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Brown in final gamble: to print money
Joe Murphy, Political Editor08.01.09
THE Government may resort to printing extra money if interest rates keep falling.
It is being considered as a desperate measure if base rates fall so far that they cease to work as an economic lever.
Base rates are set to plunge tomorrow to the lowest level since the Bank of England was founded in 1694, with another big cut of at least half a point to 1.5 per cent or even lower.
Chancellor Alistair Darling and Bank of England governor Mervyn King are considering whether to embark on a new policy of expanding the money supply, or quantitative easing, sources today told the Evening Standard.
"We are looking at the issues," said a senior Treasury source. "No decisions have been taken."
It would mean a historic retreat from the economic housekeeping rules that have held sway since Margaret Thatcher wrested control of the money supply in the Eighties in her crusade to drive out inflation.
Printing more money would release a flood of extra funds to buy assets, with the new cash filtering through to businesses and families. It is aimed at preventing a sharp shrinkage in the money supply, a move that could prolong the recession. However, a policy of printing more cash has never been openly practised in Britain.
Economists see it as a potentially dangerous step that was unthinkable just a few months ago - recalling that unchecked money supply was at the root of hyper-inflation in Argentina in the Seventies and Germany in the Twenties. But they warned there may be no option.
Vince Cable, the Liberal Democrat shadow chancellor, said: "It would be a very dangerous course of action and if it went wrong there could be high inflation afterwards.
"But if we get into the dire straits of deflation then governments have no choice but to take drastic measures. These are policies for truly knife-edge situations."
The Bank of Japan resorted to printing money when its interest rates hit zero at the beginning of the decade and the US Federal Reserve is currently tempted to copy the policy.
But Investec chief economist Philip Shaw said: "We are sceptical that quantitative easing in the strict sense ... will give the real economy a significant push, especially as this did not appear to have a material effect in Japan earlier this decade."
Vicky Redwood of Capital Economics said: "The Bank is likely initially to tread cautiously into such new territory."
The Chancellor today warned that the recession is "far from through" and hinted that radical new policies to hasten recovery may be needed. He said the Treasury and the Bank would need to work "hand-in-hand" in future, casting a question mark over the Bank's independence.
"In the current climate, no responsible finance minister could say that's the job done, far from it," he told the Financial Times. "We are far from through this."
Figures today brought more bad news. New car sales slumped again last month, dragging the total for last year down 11.3 per cent. The boss of fashion retailer Next said the emergency VAT cut had failed to boost sales. Chief executive Simon Wolfson called it a "missed opportunity" and said tax cuts would have been better.
Reader views (53)
The government is hell-bent on destroying sterling and savers' wealth. People are not fools. They will see what quantitative easing for what it is - state-sanctioned theft from savers in order to bail out reckless borrowers. If QE goes ahead the markets will send sterling through the floor. Savers are likely to switch out of cash deposits and move into a spread of liquid physical assets to protect themselves from such hyperinflationary tactics
- J Dickinson, middlesborough
Printing Money! This is a fantastic idea from a man who clearly wants to put the Great back into Britain. Applying Gordon's Labour Logic, I've photocopied all the £10 and £20 notes in my wallet (even putting three to a page to save paper and the environment) and tomorrow I'm going to spend to end this pesky recession.
- Rich Bhoi, London
Prepare to see any remaining saved money pulled out and turned into non-printables. I am aware of numerous people in their late 60's-70's talking about pulling their savings (of between £50-100K) and investing them elsewhere. I don't believe we have seen such traditional "money in the bank is the safest" types up sticks. Given the massive financial obligations, Labour really have no choice. My advice for my parents is to pull the cash and invest in x,y,z.
Watch it happen, then watch what happens. The irony is that this lot in charge can just walk away with no personal consequences. Total madness.... but then again... there is always the Euro....the longer term federalised mega-nanny.
- Stuart Dann, St John, Cornwall
Oh come on! Save us from the fake smile & newly re-styled Brown haplessly meandering from one "initiative" to another, each more inappropriate & disastrous than the last. When will the Brits see through Mandelson's spin and save themselves from the train wreck into which Brown is causing the UK to hurtle headlong?
- A J Britt, Brussels, Belgium
Fake calculated smile, calculated family for calculated position. When will the British public see through the spin of the newly reappointed fool brought back after a less than stellar (!) performance in Brussels and call for the resignation of this hapless incompetent? If he were the Finance Director of a company he would never have made Managing Director. If he had been the Managing Director, the company would have been bust long ago!
- A J Britt, Brussels, Belgium
Sorry Jason Gold, but could you send your messages in English, I don't undertand Diatribe.
