Data Courtesy Bank Of England

[CaptainARK1]

DATA Courtesy Bank of England

Aug 11, 2009

extracts from www.elliottwave.com

monetary growth in a credit-based system requires borrowers to borrow and lenders to lend. Neither is happening now, despite the Bank's £125 billion Asset Purchase Program.

The Bank of England buys assets in the form of government bonds, which supposedly causes bond prices to rise and yields to fall. Low yields supposedly reduce everyone's cost of borrowing, and, because the Bank created the money to buy the bonds, money in the economy goes up. With more money in the system, bank lending should increase, spending and income should rise, and inflation should remain at the targeted level of 2%. In a nutshell, quantitative easing defeats deflation, recession and depression.

The logic seems sound, right? But instead of rising as the mechanism requires, bond prices in the U.K. are falling. A chart of long-dated gilts still shows higher yields than before the Bank announced the program. Also, the chart below shows that growth rates of M4, the broadest measure of money supply in the U.K., continue to plunge. From March 5, the day the Bank announced quantitative easing, M4 growth has fallen from more than 20%.

UK cost of living falls most since 1948 -- The cost of living in Britain ... fell the most ... since records began more than half a century ago, as the recession drove down the cost of food and housing. (July 14, Telegraph) Deflation accelerates in eurozone and Japan -- The much-anticipated round of global deflation ... moved a few steps closer yesterday with the release of record low inflation figures for the eurozone and Japan... (Aug. 1, The Independent)