Britain to feel the pain when the QE bubble finally bursts

Britain to feel the pain when the QE bubble finally bursts

Thanks to QE, the Chancellor is raising more than £100B a year without having to ask Parliament to hike taxes and without having to convince investors to part with money, while unfairly taking the credit for avoiding national bankruptcy.

QE is one branch of the state (the Treasury), borrowing money from another branch of the state (the Bank of England) and everybody in the City is cheering madly, despite the dangerous circularity of the exercise. To many, this will sound like accounting fraud, but this is quantitative easing, the perfectly legitimate wonder drug that was meant to cure the economy but to which George Osborne is now hopelessly addicted.

The figures make astonishing reading. Since Aug. 1st, the Debt Management Office, which is tasked with raising cash for the Treasury, has sold £34B of new IOUs. During the same time, the Bank of England bought £32B of them. The difference is the net amount the market had to absorb. There is actually a scarcity of some kinds of gilts. Interest rates on government debt are no longer a meaningful representation of what private lenders are demanding to extend cash to the British state. There is a false market in government bonds.

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