Finally, The Mainstream Media 'Get it'....

I have already published two posts recently, but could not resist a further post. I have been reading the Sunday editions and it has become apparent that the mainstream media is finally waking up. The Darling budget has finally persuaded the commentariat of the profound difficulty with which the UK is confronted.

Regular readers can now see many of the views I have long been expressing starting to be mirrored in the press - and it does not make happy reading. Despite this, I read the views with a grim satisfaction. It is not the satisfaction of seeing others coming to share my views, but the satisfaction that the first step in fixing the economy is the recognition of the nature and severity of the problem. With the mainstream media finally confronting the reality of the situation it is quite possible that the politicians will have to start to respond with real plans to address the underlying problems.

One example comes from Ambrose Evans-Pritchard in the Telegraph. He is recognising the impossibility of the funding of so many huge government deficits around the world. He points out that many of the previous supporters of Western debt are now turning off the taps, and that the level of debt raising was in any case increasingly impossible. Perhaps the most interesting comment he makes is as follows:

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

I have long suspected that this has been a part of how the debt has continued to be purchased. When I pressed the Bank of England on the subject of quantitative easing, one of the questions I asked was for them to confirm that they would not be using proxies to purchase bonds in debt auctions (they confirmed that they would not). However, the impossibility of funding such massive debt has kept me questioning how the government might be intervening, and I have recently been trying to find sources for who is buying the gilts at the moment (to no avail). If Ambrose is correct, the government is intervening in the auctions, and my guess that the government is using banks effectively under state control to buy the debt may well be correct.

Perhaps the most vocal in the criticism is another Telegraph commentator, Liam Halligan. His latest article is almost a mirror of my posting on the budget. For example, he notes that the budget does not acknowledge the many forms of off-balance sheet borrowing, and also adds that the bank bailouts are not included:

Remember, also, the hundreds of billions of pounds of off-balance sheet liabilities – not least the bill for public-sector pensions and the utterly dishonest private finance initiative.

For all these reasons, even Darling's outlandish borrowing totals are just the start of the Government's extra debts. Oh – and by the way, much of the cost of the massive bank rescues isn't in these numbers either. The Budget fine print claims officials "haven't yet been able to calculate their impact […] on public sector net debt".

So these borrowing estimates can only rise – as they have after every Labour Budget since 2001. Already, debt service is the fourth biggest item on the Government's balance sheet. Soon we'll be spending more public money on interest payments than on schools and universities combined.

As a final example from the Telegraph, Tracy Corrigan, details the retreat of investors from the UK gilts market:

At least the recently introduced policy of quantitative easing, designed to boost the economy, is helping to support gilt prices. But for how long? The scale of the Bank of England's purchase of gilts under this programme – it is buying £75bn and could return for the same again, if it decides the economic case merits it – is having a powerful effect on the market. But that will be, by definition, relatively short-lived, and at some point that spending, too, will have to be financed.

For the moment, the Bank of England's bulk buying is covering up another unpalatable truth. Other investors are not quite so keen to get involved.

Although UK pension funds hold gilts, they aren't buying much at the moment. Overall, UK fund managers were net sellers last year, and the recession causing lower dividend income this year means they will have less new money to invest anyway. Banks have been buyers, partly to meet new requirements to hold liquid assets, but they now largely have what they need.

Of course, the elephant in the room in regards to the quantitative easing is that, at some point, the gilts being purchased by the Bank of England must be sold back into the market. This will need to be done at a time when investor confidence is diminishing (or disappeared), and the issuance of new debt by the government is exploding. From the FT, there is a leading article which expresses cautious concern over whether the government can continue to finance debt:

Which, of course, is the trick. At the moment, the UK government has little trouble finding lenders, but this can stop on short notice. If gilt investors began to doubt its commitment or ability to close the deficit, the market’s willingness to refinance UK sovereign debt could come to a sudden halt. The government must pre-empt perilously self-fulfilling doubts before it is too late.

