As I have noted many times here, quantitative tightening happens to reduce the UK’s government-created money supply.
Supposedly, this reduces the rate of inflation. There is not the slightest shred of evidence that this has worked in the UK, where our inflation rate has remained above that of countries and the EU, that have not used the aggressive form of QT that the Bank of England has.
The other reason for QT is to keep interest rates up. By reducing the money supply the aim is to keep up the price of using it. And as the FT notes, this is exactly what has happened.
It’s not “happens” it is “meant to”.
We all agree that QE lowered interest rates. Logic ally QT will raise them therefore. Which is the point of doing QT. There’s less money around so the price of it rises.
That indicates a significant growth in the demand for cash to match overnight payment demands by banks and others of late, which can only be because their central bank reserve accounts are being forced too low.
Those are the central bank reserve accounts that the BoE has to pay 5,25% on right? Which Spud things is a Holy Terror. So, reducing those central bank reserve accounts should be a good idea – reducing the amuont of interest BoE has to pay. No?
As I have always suggested, it is clear in that case that the QT programme has always existed as a mechanism for forcing higher interest rates into financial markets and not to reduce the size of the Bank of England balance sheet, which is in itself a matter of total inconsequence, as Japan has proved.
But less narrow money in the economy is reducing the BoE balance sheet which is what pushes interest rates up,
Incompetence on this scale requires
The dissoluition of the minor universities?
The post Moon, howls first appeared on Tim Worstall.
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