Just what happens if they ‘print’ more money?
Discussion
So I’m talking about quantitative easing.
They must surely have to do this to give us the billions (If not trillions) they’re on about.
Does cash lose its value overnight?
What about commodities (ie gold)?
Does debt lose its value too then?
What about house values?
Or is it something else?? Do they physically print more money or is it just a couple of zeros added to someone’s bank account? How does it work?
They must surely have to do this to give us the billions (If not trillions) they’re on about.
Does cash lose its value overnight?
What about commodities (ie gold)?
Does debt lose its value too then?
What about house values?
Or is it something else?? Do they physically print more money or is it just a couple of zeros added to someone’s bank account? How does it work?
rockin said:
Money and debt go down.
Assets go up (houses and shares)
Gold always just moves about according to fashion.
The key word is Inflation. Note the difference between price inflation and wage inflation.
This is what I don't understand. If all this borrow and spend is going to lead to major asset inflation, then why are so many predicting a massive house price crash? Assets go up (houses and shares)
Gold always just moves about according to fashion.
The key word is Inflation. Note the difference between price inflation and wage inflation.
I am an ex investment banker, bit of a grand statement since I only did 2 years, but I should know the basics and anyone else can correct me if wrong.
They must surely have to do this to give us the billions (If not trillions) they’re on about.
- UK will be hundreds of billions most probably, globally will be trillions, in past decade or so approx 13 trillion USD has been released from memory.
Does cash lose its value overnight?
- It only loses it's value when inflation kicks in, in the trickle down system done with the QE of past decade then the new money was released so that it went into the pockets of the wealthy asset holders so it took a long time to impact everyday goods, instead assets went through the roof. If the cash is released to regular working people, inflation could be much more violent and thus cash lose its value much faster.
What about commodities (ie gold)?
- In theory should increase with inflation, i.e. inversely proportional to the amount of money created, all things being equal, but depends if there are any other supply or demand factors to account for - e.g. surge in gold supply as a massive new supply is found.
Does debt lose its value too then?
- Yes, debt will decrease in real terms due to inflation. US, UK, etc governments insane debts will be eroded significantly through inflationary money printing, and so will yours (if you have any). The losers are people holding cash.
What about house values?
- Should go up all things being equal... but same story as commodities, depends on supply and demand factors too.
Or is it something else?? Do they physically print more money or is it just a couple of zeros added to someone’s bank account? How does it work?
- have a read of this https://www.economicsonline.co.uk/Global_economics...
They must surely have to do this to give us the billions (If not trillions) they’re on about.
- UK will be hundreds of billions most probably, globally will be trillions, in past decade or so approx 13 trillion USD has been released from memory.
Does cash lose its value overnight?
- It only loses it's value when inflation kicks in, in the trickle down system done with the QE of past decade then the new money was released so that it went into the pockets of the wealthy asset holders so it took a long time to impact everyday goods, instead assets went through the roof. If the cash is released to regular working people, inflation could be much more violent and thus cash lose its value much faster.
What about commodities (ie gold)?
- In theory should increase with inflation, i.e. inversely proportional to the amount of money created, all things being equal, but depends if there are any other supply or demand factors to account for - e.g. surge in gold supply as a massive new supply is found.
Does debt lose its value too then?
- Yes, debt will decrease in real terms due to inflation. US, UK, etc governments insane debts will be eroded significantly through inflationary money printing, and so will yours (if you have any). The losers are people holding cash.
What about house values?
- Should go up all things being equal... but same story as commodities, depends on supply and demand factors too.
Or is it something else?? Do they physically print more money or is it just a couple of zeros added to someone’s bank account? How does it work?
- have a read of this https://www.economicsonline.co.uk/Global_economics...
So when you all say assets go up in value (ie houses) are they really going up or just maintaining their base value? Ie my £300k house today is then worth £600k because ‘money’ has halved in really terms value?
I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
audi321 said:
So when you all say assets go up in value (ie houses) are they really going up or just maintaining their base value? Ie my £300k house today is then worth £600k because ‘money’ has halved in really terms value?
I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
Any link to gold prices has now gone, although it used to be the case. I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
As for your first question, it depends what everything else has done. If the value of money (overall) has halved, then yes, your £600k house will buy the same as a £300k house used to. What QE has produced is that asset prices (stocks/shares) have risen massively in value, while other things (goods, products etc) haven't risen by anywhere near as much. So whereas your £300k house might have bought (for example) 300 top of the range computers, your £600k house might buy 450 top of the range computers, because the price of computers hasn't gone up as much as the price of houses. Apply that to shares, houses, classic cars, art etc, against the costs of fuel, food, transport etc.
One of the unwritten things about QE is that all it has done is hugely increase the wealth of those already wealthy, with very little benefit to those on lower incomes or with fewer assets to start with. If you had £100k in shares which are now worth £200k, you have done much better out of it (and are comparatively much better off) than someone who had £10k in shares and now has £20k, while someone with no shares has seen £0 increase. This inequality will come back round to haunt governments and the population as a whole.
audi321 said:
So when you all say assets go up in value (ie houses) are they really going up or just maintaining their base value? Ie my £300k house today is then worth £600k because ‘money’ has halved in really terms value?
I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
They would be going up in currency terms, but not changing in relative value, so exactly as you say... you would be no better off as you have twice as much money, but each £ is worth half as much! Meanwhile if you had held cash, you would be 50% worse off, as your £300k cash (1 x house) would now only buy you half a house. And if you held debt, you would be in 50% less debt, since your £300k debt (1 x house) would now only take half a house to pay off. So £ cash holders lose, asset holders maintain, and debtors (denominated in £) win.I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
Gold is, historically, a good store of wealth. But its value is not guaranteed, it relies on supply and demand the same as anything else - and as such its value can be changed or manipulated, it is not a constant - indeed there is no such thing as a 'base' underlying unit of value - which is what makes it tricky to sometimes just maintain wealth, let alone get a return.
audi321 said:
I thought gold was the one constant? Surely there’s one ‘base’ value commodity that everything takes its real value from?
