Julius Says BOE Risks Woes of ‘Love Affair’ By Printing Money
The Bank of England will have a difficult time tearing itself away from its so-called quantitative easing program of printing money to aid the economy, former policy maker DeAnne Julius said.
“Quantitative easing is a bit like having a love affair,” she said while speaking on a panel hosted by Fathom Financial Consulting at Cass Business School in London today. “Any fool can get into one, but getting out of one gracefully is actually quite a feat.”
Bank of England policy makers have said that their emergency plan to buy assets with new money can be quickly reversed. The U.K. central bank yesterday extended the facility by two-thirds to 125 billion pounds ($188 billion) as it fights Britain’s biggest recession in a generation, saying that the timing of an economic recovery is “highly uncertain.”
Julius said it would be hard to know when to stop the money-printing program and reversing it may be as politically difficult as tightening the government’s budget. Charles Goodhart, also a former MPC member, disagreed with Julius.
“I think DeAnne is having the wrong kind of love affairs,” Goodhart said on the panel check cash advance. “Exiting QE is as easy as falling off a log, but fiscal policy can’t be turned around that easily.”
Chancellor of the Exchequer Alistair Darling said last month that this year’s budget shortfall will reach 12.4 percent of gross domestic product, the largest among Group of Seven countries. Net debt will touch 1.4 trillion pounds by 2014.
Bank of England Governor Mervyn King said March 24 that policy makers take seriously the possibility that they may have to raise interest rates “quickly and sharply” if needed to reverse quantitative easing.
The central bank would sell the assets it had been buying and start raising interest rates if necessary, Goodhart said. He said the bank should print as much money as needed to achieve a targeted level of credit growth.
Sushil Wadhwani, another former MPC member on the panel, said he was “skeptical” that quantitative easing would be effective, regardless of its scale.