The Lemon Fool

SteadyAim wrote:

johnhemming wrote:Seeing money printing as a regular solution to the problem of balancing government spending and government income will lead to hyper inflation.

My theory is that debt issuance is deflationary and genuine money printing via printing presses or equivalent is inflationary. I think QE is debt issuance not money printing, no matter how often the media call it money printing.

The debt is issued and then bought by the central bank with extra printed money. That seems like money printing to me.

SteadyAim wrote:

johnhemming wrote:Seeing money printing as a regular solution to the problem of balancing government spending and government income will lead to hyper inflation.

My theory is that debt issuance is deflationary and genuine money printing via printing presses or equivalent is inflationary. I think QE is debt issuance not money printing, no matter how often the media call it money printing.

Can you explain your debt issuance / deflationary theory please?

johnhemming wrote:That seems like money printing to me.

It is returning the status quo ante:

Consolidating Quantitative Easing does not significantly reduce the overall liabilities of government but it does reduce the number reported as government borrowing. Once intra-government transactions are eliminated, the scheme represents an exchange of gilts (liabilities of the National Loans Fund) for central bank reserves (liabilities of the Bank of England).

Whole of Government Accounts 2010-2011; §7.54; pp65

Ultimately it is a reduction in income to the private sector, since bank reserves receive less income than Gilts. The rest is rebated to HM Treasury - and now amounts to about 20% of the gross gilt interest payment.

The belief is that the reduction in income and consequent increase in the value of gilts will drive up asset prices via portfolio rebalancing and that will lead to more borrowing due to a "wealth effect". Economists hope that will overcome the income drag.