Austerity - when will it start?
Discussion
bigdog3 said:
Quantitative Easing is the politically correct term for Printing Money. Effective mechanism in the short term but unsustainable, and leads to huge problems like hyper-inflation and even political instability. Weimar Republic was guilty of massive QE, fixed only by rise of the Third Reich 
Imho I still think it will continue for quite a while to come.The latest low interest loans of hundreds of billions of EUR by the ECB may not be classed as QE/money printy printy but in spirit it isn't that different?
If you dig around on the www - hasn't the fed leant out trillions of dollars interest free?
The reason (imho) this is happening is the imbalances with the east. They accept our numbers/bits of paper in return for stuff and want to stay "competitive" even though we magic these things out of thin air......!
RichardD said:
bigdog3 said:
Quantitative Easing is the politically correct term for Printing Money. Effective mechanism in the short term but unsustainable, and leads to huge problems like hyper-inflation and even political instability. Weimar Republic was guilty of massive QE, fixed only by rise of the Third Reich
Imho I still think it will continue for quite a while to come.The latest low interest loans of hundreds of billions of EUR by the ECB may not be classed as QE/money printy printy but in spirit it isn't that different?
If you dig around on the www - hasn't the fed leant out trillions of dollars interest free?
The reason (imho) this is happening is the imbalances with the east. They accept our numbers/bits of paper in return for stuff and want to stay "competitive" even though we magic these things out of thin air......!
Clever part is the phase lag - after effects of QE can take months if not years to surface. Creeping pernicious disease which the patient hardly notices as Britain and its citizens gradually decline in the world order.
Edited by bigdog3 on Wednesday 29th February 14:46
bigdog3 said:
Agreed - Government will push QE to the limit. I always try to consider the fundamental principles: UK has finite assets and GDP. Every time QE injects 10% more money into the economic machine, value of those assets and income reduce accordingly.
That is a gross oversimplification.You have to consider QE in the context of a fractional reserve banking system, which for the last 30 odd years has allowed private banks to create new money as debt, thus increasing the money supply. You have to consider whether or not this is a bad thing (as productivity increases, so does the supply of goods, and if the money supply doesn't increase too, then what happens?).
Is QE really new money, or is it just replacing money supply that was effectively destroyed in the 2008 deleveraging event? Not doing QE could be seriously deflationary (that's certainly what the Fed think, and they are s
t scared of deflation).Whether you're on the inflationary or deflationary side of the argument, the point is that it's much more complicated than just "printing money"
pilchardthecat said:
You have to consider QE in the context of a fractional reserve banking system, which for the last 30 odd years has allowed private banks to create new money as debt, thus increasing the money supply. You have to consider whether or not this is a bad thing (as productivity increases, so does the supply of goods, and if the money supply doesn't increase too, then what happens?).
QE in a stagnant zero growth economy is not about avoiding deflation. Cost of economic crisis is being carried by Joe Average whether he realises it or not 
pilchardthecat said:
bigdog3 said:
QE in a stagnant zero growth economy is not about avoiding deflation. Cost of economic crisis is being carried by Joe Average whether he realises it or not
Growth (ie GDP) has naff all to do with it. What happened to the money supply in 2008?Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated, and too much money is created. On the other hand, it can fail if banks remain reluctant to lend money to small business and households in order to spur demand. Quantitative easing can effectively ease the process of deleveraging as it lowers yields. But in the context of a global economy, lower interest rates may contribute to asset bubbles in other economies.
An increase in money supply has an inflationary effect. There is a time lag between money growth and inflation, inflationary pressures associated with money growth from QE could build before the central bank acts to counter them. Inflationary risks are mitigated if the system's economy outgrows the pace of the increase of the money supply from the easing. If production in an economy increases because of the increased money supply, the value of a unit of currency may also increase, even though there is more currency available. For example, if a nation's economy were to spur a significant increase in output at a rate at least as high as the amount of debt monetized, the inflationary pressures would be equalized. This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash. During times of high economic output, the central bank always has the option of restoring the reserves back to higher levels through raising of interest rates or other means, effectively reversing the easing steps taken.
