Quantitative easing and home insulation

The pros...
So how does this quantitave easing thing work? The Bank of England simply clicks a switch and credits its own account with billions more money. Up to £150 billion according to today's reports.
So it has increased its supply of money by inventing new money into existence.
It uses the new money to buy Government bonds and big business bonds held by High Street banks.
This means there is now more money in the accounts of High Street banks – an increase in the money supply.
The banks add the new money to the amounts of money they have set aside for lending to people and businesses.
So the banks now have more money to lend without worrying that they are putting more of their own money at risk.
This could mean that they may be willing to loosen some of their lending conditions a little.
If people can access more money on better terms they may be able to take out loans for higher value purchases like white goods, cars and houses.
If businesses can access more money they may be willing to invest more, buy new kit or keep/take on more people as economic activity increases.

The cons....
How could it go wrong? Banks are still trying to rebuild their own battered finances. So they could well hoard some of the extra money they are given and not lend it out.
When you increase the supply of anything it usually lowers its value. This could make the pound weaker against other currencies – increasing the cost of importing goods and raw materials.
That could push up inflation, which is exactly what the Bank of England doesn't want.
On the basis that every action has an equal and opposite reaction, consumers who have been living with locked purses could well go spending mad when confronted by cheap loan offers. Which takes us back to a boom...

The reality...
Quantitative easing usually works - but only after a few months.
If it does work, it may well be because things are improving anyway – there are the teensiest suggestions that job losses will have peaked by late summer, while house prices are already close to the bottom.
More money does not guarantee more lending for two reasons, though.
Banks are being far more cautious than they were because they're still dealing with losses on the cheap and easy lending of the past. Don't expect that to change much.
And, as Experian showed with its Insight Report earlier this week, one of the main reasons for the reduction in lending isn't banks at all: it's worried consumers putting the brakes on. While job worries persist, they will hesitate about taking on additional financial burdens.
But when job loss news begins to fade and the sun comes out, my take is that consumers at least will simply get bored by the dreariness of recession and start spending again.
A sharp pick up in the economy may not last long, though. Once economic activity increases, so will energy prices. So will taxes: the Government has some rather large bills to pay.
And the Bank of England will eventually draw the new money back out of the economy to avoid a spend-fest similar to the last. There will be a few years of this purse-squeezing.
Hence my tip for summer spending fun: splash out on home insulation!