Retaining market confidence calls for plausibility: this government must shed its reputation for overly optimistic forecasts. It must also try to avoid the need to roll over a large amount of debt at any one time. The plan to complement auctions with organised syndicates of lenders is a good one. So is the substitution of medium-term bonds for the shortest maturities in sovereign debt issuance. Puzzlingly, however, the government has not increased the share of the longest maturities, despite pension fund demand for more such paper.

These steps, although sensible, do not guarantee safety. Like its biblical namesake, economic original sin differs from ordinary sins: whether you are guilty of it is largely outside your control. Nonetheless, the UK government’s only hope is to stick to the straight and narrow

Willem Buiter likewise expresses concerns in his blog at the FT, although he is broadly positive about the budget:

If the necessary fiscal tightening is not forthcoming because different groups and vested interests are engaged in a war of attrition aimed at shifting the fiscal burden to the other guy, markets could easily panic and Britain could face an emerging market-style “sudden stop”, with the rest of the world withholding financing from its public and private sectors.

To forestall the occurrence of a triple crisis (banking, sterling and sovereign debt), it would behove the UK to apply for an IMF Flexible Credit Line (FCL). Unfortunately, the criteria for qualifying for an FCL arrangement include “ . . . (iv) a reserve position that is relatively comfortable . . . ; (v) sound public finances, including a sustainable public debt position; . . . (vii) the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis; (viii) effective financial sector supervision.” It is questionable whether criteria (iv) and (v) are met. Criteria (vii) and (viii) are obviously not met. In addition, with a £175bn annual borrowing requirement for the next couple of years, the measly $240bn or so the IMF currently has at its disposal is unlikely to make much of a difference.

One of the interesting points is that the IMF is no longer seen as an option to bail out the UK. Quite simply, the demands of the UK are seen as too great for IMF funding, and the possibility of the IMF being a safety net looks increasingly dubious. As it is, the IMF is already confronting problems in raising cash to fund its operations.....

Meanwhile the Wall Street Journal is also expressing the view that there are increasing concerns in markets over the ability of the government to finance their borrowing:

The plunge [in output] raised fresh concerns about the U.K.'s ability to handle the mounting costs of its financial and economic bailouts. Compared with a year earlier, the U.K. economy shrank by 4.1%. That cast doubt on an official projection this week that the economy will contract by only 3.5% in 2009 and rebound quickly enough to help the government get its stretched finances under control.

Even the Times is now accepting that we might have reached the limits, and that a funding crisis looms. I have highlighted the point that is tucked away in their leading article today:

For the people of Britain, the consequences of that imprudence will be with us for many years. It will take nearly a decade to get public borrowing to acceptable levels – if the markets allow us that long – and until the 2030s to get government debt back to the 40% “ceiling”. Whoever wins the general election, we can look forward to years of austerity and tax rises.

From the Independent we have another allusion to the problems of financing the government's profligacy (I have again highlighted the point):

There are fundamental questions that all our political leaders – at least those with serious designs on power – need to answer. What services do we want the state to provide? And what can Britain, as a nation reliant on the confidence of international investors, afford?

One of the exceptions to the increasingly gloomy views on the UK Economy is the Guardian, which still sees relatively upbeat commentary. As one example, Ashley Seager has the following to say:

So where is the economy especially weak? Everywhere, it seems. Manufacturing suffered its biggest quarterly fall since records began in 1948, driven by a 50% annual drop in car output, while the much bigger services sector saw the biggest drop since 1979.

Still, there was one bright spot in separate data from the Office for National Statistics that showed an unexpected rise in retail sales in March, driven by higher clothing and food sales. Is that enough to help pull us out of recession? No chance.

At some point, though, the Bank of England's record interest rate cuts, its £75bn of new money for the economy, combined with Darling's recent tax cuts and the big fall in sterling should put the economy back on an even keel. Today's GDP figures, though, suggest that the battle is far from won.

