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Who was it who said that QE - printing money by another name - is the last resort of desperate governments, when all other options have failed?
As Labour's Ed Balls gleefully points out, it was indeed George Osborne, the current Chancellor. It is the sort of thing politicians say in opposition and then bitterly regret when they get into government and have to take the decisions.
Yet in a sense, his words are even truer today than they were then. You wouldn't choose further to expand the Bank of England's purchases of government debt unless you were desperate, and all other options had been exhausted. The Chancellor condemned it then; now he welcomes it.
Since nominal interest rates are already as low as they can realistically go and the Government has, rightly, ruled out easing back on deficit reduction - more QE is about the only thing left in the locker as the world slides, inexorably, towards depression.
As regular readers will know, until quite recently I've argued steadfastly against QE2, but on the never say never principle, I was always careful to add some riders. When faced by an extreme deflationary threat, almost anything can be justified, and that's precisely what we are seeing now. As the Governor of the Bank of England, Sir Mervyn King, put it on Thursday, "when the world changes, we must change our response".
Long-standing supporters of more QE will say that it has been obvious for some while that the economy was stalling anew, requiring some form of fresh stimulus.
I can't agree. No growth for nine months is not the same thing as a sudden lurch back into the abyss, a threat which thanks policy paralysis in Europe and the related upsurge of stresses in the banking system, is now only too evident. These dangers have risen markedly over the past two weeks, which explains why the Bank of England has acted both earlier than had been expected and, with £75bn of further asset purchases now sanctioned, more boldly. Sir Mervyn went further than he has ever done before on Thursday by saying that this is "the most serious financial crisis since the 1930s, if not ever". For the sake of appearances if nothing else, something had to be done.
Not that this seems to have been obvious to the European Central Bank (ECB), whose failure to cut interest rates on Thursday was almost as surprising as the Bank of England's decision to act so precipitously and pre-emptively.
At his valedictory press conference, the outgoing ECB president, Jean-Claude Trichet, announced some further "non-standard" initiatives to ease the European banking system's funding crisis, but it was small scale stuff, and frankly isn't going to make a great deal of difference.
Bizarrely, the ECB still seems to be looking in the wrong direction - ever vigilantly searching the horizon for the ghost of inflation - even as the noisy locomotive of economic catastrophe bears down on it from behind. Even for such a compromised institution, with 17 masters to answer to, the incompetence of the policy stance is quite breathtaking.
Glowing though the tributes have been to the departing Mr Trichet, I doubt the judgment of history will be kind.
There are big risks in what the Bank of England is doing, which despite its protests to the contrary, is as close to monetisation of the national debt as you can ever get without doing it outright.
By the time the new bout of asset purchases is over, the Bank of England will own nearly half of the market in three to 25-year gilts, or 32pc of the total stock of UK government bonds. Even when steeped in the economics of quantitative easing, this looks mad, and when things look mad, they generally are.
http://www.proinvestor.se/index.php?p=debat_post&postid=1551
