The Great Debate UK
I've found the answer to the monetary puzzle de nos jours. The ritual of the UK Treasury's DMO issuing new government debt one day, only to have the Bank of England buy similar amounts of almost identical stock the next, has puzzled me ever since Quantatitive Easing began.
How much simpler it would be for the Treasury to borrow directly from the Bank - the modern equivalent of running the printing press faster - to pay the government's bills.
It turns out that the Maastricht treaty (Article 104(1)) expressly forbids European governments from borrowing directly from the central bank. The prohibition was drafted during a period when inflation seemed endemic, requiring strict controls to prevent monetary incontinence among European Union governments.
So QE is a mechanism to circumvent the rules. Perhaps you knew that already. The traders in gilt-edged stock, many of whom are not natural europhiles, should raise their Roederer Crystal to the treaty, as they laugh all the way to the (taxpayer-supported) bank.
Not exactly shock and awe as the MPC keeps base rates on hold at 0.5 percent while the most recent financial surveys have been unanimous in expecting a no change decision for some time now. It was always going to be an MPC meeting to discuss whether or not to persevere with quantitative easing. The difficulty for the MPC is that it is too early to judge the effectiveness of the quantitative easing. Clearly the Bank of England would prefer to wait at least until it publishes new quarterly growth and inflation forecasts to explain how it wishes to proceed.
LONDON, April 23 (Reuters) – The UK Government needs to raise four billion pounds a week, every week, in the financial year to next April, to bridge the gap between its tax income and its spending.