The Governor of the Bank of England, Mervyn King, has lost his attempt to extend quantitative easing (QE) to £200 billion.

The minutes of the Bank’s monetary Policy Committee for this month illustrate the gaping divide between the deflationists and their opposite numbers, the inflationists.

Quantitative easing is a term covering the Bank buying up Treasury bonds (gilts), issued by the Government to fund its borrowing requirement. Mre simply, it’s “printing money”.

The process is a bit like a snake eating its own tail, with one part of the government process buying up the debt of the Government. In normal times, it’s widely regarded as national suicide. Not now, apparently.

King’s move has already spooked the markets, with the pound sinking against the dollar. Stock markets around the world are also retreating on a general wave of disbelief that all the talk of green shoots can be sustained. The reality of the world’s huge over-capacity will bite in the autumn on the back of more massive job losses.

The Governor’s pessimism arises because the risk of “another large stimulus might be less than the possible costs of acting too cautiously.”