Bank of England want to print more money - is this the end?
Discussion
I always thought that a central bank printing extra money and distributing this was the action of desperate, insane economies. Resulting in rampant inflation, black market currency and people with wheelbarrows of cash to go shopping.
I guess the theory is that this cash will stimulate the current low inflation, but is this not hugely risky and ultimately completely self destructive?
Are we now really, really fecked?
I guess the theory is that this cash will stimulate the current low inflation, but is this not hugely risky and ultimately completely self destructive?
Are we now really, really fecked?
So time to mint some PH Gold, inflation proof 'Petrolhead Mint' a bit like these:
Except we'd have a piston on one side and celebrate British engineers on the other.
We'll have a car of the month and mint some special edition collectors coins to encourage saving. After all, you wouldn't want to trade your Alfa Romeo 33-2 Stradale for a pint of milk now eh?
I imagine it will be a cash for debt swap probably at some rate to the pound.
This debt should be earning money, problem is the debt market has collapsed, the debt is not earning any return and the banks left holding the debt may (or may not) have enough cash to settle all the debt.
In much the same way people have a mortgage, if the bank demanded settlement now - you could not pay it.
So if central banks print money to buy the debt, it's really converting latent monetary worth that should have be realised say over a period of time to monetary worth now.
The BoE takes the debt and what return it can from it (hopefully more than they bought it for).
In other words, those banks taking the swap will not get the multiple earnings from the debt, it's similar to cashing in an annuity early, you'll get cash but you won't get it's real worth.
The banks then could re-evaluate who they lend money to and build a new lending portfolio that will earn them a return and not actually put them out of business.
What the BoE is NOT doing to simply printing money to put into immediate circulation.
What will it do?
Well in the short term, it will tank Sterling, it will start to inflate the economy as it starts to grow (slowly) and interest rates will move upwards to counter any inflation. However, as there is so much spare capacity in the economy - it's difficult to see where any inflation will come from.
As a supply side strategy - printing money has merit at this stage.
However, nothing is being done to stimulate demand, a VAT cut is in non-economic terms is 'f
king pathetic'.
We are saddled with a massively unproductive public sector and a moribund private sector saddled with high taxes and red tape. Households are nearly twice as indebted as US households.
On the demand side, the only solution realistically is to slash government spending and cut taxes. If you consider that government borrowing represents interest payments equal to the size of the entire defence budget, then something has to give.
The situation we will be in by 2011 will be worse than that inherited by Thatcher in 1979.
In the medium term, it may relieve the systemic cause of this recession - tight credit. Also, it will permit the rebuilding of the UK financial sector. Who knows in 15-20 years times, these banks may actually be worth more than we paid for them. By then, the country might have repaid the money it has borrowed to get to where we were in 2006.
In the long term, as Keynes said, we are all dead.
So what's the problem with Quantative Easing. The main one is prestige, banking is based on trust and reputation more than financial engineering.
The fact that the UK yet again has had to print money to solve its problem is shameful.
This debt should be earning money, problem is the debt market has collapsed, the debt is not earning any return and the banks left holding the debt may (or may not) have enough cash to settle all the debt.
In much the same way people have a mortgage, if the bank demanded settlement now - you could not pay it.
So if central banks print money to buy the debt, it's really converting latent monetary worth that should have be realised say over a period of time to monetary worth now.
The BoE takes the debt and what return it can from it (hopefully more than they bought it for).
In other words, those banks taking the swap will not get the multiple earnings from the debt, it's similar to cashing in an annuity early, you'll get cash but you won't get it's real worth.
The banks then could re-evaluate who they lend money to and build a new lending portfolio that will earn them a return and not actually put them out of business.
What the BoE is NOT doing to simply printing money to put into immediate circulation.
What will it do?
Well in the short term, it will tank Sterling, it will start to inflate the economy as it starts to grow (slowly) and interest rates will move upwards to counter any inflation. However, as there is so much spare capacity in the economy - it's difficult to see where any inflation will come from.
As a supply side strategy - printing money has merit at this stage.