It seems that he actually believes that it is possible to turn the problems around with interest rates and printing money, but such delusions are increasingly on the retreat. Another similar positive outlook comes from Krugman at the New York Times, who is also positive about the policy of printing money:

So I’m actually fairly hopeful about Britain; right now, the fact that it’s not on the euro is serving it well.

Despite the remaining optimists, there can be little doubt that there is a growing perception amongst the mainstream media that the UK is in very, very serious trouble, and increasing concerns about whether the UK can actually continue to support the proposed levels of borrowing and spending.

I think that, over the coming weeks, there will be considerable interest in gilt auctions, and I would guess that many analysts will looking for cracks in the government financing of debt or the possibility of a gilt strike. Alongside this, there will also be major question marks over the value of the £GB.....

Interesting days are ahead, and increasingly worrying times.

2009 Budget Madness....

I have a curious streak of optimism that somehow the economic policy insanity will be ended. At some point, I keep thinking, the politicians will 'get it', then knuckle down and face the reality of of the task that confronts them. In my foolish optimism I held out some hope that the budget might see some kind of return to sanity. Instead, what we have is a work of complete fantasy, and a work that will plunge the UK ever deeper into an economic hole.

The part that is most shocking about the budget is the fantasy projections for the future of the economy, and many commentators have already seized upon this. For example, Liam Halligan of the Telegraph has the following to say:

One reason is that Darling’s has made some extremely rosy assumptions about future UK growth. While he admitted our economy will contract by 3.5pc this year, the Chancellor foresees a return to growth of 1.25pc in 2010, with the economy booming once more soon after, expanding by 3.25pc in 2011.

These estimates are pie-in-the-sky. Most economists think the UK will contract next year too. And I know not a single forecaster outside the Treasury betting on growth above 3pc the year after.

Even the optimist in chief amongst the economics columnists, Anatole Kaletsky, had the following to say:

Just as the Treasury, along with the IMF and the OECD and all the other supposedly expert institutions, have revised their forecasts out of all recognition in the space of just four or five months, the numbers published in yesterday’s Budget will be overtaken by events in the next few months.

Quite simply, nobody in their right mind will see the Darling figures for growth in the UK economy as anything but fantasy. The reality at the moment is that the UK has a long way to go before it reaches bottom. We have only gone through the initial stages of the economic crisis, and there is much more bad news to come.

For example, there is the forthcoming meltdown in commercial property, which will send the banking system into a new tailspin. This from the Telegraph this April:

Meanwhile restructuring experts have warned that the quarterly rent bill could be the tipping point that would force a significant number of retailers into administration. Malcolm Cohen, a partner at BDO Stoy Hayward said: "Retailers are already struggling for survival and have been further impacted by consumers reining in on their discretionary spending

This is just the retail sector, but there is likely to be a similar continuing decline in the broader commercial property market as the economy contracts. The bottom line here is that, with consumer spending contracting, the retail sectors absolutely must continue to contract. Meanwhile, despite some optimism in the residential housing market, the trend is still predicted to be downwards for a long time yet.

Another element in the ongoing banking crisis will be continually climbing numbers of defaults on consumer debt and mortgages. Even whilst consumers are paying back debt, due to concerns about the state of the economy and unemployment rising at 2000 people per day, there must be ongoing losses at all the major financial institutions, though figures for this are very hard to come by. A good indication of the problems are the ongoing problems being confronted by building societies, exemplified by the dire state of Dunfermline Building Society (which also made significant losses on commercial property). Meanwhile, consumer confidence remains very low indeed.....

Added to this gloomy picture, there is the massive decline in manufacturing output. The Times had this to say:

Manufacturing output tumbled in the past quarter, with 53 per cent more companies cutting their output than increasing - the lowest level since 1975.

Exports, which have performed more strongly in recent months as the pound has weakened, declined more rapidly in the last quarter than businesses had hoped, with a balance of -39 per cent which is far below the expected -27 per cent and the weakest figure since October 1998.

