The days of the magic money tree are numbered and painful decisions will have to be made by government

Big spenders with a fondness for vanity projects like the prime minister are beginning to realise that the Treasury is king and in a mean mood, writes Vince Cable

The Bank of England has £1tn worth of government bonds sitting on its balance sheet (Copyright 2020 The Associated Press. All rights reserved)

A few weeks ago, my friend, an environmentalist, approached me to discuss an idea circulating in “green” circles: that the best way to pay for the mouthwatering sums required for a rapid conversion to a zero-carbon economy is through “green QE” – or quantitative easing.

I hated to be negative since I share the same objective, but I had to point out that the big idea currently under discussion amongst central bankers is the opposite: how best to phase out the large-scale purchase of government bonds – which is the basis of QE. The days of QE as a magic money tree to finance governments are numbered.

The balance sheets of central banks are mysteries even to clever people who are paid large sums to interpret the financial positions of large companies. Who in the real world is bothered that, within the last two years, the American Federal Reserve has doubled – to $8tn (£5.8tn) – the value of government bonds sitting on its balance sheet? (The Bank of England has around £1tn).