Daily View: What will creating £75bn do?
Commentators ponder whether it is a good thing for the Bank of England to create £75bn and put it into the financial markets - also known as quantitative easing.
that the Bank of England's action implies they think the banking system is about to collapse:
"QE isn't being introduced for British domestic reasons. Instead, we face the fallout from a banking sector meltdown and multiple sovereign defaults in the eurozone. If that induces collapse in certain British banks, we might soon face a collapse in the money stock even greater than the one we faced in 2009."
The but could lead to inflation:
"In pumping more money into the economy, the Bank is demonstrating its concern to support demand. Under QE, which has already injected £200 billion into the economy, the Bank creates money with which to buy government and corporate debt. The hope is that an expansion of the money supply will ease credit conditions and cut the cost of borrowing...
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"If the Bank hesitates to sell the bonds it has bought under QE, it may stoke fears of sharply higher inflation that will be difficult to damp down again. Inflation may then become self-reinforcing and undermine Britain's long-term recovery."
However, if the new money does create inflation it is people with pensions who will feel the pain:
"The launch of a new £75billion programme of quantitative easing is designed to ensure interest rates remain low for the foreseeable future, cash machines do not dry up and banks have plenty of money to lend...
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"QE2 will be harshest on those who have spent their lives saving. Not only does it keep interest rates low - the return on UK government bonds fell to its lowest level in a century in latest trading - it also eats away at nest eggs eroded by inflation."
that new money created won't create economic growth because it will get stuck in the banks:
"Instead of ambitious projects to direct new money where it is needed, we have quantitative easing - a hands-off, labyrinthine scheme for buying government bonds from banks, which they then use for bonuses. All the evidence from Japan over the past generation is that this form of quantitative easing doesn't work. It seems unable to kickstart the zombie banks into life.
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"But perhaps that is hardly surprising, because it is so indirect. Why have we lost our faith in our own ability to roll up our sleeves and make things happen?"
Finally, the Independent's Hamish McRae warns that the problem with trying to predict whether this extra money will create growth or inflation is we don't know the effects of the last cash injection:
"The trouble is we don't really know what would have happened had they done nothing and it is at least possible that the relationship was the other way round: the policy added more to inflation than growth."
