How to waste £445 billion? – The Failure of Quantitative Easing (VIDEO)

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In 2010 the governmentcancelled a program to rebuild 715schools, because they’d run out of money. But at the sametime the Bank of England had created £445 billion of new money through a program called Quantitative Easing. Instead of this money being spent on something useful, it was pumped into the financial markets, benefitting the richest 5% but doing almost nothing to create jobs and stable economic recovery.

So why does the government cancel essential projects because “there’s no money”, while at the same time the Bank of England was able to create more new money than the entire government spends in 6 months? Why is it that the power to create money is used to blow up property bubbles and boost financial markets, but not to do the things that we actually need? Our latest video explains how things could have been done differently, and why it’s so important to campaign for a better monetary system…

In the years following the financial crisis, the UK wasted £445bn on a failed scheme to stimulate the economy and end the recession. This was one of the biggest missed opportunities in history. Here’s how it happened:

(Note: It was increased from £375 billion since the video was made to £445 billion.) 

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I’ve just watched this video which explains why the government was cancelling school rebuilding programs and flood defence programs because they’d ‘run out of money’, even though the Bank of England was creating £375bn to pump up the financial markets. I think you’ll find it shocking:

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  • disqus_L7a4OvCvpQ

    Programme not program

  • Flavious

    In answer to the title is simple, it’s because The Bank
    of England shareholders are private, they put their vested interests first, we aren’t
    even allowed to know their names.

    • Anne Belsey

      The Bank of England is owned by the government. It has no private shareholders.

      • Flavious

        I stand corrected

      • PFReilly

        Although the Bank of England is nationalised and profits go to the treasury, the mechanism of ‘quantitative easing’ is a) not efficacious in achieving stimulation on productive economic activity and b) places an unnecessary burden on public finances.
        This because a) the increased money is used to purchase financial securities (including government bonds) rather loaned to customers for investment in businesses or consumption (which would stimulate demand for production) and b) the increased money lent to the government, by way of purchasing government bills and bonds, burdens the government with debt and interest payments, thereby limiting their ability to spend and directly achieve economic growth.
        It would be more efficacious if money supply was created to match government investment in infrastructure and services and paid direct to the Treasury, debt free and interest free. The money spent by the government would be deposited with the banks by the contractors, wage earners etc, providing the means for banks to make loans.

  • Oozoid

    Maybe it was the awful tinkly ‘music’ that confused me (WHY must unnecessary noise by added to every video?) but how does £10 turn into £28?

    • Herb Wiseman

      It is called the multiplier effect. When I get paid and then deposit my pay the banks can loan out that money several times over.

      • Dave R

        Would you say ‘multiplier effect’ is just another way of saying ‘fractional reserve’?

        What do you think of One dollar of capital?

      • Anne Belsey

        The banks don’t lend out people’s money. When you deposited your money into your bank, it was already lent out to the person who borrowed it into existence.

  • usefulmusic

    Nearly every family and certainly every business has a bank account. The QE was used to save a cumulative run on the banks. If QE hadn’t happened quickly, no one working or on benefits wold have been paid, savers would have lost their savings, and every business would have failed.

    • Herb Wiseman

      Theory. What evidence do you have for either of your assertions? There is considerable evidence contra your assertions. First there are not that many savers. Secondly those people who started working would then have deposited their pay in the bank and some may have become savers thus forestalling any run. Third you did not pay attention to the what happened to QE money.

    • Anne Belsey

      QE was not used to stop a cumulative run on the banks. Such a run is effectively impossible. If you take your money out of one bank, where would you put it? If you have thousands of pounds, the only safe place is in another bank (and your old bank could effectively borrow it from your new bank through LIBOR). QE was simply used to stimulate the economy. It could not work, because there were too few people able and willing to borrows the ever increasing amounts needed to enable the economy to grow. When our present mini housing boom ends and the Government cuts its borrowing further, expect Credit Crunch II.
      Second contra point.
      The problem with banks creating money is that because they cannot create physical money (such as notes and coins, because that would be counterfeiting), they can only create it as someone’s debt. So in order to have an adequate money supply, we have to have high levels of debt. When a bank loan is paid off, both the debt and the money disappear. Also, when interest is paid on a bank loan, money disaapears, but the debt does not. This effectively means that to maintain our nation’s money supply, we have to collectively go ever deeper into debt.

