Quantitative easing

[wellinghall]

Taking a leaf out of philmophlegm's book -

Can someone (maybe the estimable philmophlegm himself) explain quantitative easing to me? More specifically - how can the government both be selling gilts to the market, and buying back gilts from the market, at the same time?

Thank you!

Comments

[arda-unmarred.livejournal.com]

I would very much question their independence however, especially after they gave effectively failing banks perfect ratings prior to the crisis. They also tend to act in unison rather than as a check on each other. The wiki list of criticisms is very trenchant - there are obvious conflicts of interest, and it has long been in the news that the agencies are basically in the pay of the companies they rate. Or they tell a government to introduce austerity measures in order not to lose its rating, and the government having obeyed, they downgrade it anyway because the said measures depress the economy even more.

Ultimately the agencies take away power from elected officials and give it to unelected foreigners, and that can't be great for anyone. If the citizens of a particular country want to choose regulation, strong unions and strong job security over what the current economic orthodoxy demands (as you describe in your first comment) they could be punished for their choices through a lowering of their credit rating.

[(Anonymous)]

"...especially after they gave effectively failing banks perfect ratings prior to the crisis"

Yes, I agree with you on this, although I would blame part of it on incompetence as well as non-independence.


"If the citizens of a particular country want to choose regulation, strong unions and strong job security over what the current economic orthodoxy demands (as you describe in your first comment) they could be punished for their choices through a lowering of their credit rating."

Well, yes, but those choices are choices that probably make the country a bigger credit risk compared to one that is more careful with its public finances, hence lower ratings. If you want to get a good credit rating to be able to borrow cheaply, it's pretty obvious that you shouldn't have record of defaulting on loans, behaving irresponsibly or borrowing more than you can comfortably afford. That principle applies to governments just as it applies to companies and individuals.

[arda-unmarred.livejournal.com]

True. Except there's no obvious link between strong regulation/job security, etc. and being a credit risk - the social democratic states of Western Europe, and even the US and UK before the their economies were liberalised, were not exactly in the same league as Zimbabwe. More like the reverse. In fact, as the crisis (which we have not seen the last of by any means) has shown, it's deregulation that was about the most irresponsible thing a country could do. If you compare like with like (which is to say, leave countries like Greece out of it), the less 'flexible' economies of Western Europe have done better than the UK on almost every one of the parameters you list (if newspaper reports can be believed at any rate).

[philmophlegm.livejournal.com]

Sorry - that was me.