Companies expect export orders to fall again next quarter, but at a more moderate pace.

The same report also highlighted a continued trend of laying off workers. Inevitably, UK GDP is falling at an astounding pace:

Economists were expecting GDP to have contracted by 1.5pc in the final quarter of last year – in line with the preliminary estimate – but the Office of National Statistics had to revise the figure downwards to 1.6pc.

It is the biggest quarterly fall in GDP since 1980 and the biggest annual fall since the last recession in 1991.

The contraction was aggravated by a sharp revision of the fall in construction output from 1.1pc to 4.9pc in the last quarter, falling consumer spend and businesses cutting back their inventories.

It should be remembered in considering GDP that it measures activity, not actual creation of wealth. As such, large percentages of the activity will be funded through government borrowing, meaning that activity now will have to be paid for by a decline in activity at some future point in time.

Under these circumstances, with just about every sector of the economy reporting bad news, the idea that a genuine recovery will start next year is just pure fantasy. Even the IMF forecast for the UK stands as a sharp contradiction of Darling's forecast, with a 0.4% contraction next year. Within this context, the borrowing forecast being offered by Alastair Darling is pure fantasy, but is nevertheless still alarming. With an ongoing contraction of the economy, the need for greater than forecast borrowing is a foregone conclusion. As the forecast stands, borrowing is predicted to rise as follows:

According to projections in the Budget, public sector net debt, the accumulated stock of outstanding Government borrowing, will reach £1,370 billion in 2013/14.

It should be remembered that, in addition to this, there are many liabilities that are buried. For example, Private Finance Initiatives are not included, but significantly adds to the government's real level of debt. Added to this are the unfunded pension liabilities for the public sector which are believed to be double the official estimate at £1 trillion +, and the underlying problem that the first of the baby boomer generation are now retiring. This will mean less workers are going to be available to fund government activity, whilst healthcare and pension costs are set to soar:

Such high national debt is not without consequences: it leads to more expensive interest payments while the flood of new British gilts into the bond market will crowd out investment that might otherwise have gone into the private sector. Meanwhile, Britain's ageing population heralds a mass of new pension contributions, further obligations to public funds that the government probably does not want to think about right now.

Under such circumstances it is no wonder that many commentators are now questioning whether the government will be able to continue to fund such extravagant borrowing. For example, and article in the Wall Street Journal is pointing out the significant risks in the UK fiscal position, with concerns about quantitative easing (printing money) and the massive expansion in debt:

But a big expansion in quantitative easing -- already huge at 5% of GDP -- carries risks. It stores up trouble for the future, increasing bank sector reserves that will eventually need to be mopped up before they trigger an inflationary surge while adding to the BOE's stock of gilts that will one day need to be sold.

More importantly, it would fuel suspicions the BOE is simply monetizing the government's debt, further undermining the U.K.'s credibility -- and potentially precipitating the BOE's nightmare scenario.

That leaves the BOE in an invidious position. Its own credibility is all that stands between the U.K. and a full-blown financial crisis. Yet thanks to the government's refusal to spell out a credible plan to reduce government borrowing, the BOE finds itself at the mercy of foreign investors, who by the end of last year held 35% of gilts.

It wouldn't take much -- a further collapse in the public finances, another bank bailout or signs of a surge in inflation -- to undermine sterling and prompt the showdown the BOE fears.

The government could yet be forced to deliver a proper budget before the year is out.

The possibilities of a gilt strike, a refusal of markets to continue funding UK government debt is becoming an ever greater possibility. The risk of sovereign rating downgrade is looming, and there have been ongoing problems at gilt auctions - even before the budget:

The scale of the Treasury's borrowing plans -- and continued fears about the UK's ability to recover from the slump and repay its debts -- have raised the prospect that investors may simply refuse to buy all the bonds the Government issues.

The Treasury was last month hit by an "uncovered auction" when investors refused to buy all the gilts ministers wanted to sell.

