On Tuesday, the Bank of England began the arcane process of printing money by buying back the government’s debt.

The decision has had mixed reviews from the press.

The potential inflationary effects are the main are of concern. Others take the line that the Bank could do little else to boost the money supply, while a few politicians have pointed out that broad money (M4) is already rising by 20+ percent.

A good primer on the pros and cons is given by the BBC’s Business Editor, Robert Peston on his blog:

Will QE work?

Not to be outdone the BBC’s Economics Editor, Stephanie Flanders, also weighs in with an informative piece on how the Americans are doing it — mainly by buying corporate bonds, not Treasuries:

Ahead of the curve

My favourite is by the Daily Mail’s City Editor, Alex Brummer, who today gives an emphatic thumbs down to the whole operation.

Bank’s great experiment may prove gamble too far

Syntagma also greeted the “new dawn” of lumpen monetarism with incredulity:

Watch out for the mashed potato machine

Food for thought.

The International Monetary Fund, as predicted, is now forecasting that British gross domestic product will contract 2.8pc this year, worse than the U.S., the eurozone and Japan.

Last year we reported here on the first use of the “T” word (trillion) for losses across the banking sector. Now we’re into the “2T” word, a graphic indication of how much conditions are deteriorating around the globe.

The IMF expects the US economy to contract 1.6 percent; Japan to shrink 2.6 percent and the eurozone to decline 2 percent. Overall, the IMF expects the global economy to expand 0.5 percent, its weakest showing since the Second World War.

Economists at the IMF also estimated that bank losses may reach $2.2 trillion, almost twice the $1.4 trillion the organization predicted in October.

It warned that, “unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth.”

In Britain, the bank bail-out is already projected to take national debt to 8 percent of GDP, and today the Institute Fiscal Studies warned that national debt levels are unlikely to return to the pre-crisis levels for more than 20 years.

During and after the Great Depression of the 1930s many people asked the same question.

As it turned out, capitalism wasn’t dead, just undergoing one of its periods of creative destruction, when old practices and outworn businesses are ruthlessly purged.

Free markets are a natural phenomenon, like grass. If you cut grass, it grows back again. So does capitalism. It is government that is an unnatural construct of human ingenuity. Long, hard-won experience tells us it should be limited in size and scope.

John Evans has written a piece on what will happen to capitalism under the title, Is socialism the new quid on the block?

The “failure” of capitalism should be seen as part of a greater failure involving government and its duties to society. These are principally, sensitive regulation of systemic elements of the modern economy, like banks and other financial services, and ensuring monetary and fiscal balance across its operations.

It is now clear that government has failed systemically over the past decade by taking on too much debt, a condition mirrored in consumers’ personal balance sheets, and by serious mismanagement of the regulatory process.

Read Is socialism the new quid on the block?

UK producer prices data released today show how quickly the recession is developing. The cost of manufacturers’ raw materials dropped by 3.3 percent in November. Add in the rapid falls in oil and commodity prices and even lower figures lie ahead.

Among economists, “quantitative easing” is the topic of the moment. QE, as it’s abbreviated, means getting money in people’s pockets quickly.

Dropping banknotes out of helicopters is an image often used, but basically, central banks simply print more money and buy assets like shopaholics. They may purchase companies, corporate or government bonds, infrastructure projects, anything they can lay their hands on at short notice, in fact.

Howard Archer from IHS Global Insight: “The further substantial falls in producer output and input prices in November reinforces belief that consumer price inflation will plunge over the coming months in reaction to sharply lower oil and commodity prices, waning food prices, contracting economic activity, faster rising unemployment, December’s VAT cut and very favourable base effects. These factors seem certain to easily outweigh the inflationary impact of the very weak pound. Indeed, it seems highly likely that consumer price inflation will move back below the Bank of England’s 2pc target level in the early months of 2009 and will turn negative during the second half of the year.

“Consequently, we expect the Bank of England to enact a further hefty interest rate cut in January as it attempts to limit the length and depth of the recession. At this stage, we forecast the Bank of England to reduce interest rates by a further 75 basis points from 2.00pc to 1.25pc in January, but we would not rule out a larger cut if the economic downturn continues to deepen. We expect interest rates to fall to a low of 0.50pc in the second quarter of 2009 and then stay there for the rest of the year. However, it is far from inconceivable that interest rates could come all the way down to zero.”