THE IRON LAWS OF ECONOMICS WILL NOT BE DENIED

We have a public sector awash with printed cash, and a private sector squeezed by broken banks.

 - John Redwood

Finally, the dirty secret is out there. If you thought the Bank of England's counterfeiting of our currency is intended to keep inflation up (going by their erroneous definition of inflation), think again. Before this week the BoE had printed up £175billion to ease liquidity in a cash-strapped economy, so goes the official line. However, the BoE has bought just £2billion of commercial paper and £173billion of Treasury gilts. This week the Bank announced that another £25billion will be bought up. Can you guess where that's going? Over to Redwood:

The Bank has decided to print another £25 billion, presumably to boost inflation more. I think they will find inflation goes up in the New Year anyway. The decision will also have the effect of making sure the government does not run out of cash for its current spending spree in the important period of the run up to the election. Very convenient.

It's a point made last night by Portillo on This Week (roll it forward to 8.45). This is how the government is keeping the wolf from the door until the election - by recklessly inflating our money and making us poorer. Shame on Mervyn King. However, the Bank's £200billion QE programme is now over and unless the government, from the middle of next year, dramatically cuts spending, it will have to borrow from the money markets. Even then it will have to announce how it will scale back spending otherwise our AAA rating will be downgraded and the interest on our debts will be crushing.

Whatever happens, here we are; the fag end of yet another Labour administration heralds yet again another economic catastrophe. At least we will be saved the indignity of the IMF dictating economic policy, as it had to when the last Labour government caused economic catastrophe. Whoever is in government by June 2009 will have to make the cuts because there is no way it would be able to service our debts at higher rates of interest.