King should give us all gift vouchers


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The Independent Online

The writer is studying for an advanced diploma in management accounting with the Chartered Institute of Management Accountancy

In the manner of a Hollywood blockbuster, Sir Mervyn King announced quantitative easing was back, and badder than ever, even if it is slightly lower budget this time around. Cinema buffs and financiers alike will be hoping that "QE2" turns out to be more Godfather-ly than Die Hard.

Sir Mervyn's view is that the buying up of government bonds will release money into the economy because the previous holders of those bonds will be free to buy "goods or other financial assets". Realistically, this is a move aimed at moneymen. Unless I'm mistaken, stocks and shares aren't generally on the shopping list when you go out to the supermarket.

This represents the first of two deeply worrying misjudgements by the Governor of the Bank of England. He believes that by helping out the money markets the trickle down will benefit the rest of us. But surely this £75bn would be better spent by giving everyone in Britain a voucher for £1,000 on the condition they had to spend it. Cut out the middle man in favour of direct and meaningful intervention that would have an immediate impact.

His second miscalculation is his dogged disregard of inflation. He talks about "underlying" inflation being too low. Arguably, the indexes used to measure inflation are already too narrow – but to exclude part of this measure because it doesn't fit with your analysis is absurd. It's like Arsène Wenger saying Arsenal defended really well so long as you exclude the 20 minutes when they conceded all the goals – and that's already ignoring the 10 minutes you closed our eyes and pretended nothing else was going on.

The effect of this policy is that living standards are being squeezed, and the most perverse aspect of all of this is that it's the savers who are being punished – yet Sir Mervyn himself admits that we've spent too much and should be paying down our debt. He missed his chance to raise interest rates, the ship sailed on that one, and now the only mechanism left is QE2.

There needs to be a shift in mindset in the Bank of England, with someone at the helm who can change the system. I can't imagine there will be many people auditioning for that role.

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