Coffee House

QE is a government hijack, says King

23 April 2012

5:05 PM

23 April 2012

5:05 PM

While Mervyn continues to inflate our universe via Quantitative Easing,
another Mr King — Stephen, the chief economist of HSBC — has issued a report saying QE is a way for governments to ‘hijack the credit system’.

‘The financial system is being rigged via acts of financial repression as governments look for new ways of funding excessive debts,’ says King in his bluntly worded report. While he
doesn’t cite the UK or Sir Merv by name, it’s clear that reference is being made to QEs I and II, the government’s preferred means of stimulating lending through lowering
borrowing costs.


Financial repression — basically, when governments fund their borrowing through imposing costs on others — may have worked for the West in the 1950s and 1960s, when government debt
levels fell rapidly, notes King. This, however, was more a happy coincidence: debt fell mainly because growth was then so strong, allowing economies to shrug off the effects of repression. With
‘neither decent economic growth nor coherent fiscal consolidation plans’, this is unlikely to happen now.

What QE enables governments to do is to jump to the front of the credit queue as funds are channelled from the private sector. It allows governments ‘to escape the disciplines associated with
market forces by pushing bond yields down to low levels even when fiscal policy is out of control. When real interest rates end up too low, or even negative, savers are penalised.’

Governments are essentially arranging the financial system to suit themselves — at the expense of the economy as a whole, says King. And, as the government gets increasingly addicted to cheap
funds, it’s unlikely to want to reverse policies such as Quantitave Easing. QE is not a way to lower debt, it’s a means to live with it, he adds.

It’s unlikely the other King will lose sleep over this HSBC report. But — with inflation set to bust the Bank of England’s target for a third year — perhaps we should.

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Show comments
  • oldtimer

    DavidDP clealry did not have to pay any bills in the 1970s when inflation soared. Nor does he appear to have any idea of the corrosive effects of continuing high inflation.

  • TomTom

    “have a track record of running a PLC.”

    You mean a Water Company like Thames or perhaps British Gas or maybe British Aerospace ?

    I don’t think that is a good preparation at all, running a Plc is a very different experience from running an AG, SA, or SE and is nothing like running a country.

    I do not believe there is any possibility of the current party system producing any solution to the problems THEY have created

  • Peter of Maidstone

    No Nickle not politicians.
    Technocrats who know what they are doing and for example have a track record of running a PLC.
    Given the correct rubric, life would be transformed.

  • daniel maris

    Well the banks hijacked the economy, so that’s only fair.

  • Dimoto

    But borrowing is still falling.

    Looks like a bank cop-out to me.

    Some pooh-ba comes up with his self-serving theory/forecast/doom mongering, and the Coffee-house crowd all nod in sage agreement.
    All a bit pathetic really.

  • TomTom

    “inflation is not sufficiently high at 3-4 per cent “

    You must live on a different planet. I buy Gas, Petrol, Fresh Food, Fish, Meat, Paper, Wood, Coffee and I EXPERIENCE inflation nearer 15%+ so you are a lucky bunny DavidDP – just don’t rub it in or you might find an angry backlash

  • A pensioner

    It’s clear you aren’t a pensioner, DavidDP. Incidentally, 5% is just the figure given. For those of us on a fixed income, inflation on essentials (food, heating, fuel) is way above that figure.

  • oldtimer

    It is about time someone said this. It is significant that the author is from HSBC – it would be impossible for anyone at RBS or Lloyds to say this. They would be out on their ear in no time.

  • Rhoda Klapp

    Nickle, do you think they can’t fiddle us out of our pensions? Do you think they are looking that far ahead when plotting QE? That is for a future government to sort out, as has been known since the promises were made and the money not put aside. That future government may curse the inflation, but they will print the money. And steal the pensions too. I’m not being cynical here, it is inevitable.

  • Nickle

    This is a corrupt system with no accountability. We should consider a period of strong government of talent as in Rome.


    In otherwords, just another lot of politicians.

    1. They have to come clean on their debts.
    2. We have to control them, as the electorate does in Switzerland.

    Eg. you want to borrow or raise taxes, you need the electorates permission.

  • TomTom

    Read Prem Sikka in today’s Guardian…..

    Squeezing ordinary people’s finances always leads to disaster

    Britain’s rate of wealth transference from employees and the state to corporations is unmatched in any developed country

  • DavidDP

    “screws the retired”

    The retired benefitted from actual high inflation in the 70s and 80s wiping out their mortgage debts.

    The idea that they are being screwed now doesn’t hold water – inflation is not sufficiently high at 3-4 per cent to cause much more damage to savings than the offical target of 2 per cent, and things like the “granny tax” are anything but, simply levelling the playing field to those unfortunate enough to have been born in the last 30 or so years.

    Pensioners are not being hard done by. Almost the opposite in fact.

  • DavidDP

    Inflation of less than 5 per cent is not in any sense of the word high.

  • Nickle

    Inflation is the plan.

    Inflation isn’t the solution.

    Of the 7,000 billion of government debts, just 800 billion is fixed interest. The rest is all linked to inflation.

    Most of those debts are pensions.

  • Peter of Maidstone

    So the politicians win again. This is a corrupt system with no accountability. We should consider a period of strong government of talent as in Rome.

  • Dennis Churchill

    Rhoda Klapp
    April 23rd, 2012 5:14pm
    I agree.

  • Radford NG

    And printing money is not the same as making money.

  • Tulkinghorn

    This is further evidence of a government out of control. We were duped in May 2010 into voting for a Government traditionally fiscally sensible and the friend of enterprise. And instead we get a coalition which taxes us to glory, dries up credit for business in its own interest for lack of financial discipline and screws the retired by QE, by the Granny tax and by driving inflation up.

    So what do we do?

    The May elections are on us and the chance for a message.

    Never mind Dorridge defecting to UKIP, any patriot will vote UKIP in May.

  • TomTom

    It is simply War Socialism

  • Rhoda Klapp

    I repeat for the nth time, inflation IS the plan.