http://ex-skf.blogspot.com/...
... ... ... ... ...
Just like the US Fed counterpart, Sir Mervyn must be thinking the stock market is the real indicator of the economy. Print money, give it to bankers so that they can bid up paper assets like stocks.
QE, or quantitative easing, is supposed to work this way:
Central bank digitally prints money and buy government debts (treasuries, gilt, agency bonds) from the banks (in case of the US, primary dealers including many foreign banks);
Bank lends the money to individuals and businesses, who will then use that money;
Economy grows; if it doesn't grow, just keep doing the step 1 and see what happens. It takes a whole lot of money to achieve the result, they say, without quantifying "a whole lot".
How it worked in the US:
Central bank digitally prints money and buy government debts (treasuries, agency, agency MBS);
Banks get the cash, park it at the central bank receiving a decent interest; the portion they do not park at the central bank, they use it to bid up the so-called "risky assets" - mostly paper assets like stocks and futures, or bonds that they think the central bank will buy next;
Banks don't lend to individuals and businesses who could use cheap money, but only lend to credit-worthy people and big businesses who don't need or want money;
Stock market levitates on low volume, and the economy stagnates and shrinks.
Go back to step 1, repeat ad infinitum.
This monetary policy is not helping me. Why should I want to keep paying more and more for everything? Why should I want my social security erased by inflation? Why should I want whatever savings I have to disappear in a flood of money?