I sympathize with you over your education. It's not your fault.
- Minnie Ovens, London,UK
The accompanying picture of Brown sums up his mood at the prospect of printing new money. He is ecstatic, it furthers the destruction of the country, and to drive the uk into the euro at a much reduced rate.
To him, a Scotsman (and probably his chancellor, a fellow Scot), he hasn't done enough to destroy the English pound. He needs to complete the job, like the unelected Mugabe, by wasting more forests to print increasingly worthless paper.
His epitaph will endear him to his fellow country men. I destroyed the pensions of those English who had money, I destroyed their economy, I destroyed the effectiveness of the armed forces, I politicised the security and police forces, I didn't help their education, in fact I damaged it severley, and I did the like to the National health services.
I greatly reduced the the power of the political powers of parliament, with the help of Tony Blair, I manipulated the voters by fixing boundaries to the disadvantage of my opponents.
I hoodwinked the electorate (with the help of TB) and my cannon fodder in parliament.
He still has a while to continue his destruction of the UK. European reward, there will be because he is exactly the corrupt type of politician they need to complete the power transfer to the unelected (by the voters) commissioners. Shades of Russia's commissars and the Chinese leaders. Communism by the back door!
- Hugh, Middx
I think Simon Wolfson summed it up nicely on R4 this am. Gordon Brown has missed a huge opportunity with tax cuts and intelligent investment that would improve our infrastructure but no - he tinkered with a ridiculous 2.5% reduction in VAT - where did he think that would get us when sales are down with shops offering 25%+ reductions. £12.5Bn up in smoke ! And then on the one hand he tells the banks to lend more at reduced rates but is charging a much higher rate in the form of Government loans etc - You could not run a local chip shop with business acumen like that and he is trying to run a country !! Also I would like to know what happens to all those individuals that took Chancellor Brown's advice a while back and took out longer term fixed rate mortgages. I'm afraid the leader we all did not vote for does not know whether he is coming or going at the moment and that is evident in the manner in which he is bankrupting UK plc. Although I'm sure we can sleep easy tonight now he is touring the country for 3 days - at least he is not in London make a mess of everything like he has for the last 11 years.
- Daz, Derby
Glad I caught this story I was on my way out to buy a new wallet, changed my mind and bought a wheelbarrow.
- Robert, Dumbarton
Oh I do so hope the British government prints lots and lots of money. All my money is in euros so It will sure make visits to the UK extraordinarily cheap. Probably be able to make a trip to the UK for the weekend for about €50. Yippee! 1euro = £200. Can't wait! Keep on printing.
- Mel Barrows, Tenerife. Canary Islands.
What stuns me is that the opinion polls show does as I say and not as I do Brown is his popularity is up!
Who the heck are they asking? His family? GET BROWN OUT NOW before he destroy's this country even more.
- Jim Price, London
Gordon has spent over ten years in the demolition of UK Plc, the notion that he now wants anything to work is laughable.
- Wills, Soton
What follows is your worst nightmare! Rampant inflation a worthless currency and unions demanding huge pay deals every year until civil unrest causes Mugabe-Brown to jump ship on personal grounds leaving behind the next best thing to armageddon.
Multicultural Britain will be shown up for what it is, an unmitigated failure. The under class created by Nu-Labour will be fighting the working class the working class will be at war with the religious factions promote by Blair for just that purpose.
- Mike, London
The end of "FREE MARKET ECONOMIC MADNESS"nothing more,nothing less...The Chickens set loose by THATCHER and REGAN" are coming home to roost.The shift from Social Responsability to the Cult of the Individual as first promoted by the two offore mentioned finally broke through to the Establishment itself,re;the "Global Financial Institutions"ordinary people with ordinary jobs around the globe must pay the price for the GREED of unbridled uncontrolled free market economic madness of the last twenty years.The only thing the Labour party here and other parties elsewhere did wrong in the past was not to re-take control of the financial institutions long ago..We must move to a more State controlled financial enviroment as soon as possible.
- Jason Gold, London England
How come the Queen is not calling this un-elected powermad fool to account?! He has failed on all accounts - finance, society, education, health, infrastructure and economics - as PM and should never have been appointed by his party. I will never vote for Labour again - if we get the chance to vote that is...
- Jacqueline, Hampstead, London
Dont
- Jc, se1
First Nulabour will print money and then when that fails? It would not surprise me if they then printed ballot papers for the next election filled in and ready to count!
- Steve.W, B'ham UK
To get us out we need to stimulate the private sector - to do this we need to lower taxes, get rid of the red tape & excess legislation to encourage comapnies to expand and curb the public sector. Printing money does not work - look at Germany in the 30's, Zimbabwe today.
