Saturday, 12 December 2009

Spare a thought for the poor old banker, Guv'nor!

The Guv'nor of the Bank of England and the Chancellor of the Exchequer have today been explaining 'quantitative easing'.

This is what happens:-

The Bank of England (The bank that we all own) starts printing money, then it uses that money to repay its current debt to other commercial banks (This is called 'buying back Government bonds'). Those banks then charge a commission to the Bank of England (our bank) for repaying that money (that it just printed). They then pay their traders a bonus based on the profits that those traders made simply by being involved in the repayment transaction.

Everyone benefits, because it now appears to taxpayers that the banks are making money again, and will soon be able to pay back all the funds that those taxpayers previously handed out to them.

However, it does not really occur to taxpayers that the money that they are going to get back will look, but not actually be, the same as the money that they handed out - by virtue of the inflation that all of these new transactions (i.e. Bank of England 'repayments') have created.

But, and this is a big but... This is not a problem, because even the middle classes, with their superior educations and their familiarity with wealth accumulation do not in fact have the slightest clue what such money transactions really mean (or where the magician was hiding the coin, as it were)... Even when it is clearly their own, erm... money.

But, let's face it, we are all frankly breathing a sigh of relief that things are stable once more and no-one is queueing up outside banks... or burning them down...

(OK, so the bonuses that the traders get do piss people off. But what can you do? When in doubt, tax, I suppose.)