The headlines all say that the Bank of England has pumped another £50 billion into the economy in the third round of quantitive easing. In fact, the money will not get far into the economy. It is given to the banks and other financial sector companies, and evidence from the previous £250 billion worth of quantitive easing is that almost all of it will stay there, being very handy stuff with which to fund massive salaries and bonuses.

This whole notion of what is and isn’t useful in the economy is strange anyway. This cold weather is making us all use a lot more gas for heating. Those higher bills will count as increased economic activity and higher GDP, but actually we are all less comfortable. This morning I have put on an electric heater to boost the central heating. That is increasing economic activity and increasing GDP. But for the last week I have been burning logs from my own garden on an open fire – that doesn’t increae GDP as I didn’t pay for them. But they were warmer and more pleasurable. A homely example that the automatic equation of GDP with a better life is nonsense.

There is a mystery about the way Q.E. works. The Bank of England does not just give the cash away to financial institutions, but exchanges it for assets. We are told that this is not the Bank of England saving the bankers from their mistakes by buying up toxic assets, but rather that the assets are gilts.

I do not understand this at all. Why would banks want to cash in gilts? Gilts are already perhaps the most liquid asset you can hold, other than cash, in the classic definition of liquidity that they can be easily sold without much affecting their value. On top of which, these same financial institutions are actually still buying bonds from the Bank of England on a regular basis, which would make the process pointlessly circular. And the current Bank of England bonds the banks are buying pay historically low rates, almost certainly lower than any gilts they are exchanging under Q.E.. Why would they do that?

The only sense I can see is that the Bank of England is giving cash in return for junk, and the gilts line is a cover. Any genuine official statistics on exactly what the Bank of England has bought up under Q.E.anywhere?

It is beyond doubt true that the effect of creation of new money is to reduce the value of currency already in circulation. The effects will show through in inflation and the exchange rate. Of course, those will continue to be affected by other factors as well, which is why there are better and worse times to do it. But in effect Q.E. is still a transfer of wealth from those who hold any of the currency to those given the new stuff. In other words, more cash from you to the bankers.

Actually if QE had been used genuinely to stimulate the economy it would have been a marvellous thing. With £350 billion we could have built an enormous amount of social housing on brownfield sites, converted derelict high streets into housing, built the Severn barrage and a high speed rail link from London to Aberdeen and still have had change. We could have reopened the steel industry to do it. a thousand manufacturing firms could have been re-tooled. Millions could have been employed. The entire logic of economic depression could have been turned around.

Instead we gave more cash to the bankers.