Also, even before the budget, the £GB has been under pressure, and this can only serve to raise anxiety about the massive issuance of gilts:

There is evidence to support the view that sterling may have moved to a permanently lower level, reflecting a preference shift away from what the UK does best, namely financial services. But the results suggest that around 60pc, of sterling's decline since mid-2007 can be accounted for by a rise in the risk premium associated with holding sterling.

In plain English, overseas investors fear that the UK may no longer be capable of delivering the stability that it was once thought to have enshrined. And given the extent of the government's borrowing, they see a significant risk of inflation ahead. And who can blame them, sterling has form.

From the FT, we have the following:

On Wednesday, for example, the cost of protecting five-year gilts was 95 basis points – meaning it costs £95,000 a year to insure £10m of bonds – up from 18 basis points last summer (albeit down from a peak earlier this year).

But if that is embarrassing enough, the cost of insuring the chocolate giant Cadbury was on Wednesday far lower, around 50bp. A company that peddles chocolate coins, in other words, is currently deemed a better credit bet than the British Treasury itself.

Perhaps the most worrying aspect in all of this is that the markets are still paying attention to GDP as if it were a meaningful figure. As such, they measure the state of the government's debt and the ability to repay are based upon GDP figures. As I have often emphasised in this blog, GDP figures are a fantasy, as they measure activity which includes activity resultant from increase in debt. As such, with the government borrowing soaring, and massively indebted consumers and businesses, current and past GDP figures have been massively inflated by activity resultant from debt. As such, all of the analysts (I assume) are measuring the ratio of debt against a measure which massively inflates the perception of the UK's ability to repay the debt.

I have not covered the details of the budget and have emphasised the big picture of the overall fiscal position. I will not go into the details of the budget, which are quite simply tragi-comedic. However, as an example, I have already pointed out the absurdity of the car scrappage scheme in a previous post. To this we can add the 'green' measures, such as a massive investment in useless wind farms (I have detailed why they are useless in a previous post). As Britain falls ever deeper into a black hole, precious resource is being diverted into schemes which simply can not be afforded. Or there are supposedly going to be measures to trim areas of public spending, about the IFS has the following to say:

“The Government has announced that nearly £6bn of extra efficiency savings will be delivered by the public sector in 2010–11. A large proportion of these savings will be delivered by just two departments: Health and Children, Schools and Families, who have announced new efficiency savings of £2.3bn and £0.7bn respectively – equivalent to 2.2% and 1.3% of their current budgets. As a proportion of their current budgets the biggest savings come from Transport at 3.0% and the Home Office at 2.9%. Local Government and Defence have also identified large efficiency savings, of £0.6bn and £0.45bn respectively, but the Treasury has labelled these as ‘recyclable savings’ –meaning that these departments will not actually have their resources
budgets cut by this amount in 2010–11.”

In fact, as the budget is taken to pieces, it is increasingly being derided from every quarter. Above all else, the commentary on the budget appears to focused not on the details, but on the sheer scale of the profligacy of the government, and how it might be able to finance its massive spending plans. The revised figures for the economy detailed in the budget appear to have created a profound sense of shock to the commentariat, and the reality of how bad the situation is has now begun to sink in.

I have erroneously made a prediction of a run on the £GB, the timescale for which expired recently. Having made the error once, I will not once again put a timescale on such an event. However, this budget, the shocking nature of the soaring debt and plunging revenues, must surely mean that the possibility of a gilt strike and run on the £GB have moved that much closer. Even the most moderate of the commentators are now assuming that, at the very least, the cost of servicing government debt will rise. I had the following to say back in November of 2007, at a time when the crisis had not emerged into the full light of day:

All the while this is happening the government will fall into crisis. With a falling pound, an economy collapsing around them, and an already overstretched borrowing position, they will be faced with ever more expensive borrowing, meaning higher interest rates, or massive cuts in public expenditure. There will be no room to manoeuvre. The only solution will be to cut back on expenditure. Continuing to borrow will be too expensive, and would destroy the value of the pound, as well as creating an even deeper crisis of credibility that the UK government can manage the economy.

