75BN QE

[cardigankid]

fbrs said:

cardigankid said:

I do not know when these utter idiots will get the message - QE does not work.

there was a clear jump up in m4 lending after the last qe of about 160bn, which suggests the qe was not hoarded by the banks as is continually repeated. without the last lot of qe i suspect current lending would be a lot lower and things in even worse shape. what makes you say qe doesn't work? you have no way of knowing how bad (or good) things would have been without it.

Measured how exactly? That is not my perception of how the banks treat their customers. I would actually classify that as a lie. If they lent 160bn the borrowers would have spent it. I don't see the evidence of that happening. Furthermore, if the last lot of QE was such a bloody wonderful thing, why do we need more now?

All this is about is allowing banks to fill the black holes in their accounts. It is a massive confidence trick. Let them go bust and new and better banks would come up, perhaps employing fewer people sitting on their fat arses doing nothing. The big banks just now are little better than the civil service.

This is not going to solve our problems. What is going to solve our problems is getting rid of the non-productive section of our society, and it is beginning to look as if the UK government is no more capabl;e of doing that than the Greeks, which makes the financial demise of the UK a question of time, as the man in 'Titanic' said, 'a mathematical certainty'.

If I had 500k just now there is no way it would be sitting in Sterling. I would have been buying physical gold progressively and particularly in the recent dip.

[AJS-]

Gargamel said:

Instead of wasting the time giving the money to the banks, why not take the £75bn and cut income tax down to 35% and 15% for a few years. Much greater impact and a vote winner too.

There is no £75bn in the first place.

I find simplification a wonderful tool for this sort of thing.

We're in a position analogous to being on a boat with a limited supply of rations. Some people prefer tea and some prefer coffee, some people don't like either but will eat more biscuits, smoke more cigarettes or whatever, so you have a system of tokens that let's people swap these things.

All the government is doing is printing more tokens. They aren't adding in any more coffee, tea, biscuits or cigarettes to the equation. They're simply devaluing the tokens.

Cutting tax is a great idea, but it will lead to a shortfall in income, and since we already have a huge shortfall in income, it will just lead to even more debt.

If it did stimulate the economy enough to go back up the Laffer curve and produce more revenue then great, but if not we'd have a huge deficit.

The whole thing is mind bogglingly simple as I see it. They need to balance the books. They need to find the cuts, because we simply can not afford the government we have.

[anonymous-user]

cardigankid said:

Measured how exactly? That is not my perception of how the banks treat their customers. I would actually classify that as a lie. If they lent 160bn the borrowers would have spent it. I don't see the evidence of that happening. Furthermore, if the last lot of QE was such a bloody wonderful thing, why do we need more now?

the m4 lending data suggests bank lending to the private sector increased in the months after qe by roughly the same amount as qe but not much point discussing it if you dispute the figures. like last time. who said it was wonderful? i think its a last ditch move by a central bank with its back to the wall, getting zero help from a toothless, ineffective coalition.

Edited by fbrs on Friday 7th October 20:19

[WhoseGeneration]

Guam said:

"I expect real earnings to fall by about 1.5% this year. This will mark the fourth successive year of falling real earnings – the first time that this has occurred since the 1870s."

This is the future, I see no evidence that change is on any horizon.

[Odie]

just to put the 75bn into prospective the money that exists in the UK (ie in banks, as paper etc) is around 2triilion. (someone correct me if im wrong)

I like alot of people on here would also favour tax cuts, income tax for a start and fuel duty to help everyone.

[ringram]

The coalition has mentioned this loads of times before but I see no reason not to extend the tax free personal allowance to say £12,000 for everyone. I dont see the problem with the 50% tax rate. Capital gains is 18% and pension contribs are free. So its only really employee's who face this rate. In other words labour slaves. Sure they can go to another lower tax location, but by definition they are peon work units so who cares. Those who generate the work and productivity gains can choose how to take their income.

[AJS-]

Guam said:

AJS- said:

There is no £75bn in the first place.

I find simplification a wonderful tool for this sort of thing.

We're in a position analogous to being on a boat with a limited supply of rations. Some people prefer tea and some prefer coffee, some people don't like either but will eat more biscuits, smoke more cigarettes or whatever, so you have a system of tokens that let's people swap these things.

All the government is doing is printing more tokens. They aren't adding in any more coffee, tea, biscuits or cigarettes to the equation. They're simply devaluing the tokens.

Cutting tax is a great idea, but it will lead to a shortfall in income, and since we already have a huge shortfall in income, it will just lead to even more debt.

If it did stimulate the economy enough to go back up the Laffer curve and produce more revenue then great, but if not we'd have a huge deficit.

The whole thing is mind bogglingly simple as I see it. They need to balance the books. They need to find the cuts, because we simply can not afford the government we have.

But without corresponding tax cuts it cant work?

Borrowing increased IIRC due to a massive fall in tax revenue.

Now whether this is due to a fall in the economic activity or a rise in the black economy <or both> is anyones guess.

So even if they cut they still CANT balance the books it would appear.
The laffer curve would predict exactly this kind of outcome imho.

Well the Laffer curve just shows that there is a revenue optimising rate for any given tax levied. I wouldn't be surprised if we're over the optimal rate in most of the key ones, so we could stimulate a little more economic activity (or at least stem the slow down of it) by reducing these taxes.

I doubt this would be enough to close the deficit though. We need to make cuts as well.

There must also be some serious "crowding out" in certain areas, where state largess is tying up resources that could be put to a more productive use. Cutting spending would also free up some of this.

True it would have a depressive effect in the short term as unemployment rose and public sector contracts dried up, but in the (not very) long run it would get things moving again.

