Interest rates head towards zero and Quantative Easing starts but all's OK say the BBC

The BBC report this morning that:

"The Bank of England is expected to cut interest rates to a record low and start increasing the money supply. "

And the BBC is keen to reassure us that all "should" be OK but I did like a few of the paragraphs:

"Are there any risks?

Quantitative easing is a high-risk strategy. If it is not done aggressively enough, banks will remain unwilling to lend and the crisis could drag on. To some extent that is what happened in Japan when this was tried 10 years ago.

Like old-fashioned money printing, QE also runs the risk of going too far: pumping too much money into the economy and causing high inflation - even hyperinflation - as seen in 1920s Weimar Germany and modern-day Zimbabwe.

But in those cases, the government was printing money simply to pay the government's bills. They were not responding to the risk of deflation as the Bank of England is today. "

To which cases does "But in those cases" refer? My reading is that the reference is to Weimar Germany and modern-day Zimbabwe, in which case the Japanese experience is not tackled.

I also liked the caveats spread around this section (my emphasis):

"How would it work?

Even economists who agree with the quantitative easing policy often disagree on how exactly it will work. But there are two main ways it could boost the economy, which are really two sides of the same coin.

The first channel is through the direct effect on the banks' bank accounts. With more money sloshing about in their accounts, the banks may decide to lend more to businesses and individuals, and increase the amount of activity in the economy that way.

The second channel is through the effect on the cost of borrowing. When the Bank buys bonds, it reduces the supply of those bonds in the economy. That should increase the demand for new bonds and, at the same time, make it cheaper for businesses to borrow. "

Reassuring isn't it, all this certainty.


The BBC article ends:

"How do we know if it has worked?

If QE works, credit growth will pick up and businesses will find it easier to get credit. That, in turn, should help stimulate the economy and help push inflation back up to the Bank of England's target figure of 2%, thus staving off the threat of deflation. "

No mention of how we will know if it hasn't woorked; maybe that was too scary a piece to write and publish. Maybe that would scare the masses who are still being persuaded that Gordon Brown, Peter Mandelson and Alistair Darling know what they are doing.