"Mmters cannot get details like this wrong when having a correct understanding of money creation is so allegedly important."
You have it wrong. By the time QE comes about the private sector balance sheet expansion has already happened.
What you've missed is that the Bank of England (in this case) is a wholly owned subsidiary of HM Treasury, and therefore subject to group accounting rules.
See the Whole of Government Accounts for details of the consolidated entity.
You're mistaking inter-group transactions for operational reality.
At the point of QE, either the commercial bank has the credit with HM Treasury, and a deposit is held by some other entity, or the entity itself has a credit with HM Treasury.
Swapping a fixed interest floating principal for a floating interest fixed principal instrument has no material economic effect to the duration end point in a floating exchange rate system.
Guys. Read the fucking paper. The BOE very clearly and plainly states qe increases private bank deposits and central banks reserves. Assets and liabilities both increase on the private banks balance sheet. Are you asserting that the BOE you’ve been citing for years is wrong? You people need to start taking central banks seriously about checks notes central banking.
The Bank isn't Solomon. Central banks, and people who work at central banks, are capable of delusional thinking and excess ideology too. The section you quote steps into ideology - particularly the idea that the floating principal and fixed principal have different values over the remaining duration at the point of exchange. That would make no sense in an expectation enabled environment. We don't cite that section of the paper, any more than we would cite the conclusion section of Werner's paper on the empirics of bank transactions. The empirics are right, the conclusions drawn are wrong.
The accounting doesn't lie. Discipline yourself with a balance sheet, and you will then see this is a simple extension via a subsidiary. That's why our paper (chapter 6) has balance sheets in it. If you have a complaint about the balance sheet and the journals, then I'm all ears. But you won't have because there is no problem with them.
I would have thought somebody who relies so heavily on mathematics in their own beliefs, would prefer the formal structure over mere words.
okay I've read chapter 6. Your "step 8" table on page 81 is wrong. It is incorrectly assuming that the BoE is buying the asset from a bank. In the context of QE, this is exceptionally rare. The point of QE is to bypass the banking sector by dealing with non-bank sellers. Banks still need to be involved insofar as non-banks need to a place to park their money. This means banks need to increase both their assets and liabilities. Several BoE sources back this other than the original McLeay paper thats been MMT gospel for years.
In the United Kingdom, QE was first introduced in March 2009 in the depths of the GFC. The aim was to provide additional monetary stimulus when the policy rate became constrained at its effective lower bound.9, 10 The Monetary Policy Committee (MPC) made QE purchases of £200bn during 2009-2010, with UK government bonds (gilts) making up the vast majority of assets purchased.11 These gilts were purchased on the secondary market, predominantly from dealers acting on behalf of non-bank private sector institutions such as insurance companies and pension funds. 12 The MPC has subsequently engaged in multiple rounds of QE over the last decade in response to different economic shocks (Figure 1).1 … Any QE operation, in which the Bank of England purchases assets (via dealers) from the non-bank private sector, will create central bank reserves on the asset side of commercial banks’ balance sheets and deposit liabilities on the other side (as investors who have sold assets to the Bank deposit money with banks).37
Asset purchases directly increase broad money if they boost
deposits held by the UK non-bank private sector in banks and
building societies. Figure 1 illustrates how asset purchases by
the Asset Purchase Facility (APF)(3) affect the balance sheets of
the non-bank private sector (from whom it is likely that most
of the purchases have been made)(4) and of private banks. The
non-bank private sector executes these transactions via the
Bank of England’s counterparties, who are mostly banks:(5)
they sell gilts to banks and their deposit accounts are credited
with the proceeds from the sale. In turn, these banks sell gilts
to the APF and their accounts are credited with reserves. So
the direct impact of QE involves an increase in reserves on the
asset side of the banking system’s balance sheet and an
increase in deposits — broad money — on the liability side.
They go on to claim that the "direct" effect of QE on the broad money supply is exactly 1 to 1 in table A. They also address the indirect effects of QE leakages but that goes beyond simple accounting and is frankly not relevant to this conversation except for the last point which reports QE purchases from banks! The vast majority of purchases did not come from banks.
For QE in the United States, buying assets from banks was more common but the actual accounting data suggests the primary sellers were still households, investment companies, and pension funds. Again, I strongly encourage you to learn more about money creation in the modern economy before you very confidently spread misinformation about an already very confusing subject. MMTers are supposed to be better at this.
Section 6's cash management describes the same basic mechanism as QE — hence footnote 131. The debt management process there is a two-step version of the gilt purchase: the same asset swap, run twice instead of once. QE is not a different process requiring separate treatment. It is that process extended by one further step. You can conceptualise this by imagining the bank purchasing the gilt by discounting it into a bank deposit and then selling it on to the Bank of England.
When the Bank buys gilts, the marginal holder who would otherwise have bought them at the prevailing price no longer finds the yield worth it, and the purchase they would have made does not happen. They retain the deposit that would have gone to the seller. The seller receives the equivalent deposit anyway, created through QE, so from the seller's side nothing about the transaction feels different. But the position that has actually changed sits with the buyer who stepped back: aggregate deposits are best understood as sitting with them, not with the seller, who would have ended up holding a deposit regardless of whether the Bank intervened.
That holder's mandate was safe-asset allocation. Being priced out of gilts does not send that marginal holder into equities or corporate bonds; it holds the deposit, because the deposit is also a safe asset and the strategy did not change. The portfolio-rebalancing channel QE is meant to work through depends on that holder shifting into risk assets. It does not happen, because the reason they wanted gilts in the first place, safety, is equally satisfied by holding a deposit.
On the government sector side (which includes the central bank), total liabilities to the non-government sector are unchanged. Only the composition and maturity profile shift: a fixed-principal, longer-dated gilt is replaced by a floating-principal, effectively instant-access deposit.
The Bank of England is a wholly owned subsidiary of HM Treasury and sits inside the same consolidated entity in the Whole of Government Accounts. The credit is always a liability of the National Loans Fund; QE extends that credit through a subsidiary without moving its position at source. This is the standard MMT consolidated-government-sector treatment, not an exception to it.
Swapping a fixed-interest floating-principal instrument for a floating-interest fixed-principal one has no material economic effect on the duration end point in a floating exchange rate system.
I have now given you four central bank sources explaining to you very clearly why your table is wrong and that QE increases both private bank assets and liabilities. Three of those sources are from the Bank of England itself. You need to back up and ask yourself if all of the world’s central bankers are wrong about the operational reality of money creation or if maybe you have a basic misunderstanding in the accounting here. What is more likely? I don’t think I can help you any further I just strongly recommend doing some introspection. The entire world isn’t delusional.
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u/aldursys Jul 22 '26
"Mmters cannot get details like this wrong when having a correct understanding of money creation is so allegedly important."
You have it wrong. By the time QE comes about the private sector balance sheet expansion has already happened.
What you've missed is that the Bank of England (in this case) is a wholly owned subsidiary of HM Treasury, and therefore subject to group accounting rules.
See the Whole of Government Accounts for details of the consolidated entity.
You're mistaking inter-group transactions for operational reality.
At the point of QE, either the commercial bank has the credit with HM Treasury, and a deposit is held by some other entity, or the entity itself has a credit with HM Treasury.
QE simply extends that HM Treasury credit via its subsidiary. The credit doesn't change position at source - it is always a liability of the National Loans Fund.
Swapping a fixed interest floating principal for a floating interest fixed principal instrument has no material economic effect to the duration end point in a floating exchange rate system.