Economics for Non Economists 2 – Quantitative Easing Explained

by Girish Menon

Pradhip, you have asked for an ‘Idiot’s guide on Quantitative Easing and how it affects the economy’. Let me try:

The Bank of England (BOE) has been practising Quantitative Easing (QE) since 2009. The amounts are:

Time	Amount in £ Billions
Nov. 2009	200
July 2012	375
Aug. 2016	435
Mar. 2020	645
June 2020	745

Ref – The Bank of England

What exactly did the BOE do when they said they were doing QE?

The BOE created additional digital money and used it to buy financial assets (especially government bonds) which were owned by the privately owned banks, pension funds and others.

How did they create this additional money?

Unlike you or me who would be arrested if we did this; the BOE has been conferred with monopoly powers to conjure up any amount of money from thin air by typing the necessary numbers into its bank accounts. It’s as simple as saying, ‘Let there be £745 billion and it appears in the bank’s accounts.

Why do they do QE?

Post the 2008 financial crisis there was a liquidity crisis (see below for explanation of liquidity crisis). The BOE by buying the government bonds from local banks transferred cash to them thus enabling them to start their lending activities in the economy.

In 2020 too they have done the same, but this time I suspect that even if the commercial banks are willing to lend there may not be enough borrowers and so this policy may not have the intended effect of stimulating economic growth.

How does QE affect the economy?

The dominant worldview is that debt drives the world. So QE ensures that lenders have enough money to lend to prospective borrowers. Borrowers borrow money to produce and sell goods at a profit; enabling them to repay their loans with interest while creating jobs in the economy.

The above borrower will use his loan to buy machinery, employ labour…. One man’s spending is another man’s income, so the money begins to circulate among citizens in an economy and a positive spiral will push economic growth and create employment.

However, all this theory hinges on the citizens’ confidence about the future. In the current Covid climate, with firms downsizing at will and people worried about their future, I doubt if there will be a critical mass of borrowers to re-start the stalled economic activity.

Pradhip, thus the BOE does indeed have a magic wand to create money out of thin air. You may ask why is it that in a free market I am not allowed to create my own money? Now that question will be considered seditious!

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What Is a Liquidity Crisis?

A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously. In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies. (Ref Investopedia)

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The cities where exercise does more harm than good

 Nick Van Mead in The Guardian

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Nick Van Mead

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Monday 13 February 2017 07.00 GMTLast modified on Monday 13 February 2017 07.02 GMT

Who says exercise is always good for you? Cycling to work in certain highly polluted cities could be more dangerous to your health than not doing it at all, according to researchers.


In cities such as Allahabad in India, or Zabol in Iran, the long-term damage from inhaling fine particulates could outweigh the usual health gains of cycling after just 30 minutes. In Riyadh, Saudi Arabia, this tipping point happens after just 45 minutes a day cycling along busy roads. In Delhi or the Chinese city of Xingtai, meanwhile, residents pass what the researchers call the “breakeven point” after an hour. Other exercise with the same intensity as cycling – such as slow jogging – would have the same effect.

“If you are beyond the breakeven point, you may be doing yourself more harm than good,” said Audrey de Nazelle, a lecturer in air pollution management at Imperial College’s Centre for Environmental Policy, and one of the authors of the report.

The study, originally published in the journal Preventive Medicine before the World Health Organization’s latest global estimates, modelled the health effects of active travel and of air pollution. They measured air quality through average annual levels of PM2.5s, the tiny pollutant particles that can embed themselves deep in the lungs. This type of air pollution can occur naturally – from dust storms or forest fires, for example – but is mainly created by motor vehicles and manufacturing.

Breathing polluted air has been linked to infections including pneumonia, ischemic heart disease, stroke and some cancers. The Institute for Health Metrics and Evaluation’s Global Burden of Disease study ranks it among the top risk factors for loss of health.

The report in Preventive Medicine assumed cyclists moved at speeds of 12/14kph, with health benefits calculated in a similar way to the WHO’s Heat assessment tool. It also assumed cyclists used roads with double the background levels of air pollution, which may underestimate how poor air quality is in many developing world cities: for example, a study in Lagos found five out of eight sites exceeded Delhi’s annual PM2.5 concentration.