  • Onemorething

    If bank loans constitute ‘new money’, why does it matter very much to the banks if those loans are not paid back to them? It has not cost them more than the small cost incurred for marketing and admin. Or am I missing something?

    • Anne Belsey

      When banks create new money, they create for themselves both an asset and a liability. Their asset is the customer’s debt to them. Their liability is the new money. If you have money ‘in’ a bank, all you really have is that bank’s IOU to you. So if the loans are not paid back, the bank’s liabilities endure, but its assets disappear. This was bassically the cause of the credit crunch.

  • Marcus

    I generally support the Positive Money campaign, but this video is a gross over-simplification. Why resort to such methods when you’re perfectly capable of putting together a well-reasoned and non-emotive argument?

  • pgarrish

    What did the BoE get in return for this incredible sum? Do they own shares in the banks? Was it a loan that the banks have to pay back with interest?

  • vincent Richardson

    BoE’s own report into QE says it was successful up to a point in that it supported the share market and in the process saved the private pension funds who invest in the share markets.

    They also claimed that companies found raising capital was made easier because more funds were made available via share and bond issuance,.i e investors had more money to invest and with gilts dropping in value it forced investors to look to get a better return from such bonds and shares rather than buying gilts.
    However the Boe did admit that the wealthiest benefited the best,eg the top 5% holding 40% of those assets.THAT is the major problem they have with QE.Yes jobs were likely saved and pension pots bailed out but the lower end of the economy hardly saw any benefit.The economy is also only making very slow progress and one gets the feeling that this QE money would have been better spent directly into ordinary folk’s bank accounts, where it would have seen an immediate rise in spending and an upswing in the GDP.
    To say that QE was a complete waste of money is perhaps taking it a bit far,but it could have been spent more effectively.

  • dannyboy

    Hi Positive Money, this video is good and goes a long way to explode the myth of “trickle down” benefits of QE. I was wondering, where do the statistics behind these figures come from? Specifically, how were the 8p and £2.80 figures arrived at?

  • Rupadarshin Rod Drew

    A friend posted this comment on the How to waste 375 Billion
    article I had shared on Facebook

    music is so annoying and too loud to listen to the narration. I can’t follow the
    arguments with that damn plinking! The style of rhetoric is a little unbearable
    too. Less sarcasm may make it more credible.” It annoyed the hell out of me as so irrelevant and I said so – but feedback can be useful. For me, keep it sober – and give sources. I WANT to convince people

  • hereward

    Why was it necessary to have his daughter practising the piano through the whole video ?
    Who decided they wanted that row going on ? Do positive money people only talk when someone plays the piano ? Irritating , ridiculous and hard to concentrate on the message as far as I am concerned . I will not forward this video .

  • JSB

    This video is incredibly misleading particularly since you try to explain QE (to some extent). QE did not inject money in the “financial markets” other than for the BoE to buy Gilts. You have written so many other really good things that this is really disappointing and leads the less informed viewer in the wrong direction shortly from the start.

  • Fatih

    Session 2 | Islamic Economic System (Part 4) Khilafah Conference – Hizb ut-Tahrir America

  • george

    We need real democracy. Government should be by the people for the people. We are all people that deserve to benefit from Government decisions. It is not just the top 1% or top 5% that exist. We need policies that help ordinary people and small businesses. Not policies that blight ordinary people and small businesses.

  • Hamish Atkinson

    Your video fails to mention that the money created was used to pay down the government’s debt. This did increase bond prices, but this actually lowers the interest rate paid when the government issues new bonds (which it does all the time because it is running a deficit). Putting the money directly into the economy would help more in the short term, but in the long term the UK taxpayer would end up paying more.

    • XAos SPB

      The money created is in the form of Bank of England bonds. So it didn’t reduce government debt, it created £375Bn more debt.
      It was used to buy so called “triple-A” securities from the banks, that are actually valueless.

  • douglas johnstone

    Had the Chancellor given everyone in the UK £580.52 (the £375 billion divided by the UK population) it would have generated more growth, for the majority of people would have gone out and spent that money, so therefore generating growth in the economy.

  • Nelsonimaximus

    I have only just found this site today, and found the video very interesting. I wondered what your thoughts were on the Labour leader candidate Jeremy Corbyn, as he advocates a “peoples quantitative easing” which seems to chime with your own stance.

  • bladerunner998

    Let’s face it, if that £375 billion wasn’t paid…Capitalism within Britain would have DIED.

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