Central banks and regulators should not be allowed to discriminate in favor of asset owners or those perceived or decreed as safe.

Again, I visited the Bank of England’s museum.

The silence about what’s happening to our banks as a consequence of the introduction of risk weighted capital requirements was still total.

Into my hands came a brochure titled “Quantitative easing explained: Putting more money into our economy to boost spending” It reads:

A direct cash injection: The Bank creates new money to buy assets from private sector institution’

Purchases of financial assets push up their price, as demand for those assets increases and corporate credit markets unblocked

Total wealth increases when higher asset prices make some people wealthier either directly or, for example, through pension funds.

My comment: “some people” this is a clear recognition that quantitative easing helps more those who own assets than those who don’t. Central banks should not be allowed to carry out such under the table non transparent discrimination.

The cost of borrowing reduces as higher asset prices mean lower yields, making it cheaper for households and businesses to finance spending.

My comment: Because of risk weighted bank capital requirements the benefits of any “lower yields” are primarily transmitted to those perceived or decreed as safe, for example, the sovereign and the beneficiaries of residential mortgages. 

More money means private sector institutions receive cash which they can spend on goods and services or other financial assets. Banks end up with more reserves as well as the money deposited with them.

Increased reserves mean banks can increase their lending to households and businesses, making it easier to finance spending.

My comment: Again, because of risk weighted bank capital requirements, banks increases in lending will primarily benefit those perceived or decreed as safe, for example, the sovereign and the beneficiaries of residential mortgages. 

My conclusion: Central banks should not be allowed to carry out such here confessed under the table non transparent discrimination in favor of those who own assets and those who generate lower capital requirements for banks. The combination of quantitative easing with the main transmission channel for monetary policy, bank credit, being distorted by risk weighted bank capital requirements has de facto introduced communism/crony capitalism into the financial sector.