Is quantitative easing just around the corner?
Mervyn King, the Gov of the Bank of England, has this weekend suggested that the "printing of extra money" in the UK is just around the corner. Commonly known as "quantitative easing", in simple terms this allows the UK authorities to print as much new money as they require in order to try and stimulate the UK economy into life. This type of economic strategy only ever comes into play when national debt reaches levels which are "dangerous" and the gap between current debt and maximum debt levels is near non-existent.
The strong suggestion from Mervyn King that this will happen sooner rather than later has placed severe pressure on the UK currency with foreign exchange traders selling the pound yet again. The UK government recently confirmed that supporting sterling in the foreign exchange markets was not top of their agenda and they were happy to let sterling find a "natural level".
While a weak pound will assist those exporting from the UK it will make imports more expensive and in due course, if left unattended, could feed the monster which is inflation. However, as we saw in the 1930s, in the great US depression, there will come a point when real consumer incomes start to fall and they cannot afford many of the more basic services and products we take for granted today. This then brings into play the threat of deflation which can often lead to a depression which could last for some time.
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