People commuting to work along busy roads in a city with average annual background PM2.5 levels of 160 micrograms per cubic metre (μg/m3) or above will pass the breakeven point at just 30 minutes a day, the study found. Using the WHO’s latest global estimates, published in May, those levels are only reached in Zabor, and in Allahabad and Gwalior in India – although many large cities in the developing world do not accurately measure air pollution so were not included in the WHO database.

Fifteen cities (see map above and table below) have annual mean PM2.5 levels of 115μg/m3 or above, according to the WHO data, so the breakeven point is reached after an hour of active travel. Fine particulate levels above 80μg/m3 were found in 62 cities, making cycling more harmful than beneficial after two hours.

The study found people in western cities such as London, Paris or New York would never reach the point where PM2.5 air pollution’s negatives outweigh exercise’s positives in the long term.

“The benefits of active travel outweighed the harm from air pollution in all but the most extreme air pollution concentrations,” said Nazelle. “It is not currently an issue for healthy adults in Europe in general.”

London’s annual average PM2.5 pollution was estimated at 15μg/m3 by the WHO – above the WHO’s guideline of 10, but still at a level at which the study estimated active travel would always be beneficial. Paris had ambient PM2.5 levels of 18μg/m3, while New York had 9μg/m3.

However, the study did not consider the health impacts of short-term spikes in PM2.5 pollution, or take into account the effect of exercising in air containing larger PM10 particulates, ozone, or toxic nitrogen oxides (NOx) from diesel cars.

London mayor Sadiq Khan issued his first “very high” air pollution alert last month when air in the UK capital hit the maximum score of 10 on the Air Quality Index, equivalent to PM10 in excess of 101μg/m3. NOx pollution causes 5,900 early deaths a year in the city, and most air quality zones across Britain break legal limits.

“This is the highest level of alert and everyone – from the most vulnerable to the physically fit – may need to take precautions to protect themselves from the filthy air,” Khan warned.

The point at which air pollution becomes so bad that the harm from cycling to work outweighs the health benefits

City	Country	PM2.5 annual mean, micrograms/m3, from WHO 2016	Minutes spent cycling per day for harm to outweigh benefits
Zabol	Iran (Islamic Republic of)	217	30
Gwalior	India	176	30
Allahabad	India	170	30
Riyadh	Saudi Arabia	156	45
Al Jubail	Saudi Arabia	152	45
Patna	India	149	45
Raipur	India	144	45
Bamenda	Cameroon	132	45
Xingtai	China	128	60
Baoding	China	126	60
Delhi	India	122	60
Ludhiana	India	122	60
Dammam	Saudi Arabia	121	60
Shijiazhuang	China	121	60
Kanpur	India	115	60
Khanna	India	114	75
Firozabad	India	113	75
Lucknow	India	113	75
Handan	China	112	75
Peshawar	Pakistan	111	75
Amritsar	India	108	75
Gobindgarh	India	108	75
Rawalpindi	Pakistan	107	75
Hengshui	China	107	75
Narayangonj	Bangladesh	106	75
Boshehr	Iran (Islamic Republic of)	105	75
Agra	India	105	75
Kampala	Uganda	104	90
Tangshan	China	102	90
Jodhpur	India	101	90
Dehradun	India	100	90
Ahmedabad	India	100	90
Jaipur	India	100	90
Howrah	India	100	90
Faridabad	India	98	90
Yenbu	Saudi Arabia	97	90
Langfang	China	96	90
Dhanbad	India	95	90
Chittagong	Bangladesh	95	90
Ahvaz	Iran (Islamic Republic of)	95	90
Doha	Qatar	93	105
Bhopal	India	93	105
Khurja	India	90	105
Dhaka	Bangladesh	90	105
Kaduna	Nigeria	90	105
Gazipur	Bangladesh	89	105
Karachi	Pakistan	88	105
Cangzhou	China	88	105
Baghdad	Iraq	88	105
Al-Shuwaikh	Kuwait	88	105
Tianjin	China	87	105
Raebareli	India	87	105
Kabul	Afghanistan	86	105
Zhengzhou	China	86	105
Barisal	Bangladesh	85	105
Beijing	China	85	105
Al Wakrah	Qatar	85	105
Kota	India	84	120
Udaipur	India	83	120
TETOVO	The former Yugoslav Republic of Macedonia	81	120
Alwar	India	81	120
Wuhan	China	80	120