THE NON-REPLY FROM
THE CHANCELLOR OF THE EXCHEQUER
RE CREDIT CREATION

The following letter, which was undated, came through my letter box on April 9, 2010. Headed HM TREASURY Correspondence & Enquiry Unit, it reads as follows:

Dear A Baron,

Thank you for your letter dated 8 March about quantitative easing. As it is not
practical for Ministers to respond to all the letters they receive, I have been asked
to reply on their behalf.

As you mention in your letter, with the Chancellor's authorisation, the Bank of
England has undertaken a programme of asset purchases financed by the creation
of central bank reserves totalling £200 billion. It is important to stress that the
Monetary Policy Committee (MPC) of the Bank of England has operational
independence over monetary policy, and pursues an objective of maintaining price
stability - as defined by a 2 per cent annual rise in CPI inflation - and, subject to
that, to support the Government's economic policy.

The severity of the global downturn created strong deflationary pressures on the 
economy, and having cut Bank Rate to 0.5 per cent, the MPC decided that further 
action was needed to counter the risk of deflation. Asset purchases financed by 
the issuance of central bank reserves have allowed the MPC to ease monetary
conditions further by raising the quantity of money in circulation at a time when it
has not been feasible to reduce further the price of money. The stock of past
purchases, together with the low level of Bank Rate, will continute to impart a
substantial monetary stimulus to the economy for some time to come.

The vast majority of the Bank of England's purchase through the Asset Purchase
Facility (APF) have been of government bonds, known in the UK as gilts. Article
104(1) of the Maastricht Treaty forbids EU member states from printing money to 
finance their deficit. However, the Bank of England has been purchasing gilts in
the secondary market. Central banks routinely buy and sell government debt in
the secondary market as part of their normal operations in the money markets,
and such operations are not deemed to amount to monetary financing under the
Maastricht Treaty. Quantitative easing differs from these normal operations only in
their scale and the length of time for which the assets are likely to be held. It is
important to emphasise that the MPC is undertaking these asset purchases for
monetary policy purposes and not for fiscal policy purposes.

Crucially, however, the APF has been designed to enable the MPC to withdraw the 
additional monetary policy stimulus as the medium-term outlook for inflation
picks up. Assuming the economy strengthens in line with the Budget forecast, it
will be appropriate and necessary to withdraw some of the monetary stimulus in 
place. The MPC will determine the apppropriate combination of increasing Bank
Rate and the sale of assets under the APF. The MPC's flexibility with regard to
withdrawing this additional monetary stimulus would be considerably impaired
were the newly-created central bank reserves to be used as government spending 
in the manner in which you suggest.

Thank you for your correspondence, and I hope you find this reply helpful.

The letter is signed Richard Curtis
Macroeconomic Coordination and Strategy
HM Treasury

Click here for a scan of the above letter in Portable Document Format.

A few comments, taking the last point first, I was rather hoping my - far from revolutionary - suggestion would be helpful rather than finding this fobbing off helpful. Iím sure Mr Curtis means well, and by the same token Iím sure he hasnít a clue about the real issue here, but he has, unfortunately, raised another one, that is the usurpation of the right of this nation - and of every nation within the misnamed European Union - to control its own destiny, and indeed its own economy. If this treaty had been in force in 1914, Britain would never have been able to fight - and win - the First World War. And donít for Heavenís sake mention the Second World War.

That is if Article 104(1) does in fact say that, what it actually says is:

Overdraft facilities or any other type of credit facility with the ECB or with the
central banks of the Member States (hereinafter referred to as 'national central banks')
in favour of Community institutions or bodies, central governments, regional, local or
other public authorities, other bodies governed by public law, or public undertakings of
Member States shall be prohibited, as shall the purchase directly from them by the ECB
or national central banks of debt instruments.

Which is not quite the same thing. It refers to ďdebt instrumentsĒ, not debt-free money. For the record, the current writer was told many years ago by the late Dr Kitty Little that she had found two paragraphs or clauses (or something) in this treaty which contradicted each other. I believe she said she had written to the Lord Chancellor about it, or some other officer of government. Whatever, there you have it, the European Union has banned debt-free money by law. I leave the reason why to the conspiracy theorists, but we must break this perfidious stranglehold if Britain, freedom, Western Man, and ultimately the human species is to survive. The problems mankind faces today can only be solved if we have a financial system that is our servant rather than our master, and if anything that is physically possible and desirable is made financially possible, and not vice versa. Click here for my reply.

To E-Mail To The Treasury
To Non-Response From Stephen Timms
To Letter To The Chancellor Of The Exchequer

Return To Site Index