it would be many times more than effective than Quantitative Easing.

Farther Reading

Banking concern of England: Quantitative Easing

This 8 page newspaper from the Banking concern of England is extremely clear on the mechanics of QE and how the Banking company of England expected it to have an result on spending in the real economy.

[line]

New Economics Foundation: Strategic Quantitative Easing

This recent paper from the New Economics Foundation gives more technical detail on how QE was implemented, and assesses how constructive information technology really was. It then proposes a manner to redirect the QE money into the existent economy. Download hither