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"Expectation of this has lowered long-term interest rates, depressed the dollar’s international value, bid up the price of commodities and farm land and raised share prices."

If we have had real losses in the recession, and I think we undoubtedly have, then the long-run natural rate of interest is unlikely to be a low as it was at the beginning of the crisis. With that it mind we should be worried if bond prices rise beyond where they were before the crisis. Then we're very likely to be in the territory of setting up for the next bubble.



Are you reading the Bank's own literature on QE? Islam is incorrect on several important aspects of the programme and thus ends up drawing conclusions unsupported by the facts.

Firstly, by design the Bank was not buying bonds from banks. It was buying gilts from non-banks, and doing so in order to force them to hold more corporate bonds and paper, in order to reduce the cost of corporate debt and equity issuance. (Other effects: rates on long term govt debt and inter-bank rates were brought down).

The Bank is aware of the potential problem of investors buying gilts from the DMO and taking them straight to the APF for an easy spread. It deliberately targeted a purchase rate in excess of new issuance by DMO (3x faster); it used competitive reverse auctions to obtain clearing prices close to market; and it didn't include in the operations any gilts about to be issued or recently issued by the DMO.

The characterisation of QE as a loop between the BoE and the DMO closed by the banks is thus false, as far as I can see.

The APF's operations did indeed inject new money into the economy, since the fund was purchasing gilts held by non-banks, not by banks. The direct consequence of the BoE asset purchase programme was increased deposit balances held by the non-bank private sector (plus reserves excess to demand in the banking system). Where did this money go? Different (v. interesting!) question.


We need a treasury and Bank of England evaluation as to where it is. Is it in circulation, or sitting in bank vaults?”

What part of this statement makes sense? Please explain.

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