The Next Bank of England Governor and QE

Bank Of England Building

When Mark Carney takes over as Governor of the Bank of England next month he should move swiftly to implement the additional Quantitative Easing which BofE Governor King has been unable to persuade the MPC is required – a quick look at the supply of money will confirm the need for this.

Ideally though, he will use this tranche to channel money directly into the real economy. Rather than buy bonds from the banks, he should issue new paper. This could be long dated (30 or even 50 year) bonds, underwritten by the Treasury, which the bank would retain on its balance sheet – at least until the end of the reversal of QE. The proceeds could then be made available to housing associations and other such organisations, as directed by government, for the building of new social housing.

This would have multiple beneficial effects, but the most significant are: That it would stimulate investment in the economy far greater than the nominal amount as the money works its way into all the businesses and employees supplying and working in the building industry; that it would create housing for those most in need and that it would do so without stoking up prices in the way the chancellor’s help to buy scheme risks doing. £50 to 100 million would have a very powerful impact. A mix of rents and eventual disposal proceeds should more than cover the interest and eventual retirement of the bonds. Yes it breaks all the rules re money printing and state-directed investment, but then these are still exceptional times and QE already breaks the first while the latter is hardly new.

It is hard to see why the chancellor should not actively support and encourage such a move. Sadly though, the admirable concern in No 11 to ensure sound money is matched by an equal and disappointing lack of imagination.

image: © Ofer Deshe

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