Bill initially smacks down The Economist as a propaganda rag, but the rest of the article is an excellent primer on PQE and the difference between QE and the misnamed PQE. QE is a monetary operation and PQE is a fiscal operation.
The differences are (see PQE is sound economics but is not in the QE family:
1. QE does not change the net financial asset position of the non-government sector at all – that is, the net wealth remains unchanged. It is an asset swap. The non-government sector just rearranges is wealth portfolio – more cash, less bonds. No net change.
That is the essence of a – monetary policy operation – which alters the liquidity in the economy. It does it by portfolio swaps and in doing so influences the interest rates and the term structure.
2. PQE (or OMF) means the central bank, as one part of the consolidated government sector, the other being the Treasury, would use the currency-issuing capacity of the government to facilitate the purchase of real goods and services to build productive infrastructure.
The NIB [National Investment Bank] is just a fancy title for a government agency and would be engaged in public spending – that is, in a fiscal operation. It would be spending out of some account the Bank of England created on its behalf and filled with numbers, presumably with many zeros after the first few digits.
PQE is not QE because it is a fiscal operation, which means it would increase the net financial assets in the non-government sector because it would increase national income (via spending on infrastructure).
PQE as envisaged is a fiscal operation, not a monetary operation, whereas QE as practiced by the Bank of England, the Federal Reserve Bank of America, the Bank of Japan etc are not fiscal operations.Bill Mitchell – billy blog
lightweight garbage from The EconomistBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
