Kevin Warsh, who has just had his first interest rate meeting at the Federal Reserve, saw his predecessor Jay Powell suffer abuse from Donald Trump for refusing to do the President’s bidding. 

Andrew Bailey at the Bank of England is trying to find the creator of a recent social media video of him brawling on Question Time with Nigel Farage. 

The post is a deep-fake, but the pair are at loggerheads. One of the main flashpoints is the seemingly obscure issue of Quantitative Tightening (QT). 

It is unlikely to stay obscure for long, however, because of the enormous losses it is inflicting on the taxpayer. 

Bailey penned an article in the national media a few days ago defending the Bank’s approach on QT. 

It looked like a pre-emptive strike against his detractors, who include politicians and economists from the Left and the Right. 

Dear reader, if you have been more enthralled by the World Cup and the by-election than QT, please come with me on a brief trip back to the Great Financial Crisis. 

The row is about losses incurred in the reversal of the vast money-printing known as Quantitative Easing (QE) that central banks undertook to save us from utter ruin. 

To do this, the Bank created reserves to buy up gilts, or UK government IOUs. These reserves are held on deposit at Threadneedle Street by the commercial banks and the Bank pays interest on them. 

The whole process is indemnified by the Treasury, which each quarter takes any profits or covers any losses. 

Until 2022, it was profitable for the UK taxpayer, because the Bank earned a higher rate of interest on the QE gilts it had bought than it was paying to the commercial banks. 

The gains flowed in, peaking at just under £124billion in September 2022. Now the tide is going out: when interest rates rose, those profits turned into losses and the Bank is also selling gilts for less than it paid for them. 

The Treasury has handed over £108billion since 2022 and the Bank’s estimates suggest an overall negative net cashflow of £125billion over the lifetime of QE/QT.

 This doesn’t take into account the havoc that would have been visited on the world without QE. 

Nevertheless, this is real money that could have been spent on other things, such as defence, or helping NEETs into work. 

What can be done about it now? 

The Bank has been urged to stop selling gilts into the market at less than it paid and instead keep them to maturity as other central banks do. 

Bailey argues this would merely prolong, not alleviate, the agony. Curtailing interest payments on reserves to the commercial banks, another suggestion, could hurt consumers, the Bank believes, because lenders would seek to recoup at customers’ expense. 

Bailey’s detractors believe he is doing a poor job. Be that as it may, the core of the row – as with Trump’s fury with Powell – is not personal but the tenet of central bank independence. 

The whole point of it is to take decisions on interest rates out of the hands of politicians, who may be motivated by short-term electoral interests rather than the good of the economy. 

Getting rid of governors through formal methods has deliberately been made very difficult in order to preserve that independence. 

But on QT, the sums are too large and the questions too serious to be left to Threadneedle Street alone. There needs to be an informed debate, before it gets uglier than any deep-fake.