Blair and Brown presided over unprecedented growth in our banking sector with their ‘light touch’ regulations. The result was the creation of mammoth banks, systemically critical, but fundamentally flawed. When the credit crunch hit in 2008, there was no option but to bail out these same banks. They went about this task by taking them into varying degrees of state control but also, crucially, by something that had hitherto been seen as akin to the devil’s work – the printing of money – quantitative easing (QE).
The idea behind QE was to inject cash into the system by the purchasing of assets (mostly government bonds) from banks, and thereby keep them and the financial system afloat. In that limited extent it worked, but that was about all it did which was of benefit.
Its adverse consequences, on the other hand, were significant. At the forefront of these was the breaking of one of the cardinal rules of capitalism: there is a price for failure. The very institutions which had been at the heart of the creation of the country’s trouble were saved. This was only possible by the creation of cash. In any other scenario, the banks would have folded.
“The profligate, who had borrowed money to finance the purchase of assets, doubly benefitted with a reduction in the cost of their borrowings”
Furthermore, the value of assets, such as property, were boosted by the reduction in the relative value of money through its printing. The profligate, who had borrowed money to finance the purchase of assets, doubly benefitted with a reduction in the cost of their borrowings. The rich got much richer.
