Quantative Easing

[peterh2]

I have a theory as to why Brown might start printing money.

He needs more tax to pay for his quite frankly ridiculous spending. He knows that putting the tax rates up would be a PR disaster.

Solution: create massive inflation by printing money and effectively move a lot of people into the higher rate tax band due to wage 'increases'.

[tomtom]

I'm not sure you've quite understood that.

[Pork]

Or, allow inflation to run away effectively lessening the debt burden while in the process shafting the old and the savers.

Cheers Gordo.

[fido]

There is another theory - he simply has no choice. If Deflation takes hold it's going to be extremely bad - look up the Paradox Of Thrift in an economics book and it's association with the Great Depression. The only cure for deflation is inflation which can be induced either by printing money (and giving it out to the public) or Quantitative Easing (buying up assets to support prices). Well i suppose the other option is Socialism, and implement price controls and kill off all the Banks .. which someone on another thread is suggesting.

Edited by fido on Monday 19th January 22:59

[off_again]

peterh2 said:

Solution: create massive inflation by printing money and effectively move a lot of people into the higher rate tax band due to wage 'increases'.

Yeah, but if inflation takes hold then the general price for almost everything rises too. So the cost of employment and pensions and even unemployment benefits. So more people might be in the higher banding of tax, but the comparative amount being brought in as tax revenue is potentially not significantly more than before.

Allowing more people to be in a higher tax bracket might raise the overall tax revenue numbers, but its also not going to raise the total by much. Its a sliding scale for the tax bands so you only pay the higher rate for what is earnt above it. So as a percentage increase it would be low, and with potentially rampant inflation, everything is more expensive anyway.

[Uncle Fester]

It’s much worse than that. The UK is legally bound to provide money to the International Monetary Fund if they ask for it.

Basically, the IMF has some funds, but if they get short they can call in money from governments according to agreements already signed. If another Government got into economic trouble and went to the IMF for help, we might have to come up with the money.

If you want to lose some sleep, head over to the IMF website and see just how many billion we are liable for on demand.

We would have to do a bit of printing, I fear. Quantative Easing is ok if it’s not overdone. But if we have to print enough to bail out other countries’ economies as well as our own, then forget any control of the situation.