The Consequences of Quantitative Easing

I saw the Bank of England released the 2013 Annual Report

[http://www.bankofengland.co.uk/publications/Pages/annualreport/default.aspx]

Makes interesting reading, see page 44. This shows the massive growth in the BoE balance sheet.

The reason for this growth is down to the BoE increasing the Quantitative Easing programme, (BEAPFF = Bank of England Asset Purchase Facility Fund).

What this means is that Bank of England has been buying UK government bonds (Gilts) with new money, thus growing the monetary base. A consequence of this, is that yields on Gilts are falling, and thus investors have been forced to look for other yielding assets (equities & corporate bonds), so reducing the price of the long-term cost of capital for businesses. Thus we see booming stock markets and real estate assets increasing in value, as investors move out of cash and government bonds. Thus creating a wealth effect to investors fortunate enough to hold financial assets, and thus their wealth rises, as share prices and property prices are rising.

The truth be known, it is about reducing the value of savers cash on deposit. That is the told story.

Leave a Reply

Your email address will not be published. Required fields are marked *