Posted by Allison on 1 June 2009, 12:47
As we have seen in recent months, the British pound has had a rough time trying to maintain any semblance of strength of late. But the Bank of England has now adopted the practice of printing some more cash to hopefully get us out of the recession a bit faster, and to give us better figures on our currency converter. You can read about this event on the CNBC website here - http://www.cnbc.com/id/29596176.
But is it such a good idea?
The strategy has been used in the past as well, but it hasn’t always had the results that were desired at the time. The process can lead to the danger of deflation if it isn’t kept firmly under control. The Bank of England no doubt assumes that it can do just that, but so did every other country that tried to achieve that aim in the past.
However if you read all the current news and views regarding this move by the Bank of England, the general consensus is that this is a good move. And these aren’t just opinions given by the general public – these are points of view of those people who are experienced in the ways of the financial markets.
Obviously the problem here is a complex one. The idea of throwing more money at the problem by quite literally making more money sounds deceptively simple. But it is a tricky balancing act that the government and the Bank of England must keep a firm hold on if it is to succeed.
The process of printing money is known as quantitative easing. It is supposed to ease the problems being felt, but the main problem is that we won’t know until it is too late if it will work or not. If it doesn’t work, it isn’t something we can suddenly back out of in the hope that we’ll get away with it. This is a strategy that really does have to be played out the whole way, so it will be interesting to see what does happen.
There are some detractors out there of course. And it should be said that the last thing they want to be saying is ‘I told you that wouldn’t work.’ Because if it doesn’t have the results that the Bank of England is looking for, it could leave Britain in a far worse position than it is in at the moment.
It’s true that this recession is looking much more severe than the previous one we had. But it is also the case that the powers that be seem to want to get out of it as quickly as possible. That is understandable, but it is also a dangerous move to throw everything you’ve got at it rather than thinking things through first. You can almost sense the panic behind this move to implement quantitative easing, and it doesn’t bode well for what could happen next.
It’s certainly worth keeping a close eye on the news in the coming weeks and months, as the results of this exercise start to be felt. Will the results be good or bad? We can only speculate at this point in time, but we’re hoping for the best.
Whether we will get it or not is quite another matter.