I've been thoroughly confused over the last week or so - ever since the newspapers got hold of the story that Alistair Darling had "ruled out" printing money. For example, The Telegraph:
Either the entire public debate is wrong, or I misunderstand monetary policy.
So all this talk (across every media platform and indeed coming straight from the mouths of senior politicians on all sides) implies that either (i) QE is different to OMO; or (ii) OMO have not been used so far. But this is incorrect.
As Chris Dillow helpfully tells me - the main difference between OMO and QE are the types of assets that the Central Bank buys (see also The Telegraph). According to Ben Bernanke, the Central Bank has ability to conduct OMO over the liability side of the balance sheet, but politicians have the power to intervene to conduct QE on the asset side (Willem Buiter seems to disagree). But the bottom line is that QE isn't a different policy tool, it's an alternative way of using current policy. Whereas OMO means targeting a particular interest rate (and altering the money supply to hit it) QE means targeting a particular quantity of money (and ignoring the interest rate).
But the bottom line is that the Central Bank has already been printing money. That's what they do. Again, thanks to Chris Dillow for pointing out Willem Buiter in the FT:
The UK Chancellor, Alistair Darling, has been busy repudiating the notion that the British government was planning to ‘print money’ to prevent deflation and stimulate the economy. He was reported in the Financial Times (January 9th, 2009) as saying :“Nobody is talking about printing money. There’s a debate to be had about what you do to support the economy as interest rates approach zero, as they are in the US. But for us that is an entirely hypothetical debate”.
The growth rate of the notes and coins in circulation has been rising at above 5% over the last few years, almost hitting 12% in December. The printing press is switched on:
There seems to be a chasm between how monetary policy is conducted and the way it is reported.