- Jeremy E, London
Have we learned nothing from history?! That's it. I'm swapping everything I own for gold.
- Bg, London
Most alarming - a 'Weimer Republic' senario, leaving the country open to an extremist takeover.
Surely, he would call an election before doing anything as drastic as this!..
- Bill Caplin, Camden
Printing more money without the assets to support it simply means that the individual unit, the pound, will be worth less - and thus the exercise is worthless!
Can we say 'inflation' anyone?
- Rogan, Irving
A disaster just waiting to happen. On the off-chance that the PM or any of his advisors might read the readers comments for this story, DON'T DO IT. It will lead to rampant inflation, a further devaluing of stirling, and cause even more damage to our economy. I cannot think of nor find reference to any government that has found econominc success in printing more currency.
- David Kay, Crystal Palace, London
Gordon, why do you hate me so much, i have worked the last 20 years in an avarage paying job, never been in debt and built up some savings. I can accept that there are good times and bad times, but why must you make a move like this that will destory everything so many hard working people have worked for and prevent good times for the people ever comming back again?
- Jon, london
I like the idea of 'releasing money' to buy or support assets. But what happens if those 'assets' continue to fall in value, such as buying a house that was £300,000 a year ago and can be bought at £250,000 today, but will be £125,000 a year from now. And if the borrower took a 70% loan, will then be in negative equity. I may not be a high paid Treasury guru or the chancellor in fact I left school with no qualifications, but even I can see the trap or idiocy of this policy. Just hope that Tesco's dont close my local store, as I may need a job stacking the shelves. Or maybe I should put my name up to be my local MP and if lucky would ride off to Nirvana with inflation proof everything.
- Bondy, london
The loss in value of the pound of 25%+ over the past few months is the world's verdict on Brown. Not just his tenure as PM, but as chancellor. It's also the verdict on smoke-and-mirrors Blair who "fooled almost all of the people almost all of the time" that he was Thatcher lite -- when in fact the Old Labour termites were eating away at the building. Printing money will do nothing: banks - in the normal course of business - create money by lending: the money lent is spent and re-deposited creating "new" money. This normal cycle cannot be restored by printing bank notes: it can only be restored by fixing what's wrong which is that no-one trusts the financial system any more -- because it has been exposed as a gigantic Ponzi scheme. Trust needs to be restored. This means removing reckless bankers who got Britain into this mess, and replacing their regulator cronies with genuinely independent thinkers. Effectively, Britain's bankers ran unlicensed gambling operations -- a few jail sentences under the gaming acts would make the public think the government were taking the problem seriously. The problems are at the detail level: dishonest and stupid bankers and regulators. These problems can't be solved at the easy-answer macro level by printing money and leaving the bankers and regulators in place.
- Bobby, Auckland, New Zealand (ex London)
Monopoly Money or Zimbabwean Dollars anybody? Pa Broone's answer to everything - Print More Money.....
- Uncle Vanya, East Anlgia Area UK
Brown should lower taxes/tax thresholds for all workers etc. In order to spend more, people need money in their pockets. Reducing business corporation tax & VAT by 2.5% is useless. Tax cuts have immediate effect and make people feel better, as though the government are at last listening to them?
- Mike Shillito, Leeds
The proposal is uncomfortable however surely the question is whether it will work, ie revive the economy.
If it works then it's worthwhile.
- Reg, London
Comparisons with Japan are surely not valid - that country has a manufacturing based economy and did not have trillions of dollars in combined government, corporate and personal debt.
Broken Britain now produces very little that anyone wants to buy and imports everything from clothes to food to energy. If anything, comparison to Zimbabwe is closer to reality.
Will Danish farmers, French merchants, Chinese manufacturers be content to accept freshly printed notes from this country? No way, they will inevitably insist on payment in euros or U.S. dollars.
With sterling in free fall Brown and Darling had better sponsor emergency designs for Million and Ten Million pound notes.
It is high time the political elite focussed on the fact that Blair, Brown and the rest of their muppet crew have completely trashed what was once a pleasant country. The Conservatives and Liberals now need to urgently combine their best people, in the National Interest, to force out this malignant government before it takes Britain into a situation that will have Mugabe laughing his socks off.
New Labour has no credibility and is finished; for the sake of our grandchildren, regime change is needed NOW!
- Ex-Pat David, Cape Town, South Africa
Stop the waste of billions leaving the UK, billions for which taxpayers have to pay for a second time through interest on Gord's impulsive borrowing.