As I look at the 2009 budget, the one thing I do not see is the real cutting of expenditure. At the time of writing I could not imagine that the UK could reach this position and still continue to borrow and spend in the way that they are doing. That a government could be so irresponsible was beyond my imagination.

In writing this blog, I have always tried to view the actions of the politicians in a positive light, at least as far as their intentions are concerned. I have seen them as fools, but fools with the right intentions. As I look at the budget and the forecasts provided by Darling, I struggle to maintain such a positive view. I simply can not believe that Darling (and Brown) believes his own forecasts.

If this is the case, and he does not believe his forecast, the only conclusion that can be drawn from this budget is that it is a horribly misguided attempt to create a pre-election bounce in the economy. It is a budget aimed at keeping Labour in power, and is being undertaken at massive risk to the economy in the short, medium and long term.

Quite simply, it looks like the government is willing to risk the entire UK economy in a mad gamble for an electoral advantage. If so, then it is a disgrace.

Note 1: A very lively debate on the last post. As ever, the comments were intelligent and considered, and are one of the most successful aspects of the blog. I increasingly see the comments section as one of the best parts of this blog, and would guess that it is at least as much of a draw for visitors to the blog as the original posts.

Note 2: I would sincerely like to know who might be buying gilts at the moment. If anyone has any information on this, please post a comment or link. The usual source for this information is the DMO, but they will not publish on the current quarter for a long while yet. Are there any other sources that are available now? Thanks in advance for help on this.

A Letter Requesting Information on The Policy of Quantitative Easing (Printing Money)

Over my last two posts (UK Government and Money Printing - More 'Funny Business'? and It's Official - the UK Government is Now Bankrupt), I have highlighted that the Bank of England is about to finally embark on the policy of 'Quantitative Easing', otherwise known as printing money. They have suggested that, amongst the assets that they will be buying will be gilts, which is a purchase of government debt. This means that the Bank of England will be, in some way, funding government borrowing through printing money.

I took a look at the information being provided by the Bank of England on this policy, and found it lacking in any kind of detail whatsoever. One of the documents that I found on the Bank of England website was a report on a press conference on the subject, which showed that the press were simply not asking the right questions. In fact, although it sometimes appears that they are asking some cutting questions, their performance brings the word supine to mind. They failed to ask any of the most basic questions that should have been asked.

The Bank of England is about to embark on a very drastic and radical policy, and the press completely failed to ask for any detail on how the policy would operate. The policy will mean a massive increase in Bank of England intervention in various markets, and that this will have profound implications for the economy, but the press asked for no detail....???

As such, I have sent a copy of the following to the Bank of England email address for press enquiries, and a copy to their general information address:

I write for Cynicus Economicus, and have had some trouble finding clear information regarding the Bank of England's policy on Quantitative Easing (QE).

As such, I would be most grateful if you could provide the following information:

1. What quantity of money will the Bank of England be adding to base money in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
   
2. In what form are you planning to add the money? This is the question of which assets the Bank of England will buy as part of the QE operations? Can you give a projected split / proportion of which type of assets will be purchased in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
3. Can you give a clear description of how the split/proportion of assets to be purchased under QE has been determined?
   
4. If you are unable to answer questions 1,2, & 3 can you confirm that this is because you have no firm plans for what you will be undertaking in relation to quantitative easing? If there are no plans, can you give a clear description of your criteria for the decision making that you will use in determining how much you will purchase of which kind of asset, under what circumstances?
5. Can you give a clear description of the method you will use to purchase each asset class? In particular will you undertake any action to purchase gilts, or an other form of UK government bonds, directly through the UK Government Debt Office auction process or any other direct means?
6. In a recent press conference Mervyn King suggested that the reporting of QE would be undertaken in the minutes of the MPC. Can you confirm in detail exactly what information will be provided in the minutes?
7. The MPC minutes are not (I believe) intended as a reporting tool for activity such as QE. As such, why is the policy and action of QE not being reported in a formal publication dedicated to this policy? In particular, QE is widely seen as a radical policy, which Mervyn King describes as 'unconventional'. Under such circumstances, with significant implications for the operations of markets and the broader economy, why is no formal and transparent method of reporting being implemented?
   

