HEADS I WIN, TAILS YOU LOSE

Quantitative Easing was the strategy adopted after the Great Financial Crisis (GFC) of 2008 under which the Bank of England increased the money supply by buying and holding large quantities of the UK government’s already issued fixed interest stocks (gilts). This version of resorting to the printing press was intended to counteract the restriction in the money supply caused by the commercial banks hasty retreat from banking activity following the GFC in order to protect themselves from the crisis they themselves had caused. Its purpose was to increase prices and stimulate the economy to counteract the threatened recession. To ensure that the beneficiaries of the strategy were capitalists, not workers, the Tory government of the day embarked on a savage policy of ‘austerity’, cutting public services and public expenditure on such socially useful items as teachers’ and nurses wages and overseas development while leaving military expenditure and the inevitable cost of misdirected foreign adventures untouched.

The Bank of England’s holdings of government stocks peaked at £875 billion. There is no ‘right’ amount of government stocks that the Bank of England can hold, but the revered high priests of finance at the Bank of England decided it was time to reduce its holding of gilts. By January 2024 these had been reduced to £738 billion, with more to come, by the reverse strategy called ‘Quantitative Tightening’. This reverse strategy naturally has the opposite effect to Quantitative Easing  – money supply is decreased, resulting in lower prices and reduced economic activity. To counteract these effects, so-called ‘austerity’ should also be reversed. More money should go into public services and public expenditure on beneficial  items such as teachers’ and nurses’ wages, and military expenditure, assuming any is needed, should not be increased. This, of course, is not what is happening. For workers, it’s very much a case of ‘heads I win, tails you lose’.

Such is the selection process in our main political parties that MPs are generally not amongst the brightest of people. The Treasury Select Committee, packed with Tories has, however, become dimly aware that something is not right with the Quantitative Easing/Tightening strategy. While not sensibly calling for public services to be restored to pre-GFC level, they have criticised the strategy in a report published on 31 January you can read here. Essentially, they are saying that the Bank of England has not, and still does not, understand the consequences of what it has been doing with Quantitative Easing/Tightening. Of course they don’t! None of the high priests at the Bank can have read, and certainly none of them will have understood, Banks and Banking, the discussion paper from the Political Economy Commission of the Communist Party, which you can read here. Like the selection process for MPs, it’s the most plausible defenders of capitalism who rise to become high priests of finance at the Bank of England, not the brightest and wisest, and certainly not anyone with a modicum of understanding of Marxist economics.

What Regulators Are For

Last week the Financial Conduct Authority proposed as its contribution to solving the housing crisis to “look at the products and markets that are developing to ensure they work for consumers.” This week it was the turn of the Bank of England’s Financial Stability Committee to address the housing crisis. They were, however, no more concerned about the housing needs of working families than were the Financial Conduct Authority. Their concern was with “wider financial stability” which they saw threatened by bank lending to the buy-to-let market. “Wider financial stability” is banker-speak for avoiding another banking crisis. Fuelled by Quantitative Easing, the policy whereby the government prints money and gives it to the banks in the hope that they will lend it to UK industry, the banks chose, instead, to increase lending for buy-to-let by 40% since the 2007-8 banking crash and bailout. This increase has been a major factor in escalating house prices. The Financial Stability Committee is right to be concerned that another banking crisis could be triggered by a collapse in the buy-to-let market, but just like the Financial Conduct Authority, they are focussing on the wrong needs: those of banks and financial services providers, not the unmet needs of working families.

Needless to say, the Financial Stability Committee refrained from suggesting that the government should regulate or restrict bank lending even though it is effectively with our money. The role of a regulator in a market economy is to bestow legitimacy on markets and the accumulation of capital. Protection of ‘consumers’ is very much a secondary consideration and protection of workers completely out of the question. Appointed by ministers but supposedly at arm’s length from the government of the day, their true independence is as fictitious as that of the judiciary and the police. We should not be surprised when they represent the interests of the 1%, not the 99%.