It would be a start to stop subsidising our competitors in the EU, Germany's carbon emissions, India's space programme, third world dictators, etc...
- Jools, London
This is why, in a footnote the pre budget report, the requirement of the Bank of England to report the volume of new money was printed was removed.
With collapsing tax revenues and a massive public spending commitments (not to mention the Northern Rock bail out) Brown's policies have left him with alternative other than to print money.
We become more like Zimbabwe every day.
- Inoff The Red, London UK
people have no confidence in brown and labour the quicker they get kicked out thr better!
- Paul Connolly, herts
Boom & bust Brown has failed in a very similar way to all his ideal world communist heroes.
Come on The Great Leader call a general election!
Labour 1997-2009; a period of wasted opportunity under undoubtedly the worst ever British government.
- Joe, Thornton Heath, UK
I don't know what Mr Brown looks so happy about. The same cash printing went on in the Weimar Republic - and didn't do any good either.
- Robin, Brentford, UK
We shall then have hyperinflation and we will have to push wheelbarrows of cash around, Zimbabwe-style, to buy a loaf of bread. This will lead to the end of sterling and the adoption of the euro, which is precisely the game plan anyway.
- Neil, london uk,
Oh my god! I can not think of a scarier scenario. An out of control Labour government printing money. Sterling will be worthless and as we buy a lot of our food and almost all of our energy fom abroad inflation will go through the roof!!!
- Mark, London
Printing more money; isn't that what Zimbabwe was doing until it could not afford even to pay the printers?
- Adam, London, UK
why not go the whole hod and issue Monopoly money
- R Powell, Surrey
Hahahahaha!! Just when you thought New Labour could not go any lower in their embarrassing attempts at saving the economy....!!
I am impressed that they keep finding ways to amaze me with their utter reckless stupidity
- Lb, London
Well if they do just that and flood the money markets with additional cash we have little remaining gold to support it, then watch the pound sink, never mind parity with the euro it could hit parity with the US dollar - to hell in a handcart springs to mind, this is so demoralising, Brown should dissolve parliament and restructure under a united cross party action group to get us out of this awful mess
- Wallytrader, London
About time too !! All the notes I have in my wallet are dog-eared and scruffy !!!
- Benji, Hendon
Can I have all the old notes?
- Nobby Clark, Perth, Scotland
Similar to Zimbabwe !!
- Brian Hughes, wales
Like and alcoholic reaching for another bottle, or a drug addict craving the next fix, Brown just cannot resist reaching out once again to shake the money tree he found in the back garden of no.10. The sooner we send him off to detox the better.
Just think what would happen if you carried through this policy to the nth degree..... Everyone can print as much money as they wish. Then everyone could have everything that they desired, but then there wouldn't be enough of anything to go round, so everything would cost more because people could afford it.
That's called inflation
What we need is a new leader, a leader who understands thrift, preferably a woman....with a handbag and some radical ideas. There must be another one out there somewhere?
- Ronnie, Brantome France
Gordon Brown is completely out of his depth. The markets have realised this and that is why sterling has collapsed; until Brown resigns things will just get worse and worse.
- Simon Ellis, London
Oh God, we're screwed.
- Sandy, London
For what it's worth we may as well use Monopoly money.
- Steve, London
Terrific! They print more money and the pound goes down and then there are twenty pounds to the euro and I'm going to be rich because I've got a couple of hundred euro under the mattress. Great strategy, Gordon!
- John Problem, Hackney Wick, London, UK
Christmas daisies - we truly are governed by total morons!
This is the Mugabe Zimbabwe and Weimar Germany solution. Look what a success they were. Even Melvyn and Keith must recognise their poster child Gordo is the worst kind of fool.
Truly a government of none of the talents. This must be why history is being dropped from the Nat Curriculum. That way they can repeat the HUGE mistakes of the past and Labour fools will cheer them on.
Simpler to adopt real prudence and cut bloated big government. Drop ID cards and the Uber database for a start! Then resign Crash McIdiot!
- Ethan Edwards, UK
How can he laugh after all that he has caused?
- Georgie, Islington, London
Can someone please stop this un-elected mad man!
- Steve Williams, London, England
Stop digging in the hole your are in! There is no easy fix, get out of the hole by waiting to see what happens to the things you have already done. Its only been a few weeks and its too early to say anything about anything that has been done so far.
State economics is like oil tankers, they only turn slowly and quite some time after sterring correction has been applied.
- Danny, Manchester
Alistair, there is a bloke in my local boozer who sells fake tenners for £3 each - if you want i'll get him to call you, he's always got stacks of them lying about
- Simon Bucknell, enfield