In any reply, please do not refer me to documents that do not answer the specific questions that are being asked. The questions are very direct and very clear, as I believe that my readers would like very clear and direct answers. There is considerable concern about the policy of QE, commonly referred to as 'printing money', and I am sure that you would wish to provide the information necessary for people to understand this policy, and how it will operate.

Thank you in advance for a full reply that answers these questions in a way indicative of a desire to be open and transparent in reporting your activity.

This is the second time that I have sent a letter to the Bank of England, and the first letter was on a related subject. I asked them to confirm that they were planning to report the amount of money they created under the QE policy. They ignored the last letter, so I hope for a response this time.

The reason that I am writing the letter is that I dislike conspiracy theory, and will always seek to clarify any suspicions that I might have. In this case, if the Bank of England is doing nothing that might alarm people, I can see no reason why they might not respond. To not respond to one email might be an administrative oversight, but to fail to answer two starts to look like they do not wish to reply.

I would also expect that my questions might prompt them to issue a press release, as these are all perfectly reasonable questions that people might reasonably want answered. After all, printing money to buy government debt is something about which the public might have concerns. My email simply highlights the kind of questions that might be asked.

I will let you know next week whether I have been sent a reply.

Note 1:

I have just seen that on my last post but one, the headline was poorly written. I have now changed it. Inevitably, with no editor I will make many errors, but to make a crass error in the headline has left me rather shame-faced. The error was writing Its instead of It's ....

In light of the rather bad error, I have simply changed the headline. Normally, if I make any change to the content of the blog will add a note including the date and nature of the change. In this case, I have not left a note on the original post, but thought I should mention the change somewhere. Thus this note...

Note 2: Thank you for the many comments on the last post. I can see that many share my concerns. As you may have noticed I have been busy with posts on QE which has left me little time to reply to comments, so please accept my apologies for not responding on this occasion.

Note 3: It may actually be a good idea to start a campaign on this subject. I really do find that this opacity is quite shocking, and do not think that the government should get away with it. As such might I suggest a letter writing campaign to your local MP. You can find the email address for your local MP here (click on the map for your constituency).

This is is my suggested letter which you can copy and paste, or alternatively write your own version:

-------------------
I am writing as I have very increasing concerns over the recent Bank of England policy to implement quantitative easing. In particular, I am worried about the following:

1. There is no policy document that clearly outlines how this policy will operate, what quantity of money will be created, what assets the money will be used to purchase, and what method will be used for the purchases.
   
2. In addition to this Mervyn King has suggested that the method of reporting for Quantitative Easing will be through the MPC minutes. This is not the purpose of the MPC minutes, and there is no requirement for full disclosure of activity in such a method of reporting.
   

This is all very opaque.

I am very concerned at such opacity in consideration of the fact that the Bank of England will be using money creation to purchase gilts. In this situation the Bank of England will therefore be creating ('printing') money to purchase government debt. This might be seen as government operations being funded by printing money.

Under such circumstances, it would be reasonable to expect the Bank of England to offer a transparent and detailed discussion of the policy as a formal policy document, as well as a formal, full and transparent procedure for reporting their activity.

I would therefore be most grateful if you could, on my behalf, seek to clarify why this process is being undertaken in such an opaque manner, and clarify exactly what the policy will be. I would also be grateful if you could press for a proper method of reporting on the policy of quantitative easing.
------------

Additions, suggestions for improvement will be welcomed. Just leave a comment below.