[Digga]

Back to the future:

From David Smith's column in yesterday's Sun Times, and here on his blog: http://www.economicsuk.com/blog/001511.html#more

David Smith said:

Quantitative easing is intended to boost the quantity of money in the economy. Credit easing is intended to boost the flow of credit. They should be interchangeable but are not. I am much keener on the latter, having first written about it back in April 2008 and returned to it frequently.

Then the issue was the drying up of mortgage lending. From the start of 2009 it became the slump in lending to SMEs, which is what I have been writing about more recently. How do you address it? Put simply the Bank, on behalf of the Treasury, agrees to buy bundles of SME loans.

If the problem is funding such loans in markets, having an official buyer would overcome it. If the problem is confidence, an official buyer would ease investor worries about buying such securities.

So the chancellor’s commitment to explore credit easing was welcome but has to overcome a lukewarm Treasury and a hostile Bank. It is also very late. SME lending has been falling nearly three years.

[cardigankid]

That is because this money NEVER FINDS ITS WAY TO SME's. If you are an SME and you want to borrow money, the obstacles in your path are extreme. Firstly you will be faced with outrageous arrangement fees, next you will probably be asked to secure loans by way of a mortgage,(and by the way, just suck up the lawyers fees while you are at it), and then you will be asked for an enormous rate of interest. We are back to the old days where if you want a loan, you have to prove that you don't need it. I have been there and done it. I cannot get finance out of banks so my business is starved of investment.

That is why this whole QE business is so obscene.

[Digga]

cardigankid said:

We are back to the old days where if you want a loan, you have to prove that you don't need it.

And it's not just banks but also the ridiculous government backed grant schemes.

A local banker who was involved in the first effort to finance SMEs (forget the name of it, but the thing that preceded the totally lacklustre Project Merlin) said the same of that scheme and also that they spend more on meetings and governance over the period than was actually 'handed out' to business.

The government needs to wake up (and fast) to the fact that GDP and employment will nose dive as the public sector cuts come into play, unless the private sector is properly capitalised.

[Ozzie Osmond]

AJS- said:

I find simplification a wonderful tool for this sort of thing.

All the government is doing is printing more tokens. They aren't adding in any more coffee, tea, biscuits or cigarettes to the equation. They're simply devaluing the tokens.

They need to balance the books. They need to find the cuts, because we simply can not afford the government we have.

I absolutely 100% agree with you. All the fancy talk and supposedly clever economic theory isn't worth a row of beans.

It's glaringly obvious that if you've borrowed and spent your way into trouble you're never going to borrow and spend your way out of it. A fundamental change of government behaviour is needed, away from "spending" and towards "investing".

[Esseesse]

Digga said:

The government needs to wake up (and fast) to the fact that GDP and employment will nose dive as the public sector cuts come into play...

This is part of the problem IMO. Politicians/people need to get over and accept a sharp decline in GDP. If it's due to cuts in the public sector, it's not even a bad thing (well it is for those losing their jobs, but these jobs should not have existed in the first place).

GDP is a rubbish measure of the health of the economy anyway.

[Digga]

Esseesse said:

Digga said:

The government needs to wake up (and fast) to the fact that GDP and employment will nose dive as the public sector cuts come into play...

This is part of the problem IMO. Politicians/people need to get over and accept a sharp decline in GDP. If it's due to cuts in the public sector, it's not even a bad thing (well it is for those losing their jobs, but these jobs should not have existed in the first place).

GDP is a rubbish measure of the health of the economy anyway.

Agreed.

However, the constriction of funding to SMEs has been acute - a very rapid drop - and substantial in magnitude. It leaves the econoy in a very dangerous situation - things are not as rosy as many think because reductions in pay and or working hours are still helping to massage unemployment.

[powerstroke]

cardigankid said:

That is because this money NEVER FINDS ITS WAY TO SME's. If you are an SME and you want to borrow money, the obstacles in your path are extreme. Firstly you will be faced with outrageous arrangement fees, next you will probably be asked to secure loans by way of a mortgage,(and by the way, just suck up the lawyers fees while you are at it), and then you will be asked for an enormous rate of interest. We are back to the old days where if you want a loan, you have to prove that you don't need it. I have been there and done it. I cannot get finance out of banks so my business is starved of investment.

That is why this whole QE business is so obscene.

I aggree ,Me faced with the current situation= Im keeping overheads down, running a cheap van paid for with cash ,happly learning to live on less and to be honest suits me fine, all this running to stand still ive done over the years paying for new cars, vans and equipment etc its just making others rich namely banks and AF people, stuff them!!! dont want to lend ? no problem stick your expensive loans and if i have money to save I will put it into classic cars or land no way will i leave a penny
in the banks for them to lend out at 5% or more while paying me the depositor 1/2%.. starve the fkers I say, dont deposit and dont borrow

[Digga]

powerstroke said:

...Im keeping overheads down, running a cheap van paid for with cash...

Real men drive vans.

I reached the conclusion that some of the most honest, reliable and contented friends I have are those who drive vans (usually, white, un-signwritten). By default, they've eschewd - as you say - the treadmill of keeping up with shiny things and have bought on utility alone.

[AJS-]

Ozzie Osmond said:

I absolutely 100% agree with you. All the fancy talk and supposedly clever economic theory isn't worth a row of beans.

It's glaringly obvious that if you've borrowed and spent your way into trouble you're never going to borrow and spend your way out of it. A fundamental change of government behaviour is needed, away from "spending" and towards "investing".

Your first paragraph is spot on.

Investment is great, but you can't invest what you don't have. At the moment we're in the position of someone with a years salary in credit card debts, and the notion of making any investments is really the least of our worries. In fact the "can't lose" buy to let or the nice safe ISA is really not in the picture at this stage.

Cutting our debts is the best investment we can possibly make. Any future investment in infrastructure, heaqlth, education and what not will have to wait.