The Ball and Chain Clamped on the UK Economy

The Daily Reckoning


The richest 10% of households in Britain have seen the value of their assets increase by up to £322,000 as a result of the Bank of England’s attempts to use electronic money creation to lift the economy out of its deepest post-war slump.

 Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn quantitative-easing (QE) programme, under which it has been buying government gilts for cash since early 2009.

The Bank of England calculated that the value of shares and bonds had risen by 26% – or £600bn – as a result of the policy, equivalent to £10,000 for each household in the UK. It added, however, that 40% of the gains went to the richest 5% of households.

Although the Bank said it could not come up with precise figures for the gains from QE, estimates can be produced using wealth distribution data from the Office for National Statistics. These show the average boost to the holdings of financial assets and pensions of the richest 10% of households would have been either £128,000 per household or £322,000 depending on the methodology used.

However, Threadneedle Street said that QE had helped all sections of the population by sparing the country from a deeper slump. The rise in asset prices after QE was announced in early 2009 followed sharp falls in the two previous years.

“Without the Bank’s asset purchases, most people in the UK would have been worse off,” it said in a paper prepared in response to queries from the Commons Treasury committee.

Wrong! People in the UK economy are not better off. They are worse off. The Bank of England took real resources that were owned, broadly, by the English people and gave them to a small part of the population. This prevented many of the rich… and their bankers… from going broke. But going broke is just what they should have done.

And if they had been allowed to do so, the rich wouldn’t be so rich… but the UK economy would be recovering now… instead of stuck in a Japan-like slump that could last another ten to 20 years.

That’s our story… and we’re sticking with it.


Bill Bonner
for The Daily Reckoning Australia