This morning the Bank of England requested and received permission (from the Chancellor the Exchequer) to extend QE by another £50bn. The markets responded favourably, both shares and sterling rose on the announcement - they had been braced for a £75bn print run.
The QE story so far looks like this:
QE1 5th Mar, 2009 £200bn
QE2 6th Oct, 2011 £75bn
QE3 9th Feb, 2012 £50bn
A total of £325bn has been created from thin air. (Please ignore all the "issued from Bank of England reserves" nonsense that the BoE puts in its press releases. There are no reserves; haven't been for years.)
The national debt is now almost exactly one trillion pounds. £325bn is near as makes no difference one third of that. So the BoE has bought up one third of our entire national debt.
Now let's remind ourselves of the government's borrowing since 2009.
That's a total of £446bn (assuming this year will be on budget until April.) So more than 70% of government borrowing since QE was started has been offset by QE.
Although the Bank of England continues to claim that the purpose of QE is to prevent inflation falling below its 2% target (as if we would actually care if it did!) the real purpose is obvious: it's to fund the government's deficit. QE is the reason the bond markets haven't rebelled and refused to fund our national profligacy. The BoE buying up gilts has held the price high, hence the yield low, and shows that HMG is notionally borrowing at below 3%. I say notionally because they are really borrowing from themselves - and that's got to be the cheapest lender in town.
The price to be paid will be inflation. Fortunately for the BoE there are a couple of major deflationary events in progress so they won't be paying the piper just yet. First, last year's VAT rise to 20% is about to drop out of the statistics. This will flatter the numbers for the next few months, although it does nothing to make life cheaper for ordinary people. Second, it looks like oil is about to get cheaper, perhaps down to $70 a barrel. This isn't good news through. It's because the USA and Europe are falling back into recession and will consume less.
So do not expected QE3 to bite on the rear just yet. But eventually it surely will - just like QE1 and QE2 have done already; although the worst pain is reserved for when the QE'ed money is removed from the economy. That's not even on the horizon in the UK.