On the other hand, in economies when the monetary demand is highly inelastic with respect to interest rates, or interest rates are close to zero (symptoms which imply a liquidity trap), quantitative easing can be implemented in order to further boost monetary supply, and assuming that the economy is well below potential (inside the production possibilities frontier), the inflationary effect would not be present at all, or in a much smaller proportion.
Increasing the money supply tends to depreciate a country's exchange rates versus other currencies. This feature of QE directly benefits exporters residing in the country performing QE and also debtors whose debts are denominated in that currency, for as the currency devalues so does the debt. However, it directly harms creditors and holders of the currency as the real value of their holdings decrease. Devaluation of a currency also directly harms importers as the cost of imported goods is inflated by the devaluation of the currency.
bigdog3 said:
However, it directly harms creditors and holders of the currency as the real value of their holdings decrease. Devaluation of a currency also directly harms importers as the cost of imported goods is inflated by the devaluation of the currency.
Oh cut the technical waffle. QE rapes the workers, savers and pensioners while feathering the nests of the same bankers who caused the problems in the first place.Ozzie Osmond said:
Oh cut the technical waffle. QE rapes the workers, savers and pensioners while feathering the nests of the same bankers who caused the problems in the first place.
"Technical waffle" was just a cut & paste from wiki, with key points highlighted in response to pilchardthecat's comments. I agree with your opinion of the effect and motives for QE 
pilchardthecat said:
Good. You'll note the US looks similar, and there are parallels with japan too.
Now go and look at the eurozone money supply where they haven't done any QE, and tell me if you think they'll get deflation.
You can maybe help here.Now go and look at the eurozone money supply where they haven't done any QE, and tell me if you think they'll get deflation.
In the UK if the central banks magics money (out of nothing) and uses it to purchase government bonds - that is QE?
If the ECB magics money (out of nothing) and lends it to a bank at a very very low interest rate - that isn't QE ?
But if the bank then purchases government bonds (high quality investments with a good yield, such as Greece!) with said money - that still isn't QE?
jules_s said:
cymtriks said:
What portion of their income are they losing?
Somewhere between 90% and 100% bigdog3 said:
WTF ???
Total Public Spending UK
2011 £683.4 billion
2012 £703.4 billion
2013 £722.2 billion
2014 £740.3 billion
2015 £760.5 billion
taking inflation into account that looks like a 1 or 2 percent cut a year, say around 8 percent in total.Total Public Spending UK
2011 £683.4 billion
2012 £703.4 billion
2013 £722.2 billion
2014 £740.3 billion
2015 £760.5 billion
Jules_s, seriously, how does this equate to a 90-95% cut?
i like this over simplified way of explaining things http://www.flickr.com/photos/lazarette/6775505617/...
cymtriks said:
taking inflation into account that looks like a 1 or 2 percent cut a year, say around 8 percent in total.
Jules_s, seriously, how does this equate to a 90-95% cut?
Honestly,Jules_s, seriously, how does this equate to a 90-95% cut?
I would (still) love to reply to that with some hard facts to back up the %ages but I'm not going to prejudice my employment.
Lets just say we had a budget of millions before the election; last year it was £0. This year it is about 90% down on the pre election budget figures which is being spent over a number of years on a rolling programme.
I can't explain the total Government expenditure going up when our budget is going so far down. They must be spending money somewhere, just not in my dept/scope of work (new education buildings)
In short it would appear this http://www.guardian.co.uk/education/2010/jul/05/sc... has kicked in.
pork911 said:
i like this over simplified way of explaining things http://www.flickr.com/photos/lazarette/6775505617/...
That kinda puts things into perspective! Looks like we have a long way to go to get the house in order!
pilchardthecat said:
bigdog3 said:
pilchardthecat said:
What happened to the money supply in 2008?
Now go and look at the eurozone money supply where they haven't done any QE, and tell me if you think they'll get deflation.
jules_s said:
I would (still) love to reply to that with some hard facts to back up the %ages but I'm not going to prejudice my employment.
Lets just say we had a budget of millions before the election; last year it was £0. This year it is about 90% down on the pre election budget figures.
That's a very narrow sample size to be drawing wide conclusions with.Lets just say we had a budget of millions before the election; last year it was £0. This year it is about 90% down on the pre election budget figures.
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