England's Monetary Printing Press

What on earth does the Bank of England do now rates are near zero?

Just as the Bank or Government always do when they buy assets, they fund the purchases by issuing gilts - this ensures that they do not increase the amount of cash sloshing around in the economy unduly.

What is happening today is different. The key point is less the amount being spent on assets, or precisely what the Bank is buying, but the fact that it is to buy a large chunk of assets off private sector investors without issuing the gilts in order to finance the purchases. The direct result is to mechanically increase the supply of money in the system. This is true quantitative easing - because the Bank is aiming to affect directly the quantity of money in the economy.

What about the risks of hyperinflation?

What about the risks of hyperinflation? A very important question.

Sweet! I nailed it.

These methods are inherently extremely inflationary - after all they aim directly to increase the quantity of cash in the economy, and as Milton Friedman pointed out, inflation is always and everywhere a monetary phenomenon. The Weimar Republic and Zimbabwe suffered hyperinflation after doing something very similar. In the long run, if the Bank was to continue pumping extra newly magically-created cash into the economy it would cause hyperinflation.

So it is their intention to stop using "magic" at some point?

However, it is expressly not doing this for an extended period: merely until the threat of deflation and depression appear to have been diverted.

They will stop once the magic of freshly printed paper money creates the appearance of a more prosperous economy. Further, the leaders won't be corrupted by the power of the magic, nor will they be corrupted absolutely by the power of absolute magic. That's a huge relief!

You know what? I'm feeling much better about my long-term stagflationary outlook. Go figure.