“I can’t guarantee that it means that bank lending will rise, but what I do believe is that it won’t fall as far as it might otherwise have done” – I am quoting Mervyn King the Governor of the Bank of England when he announced that the Bank has injected £75 billion into the economy.
The point is that the money has not been injected into the economy, it has been injected into the banking system. What do banks do with the money? Well we know that they are not lending £75 billion to small businesses. We also know that they are not investing into businesses which are generating new employment.
In the old days it was called “printing money” but such honesty is no longer popular, especially when inflation is running at a twenty year high. Today it is called “quantitative easing”. There is a wonderful animated video on You Tube (http://www.youtube.com/watch?v=PTUY16CkS-k) If you’ve got a few minutes go and watch it – it is fantastic.