No, there are no constants at all. It's all relative. What's gold worth if you need food and there isn't enough of it?Money and indeed everything else is worth what people THINK it is worth. Printing or removing cash from circulation, raising or lowering interest rates, noticing that prices are already going up or down, noticing that wages are going up or down; all of these things can change what people think money will be worth in the near future. But the way people react to specific changes in rates, wages, prices etc is NOT fixed. Sometimes you can increase the money supply without triggering inflation expectations, sometimes you can't. Economics isn't physics. There aren't universal laws defined in terms of fixed constants of proportionality. It's a social science.
Generally speaking, if you inject cash into an economy without increasing that economy's output, then you've simply got more money available to buy the same amount of stuff. The price of stuff therefore goes up. You get less stuff than you used to for £1. The value of a pound in your pocket had gone down. Inflation.
But at the moment one assumes that consumer confidence and spending has just nose dived. A large number of people are expecting to lose their income. So what happens if you give them some cash? Are they actually going to rush out and spend even more than they were a couple of months ago? I very much doubt it. They're still poorer than they were, they're still going to be worried about the near future. They'll spend some of the money they receive, and they'll probably try to save some of it too. Demand will still be suppressed. Will people start looking to shift cash into the property market? I'd be surprised. But will people be in a panic to sell? Probably not. Rates are low. People are talking about supporting those who are going to have difficulty keeping up their mortgage payments. Most likely thing is that would-be buyers and sellers will sit on their hands and you'll see turnover in the housing market dry up.
ATG said:
No, there are no constants at all. It's all relative. What's gold worth if you need food and there isn't enough of it?
Money and indeed everything else is worth what people THINK it is worth. Printing or removing cash from circulation, raising or lowering interest rates, noticing that prices are already going up or down, noticing that wages are going up or down; all of these things can change what people think money will be worth in the near future. But the way people react to specific changes in rates, wages, prices etc is NOT fixed. Sometimes you can increase the money supply without triggering inflation expectations, sometimes you can't. Economics isn't physics. There aren't universal laws defined in terms of fixed constants of proportionality. It's a social science.
Generally speaking, if you inject cash into an economy without increasing that economy's output, then you've simply got more money available to buy the same amount of stuff. The price of stuff therefore goes up. You get less stuff than you used to for £1. The value of a pound in your pocket had gone down. Inflation.
But at the moment one assumes that consumer confidence and spending has just nose dived. A large number of people are expecting to lose their income. So what happens if you give them some cash? Are they actually going to rush out and spend even more than they were a couple of months ago? I very much doubt it. They're still poorer than they were, they're still going to be worried about the near future. They'll spend some of the money they receive, and they'll probably try to save some of it too. Demand will still be suppressed. Will people start looking to shift cash into the property market? I'd be surprised. But will people be in a panic to sell? Probably not. Rates are low. People are talking about supporting those who are going to have difficulty keeping up their mortgage payments. Most likely thing is that would-be buyers and sellers will sit on their hands and you'll see turnover in the housing market dry up.
I tend to agree that both supply and demand will dry up and nothing will move but prices won't crash. Money and indeed everything else is worth what people THINK it is worth. Printing or removing cash from circulation, raising or lowering interest rates, noticing that prices are already going up or down, noticing that wages are going up or down; all of these things can change what people think money will be worth in the near future. But the way people react to specific changes in rates, wages, prices etc is NOT fixed. Sometimes you can increase the money supply without triggering inflation expectations, sometimes you can't. Economics isn't physics. There aren't universal laws defined in terms of fixed constants of proportionality. It's a social science.
Generally speaking, if you inject cash into an economy without increasing that economy's output, then you've simply got more money available to buy the same amount of stuff. The price of stuff therefore goes up. You get less stuff than you used to for £1. The value of a pound in your pocket had gone down. Inflation.
But at the moment one assumes that consumer confidence and spending has just nose dived. A large number of people are expecting to lose their income. So what happens if you give them some cash? Are they actually going to rush out and spend even more than they were a couple of months ago? I very much doubt it. They're still poorer than they were, they're still going to be worried about the near future. They'll spend some of the money they receive, and they'll probably try to save some of it too. Demand will still be suppressed. Will people start looking to shift cash into the property market? I'd be surprised. But will people be in a panic to sell? Probably not. Rates are low. People are talking about supporting those who are going to have difficulty keeping up their mortgage payments. Most likely thing is that would-be buyers and sellers will sit on their hands and you'll see turnover in the housing market dry up.
Do you think more money coupled with less spending could lead to more savings that will be diverted into the housing market once this blows over, pushing prices up?
156651 said:
I tend to agree that both supply and demand will dry up and nothing will move but prices won't crash.
Do you think more money coupled with less spending could lead to more savings that will be diverted into the housing market once this blows over, pushing prices up?
It's possible, but I expect people are at least initially going to be more risk averse than before and will therefore want to maintain savings and avoid gearing themselves up to the ying yangs. So if I had to guess, I'd say flat to small negative for the housing market when/if we are let out of our houses again. But given we have no idea how long this virus is going to hang around nor what balance we're going to strike over the medium term between maintaining the economy (aka normal life) and trying to minimise the early death of vulnerable people, it's all up for grabs.Do you think more money coupled with less spending could lead to more savings that will be diverted into the housing market once this blows over, pushing prices up?
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