QE
Today's FT has a useful piece on the theory behind quantitative easing.
MV=PT
M is the quantity of money
V is the speed/velocity at which money flows round the economy
P is the level of prices
T is the number of transactions
If you believe that V is stable, increasing M must push up P or T or both, thereby reflating the economy.
The danger is that if people hoard the extra cash instead of spending it V will plummet, meaning that P and T still fall so deflation continues.
posted by Whispering Walls at 9:39 am
4 Comments:
Well for a start V has reduced dramatically ( as you know) not least because banks are taking 5 days to clear a cheque into an account now ( what happened to the 2 day clearing I ask?)
Clearly T has fallen dramatically recently - so maybe with V having fallen and M increased, we might get T back up there.
Or maybe not...
And I don't see the political will to stifle inflation as Volcker did in the 80s in the US.
But what's quantitative easing, WW?
Yes but deflation is the current problem, KL, not future inflation. Maybe we should be piling into index-linked gilts?
It's printing money, WL.
Yes but deflation is the current problem, KL, not future inflation. Maybe we should be piling into index-linked gilts?
It's printing money, WL.
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