One mention of the words Quantitative Easing or QE has many people frothing at the mouth shouting 'money printing' and 'hyper-inflation'.

Pictures are painted of British people queuing up outside Tesco with wheelbarrow loads of worthless bank-notes to buy a loaf of bread as their wages and saving diminish in real value by the hour or even minute. But is this really the case?

Before you focus solely on Quantitative Easing you should also consider that other form of easing (yes there is one) called Qualitative Easing (yes it does exist). The spelling may be close but there is a world of difference between the two.

When you compare the two you can then decide which of them constitutes more of an inflationary risk if any.

The trouble is that everyone has labelled the well known quantitative easing asQE, making it hard to acknowledge and distinguish the other. Ill therefore call them quant easing and qual easing.

But first a potted history of why we engaged in it. When the banks first recognised that they all held unknown quantities of bad US mortgage debt they refused to lend to each other for fear of having no chair left to sit on when the music ended. Hence the credit markets froze leading to the 'credit crunch'. A way had to be found, thought the powers that be, to get liquidity back into the system and un-gum the credit markets. So they embarked on what they called quant easing.

With quant easing the central bank increases the size of its balance sheet with 'printed' (probably more likely electronic) liquid cash to a carefully controlled and known value. It then goes to the secondary bond markets and buys good quality bonds (usually government debt) with that money. Thus the actual size of the target economy is not increased. But what has happened is that relatively illiquid bonds have been replaced with liquid cash which should lubricate the system and get credit moving again. More business loans and more mortgages etc. But with the state of the economy the banks found that buying more bonds and selling them back to the BoE was possibly more lucrative than lending into a risky business and housing market. But that's another story.

So what's qual easing then? Well here the central bank goes through the same exercise except that, instead of buying good quality bonds it buys the junk bad debt off the banks. That way it effectively gives good money for bad. That arguably increases the size of the target economy and the rubbishier the stuff central bank buys the larger the economy grows. (One could argue that making a ready-made market for bonds via the central bank skews the market so does introduce a little qual easing into the quant easing programme.)

But remember that, in either case, there is a limit to how much inflation can rise overall, which is the proportion of easing to the size of the economy. Also consider that bonds pay a 'coupon', that is an interest rate. So the treasury who issue the bonds via the Debt Management Office will pay the bond holder (the central bank included) money out of the government coffers. So one presumes money (liquidity) will be gradually removed over time.

What will happen though is inflation will shift possibly from large ticket items like cars, houses and flat-screen TVs to the staples of living like fuel and food giving an impression of large inflation rises.

For hyper-inflation to occur you need untrammelled printing of a currency that finds itself directly into the pockets of consumers. That is not happening in the UK.

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