However, nothing is being done to stimulate demand, a VAT cut is in non-economic terms is 'f
king pathetic'.We are saddled with a massively unproductive public sector and a moribund private sector saddled with high taxes and red tape. Households are nearly twice as indebted as US households.
On the demand side, the only solution realistically is to slash government spending and cut taxes. If you consider that government borrowing represents interest payments equal to the size of the entire defence budget, then something has to give.
The situation we will be in by 2011 will be worse than that inherited by Thatcher in 1979.
In the medium term, it may relieve the systemic cause of this recession - tight credit. Also, it will permit the rebuilding of the UK financial sector. Who knows in 15-20 years times, these banks may actually be worth more than we paid for them. By then, the country might have repaid the money it has borrowed to get to where we were in 2006.
In the long term, as Keynes said, we are all dead.
So what's the problem with Quantative Easing. The main one is prestige, banking is based on trust and reputation more than financial engineering.
The fact that the UK yet again has had to print money to solve its problem is shameful.
Edited by 215cu on Thursday 19th February 10:53
It's not necessarily the end, clearly people within the bank of England believe they can stimulate the economy with quantative easing and if this leads to an increase in inflation it can be control with interest rates.
For a simpleton such as myself there appears to be 3 ways out of this mess.
1. Inflation
2. Liquidation
3. Public spending/debt
Choose your poison, I’d prefer liquidation.
For a simpleton such as myself there appears to be 3 ways out of this mess.
1. Inflation
2. Liquidation
3. Public spending/debt
Choose your poison, I’d prefer liquidation.
215cu said:
Stuff
Fantastic post, that for me made the whole situation a lot clearer 
IMO a lot of the problems in the current market have been exagerated due to the increasing communication of this type of news. 30 years ago for example, this sort of news would not have been available to all and sundry; where as in todays 'information age' every single piece of ecenomic news is reported on every minute of the day, and is available by anyone who has access to a pc.
Obviously the prolems with increased awareness is the reduction of confidence in the market, which leads to lower consumer spending etc. etc. So the old days of 'ignorance is bliss' may have left the economy in a better position than it is today.
matc said:
Obviously the prolems with increased awareness is the reduction of confidence in the market, which leads to lower consumer spending etc. etc. So the old days of 'ignorance is bliss' may have left the economy in a better position than it is today.
bks. It meant that the people with access to the information were able to make informed decisions whilst the rest of us were just cut adrift to survive the best we could.Yes, information is available instantly and from so many different sources that it can make you're head spin, however, you at least have the luxury to choose.
You may want to live in blissful ignorance and let other people make important decisions that affect you and your family for you and the best of luck to you.
I'll trust myself to make my own choices thanks and if I make a mistake I'll answer for it.
215cu said:
...
Well in the short term, it will tank Sterling, it will start to inflate the economy as it starts to grow (slowly) and interest rates will move upwards to counter any inflation. However, as there is so much spare capacity in the economy - it's difficult to see where any inflation will come from.
As a supply side strategy - printing money has merit at this stage.
However, nothing is being done to stimulate demand, a VAT cut is in non-economic terms is 'fking pathetic'.
We are saddled with a massively unproductive public sector and a moribund private sector saddled with high taxes and red tape. Households are nearly twice as indebted as US households.
On the demand side, the only solution realistically is to slash government spending and cut taxes. If you consider that government borrowing represents interest payments equal to the size of the entire defence budget, then something has to give.
...
If the pound will be tanking then any goods imported will probably increase in cost (obviously depending if we can buy British instead or just do without). Aren't food and non energy import inflation both in double digits currently? Well in the short term, it will tank Sterling, it will start to inflate the economy as it starts to grow (slowly) and interest rates will move upwards to counter any inflation. However, as there is so much spare capacity in the economy - it's difficult to see where any inflation will come from.
As a supply side strategy - printing money has merit at this stage.
However, nothing is being done to stimulate demand, a VAT cut is in non-economic terms is 'f
king pathetic'.We are saddled with a massively unproductive public sector and a moribund private sector saddled with high taxes and red tape. Households are nearly twice as indebted as US households.
On the demand side, the only solution realistically is to slash government spending and cut taxes. If you consider that government borrowing represents interest payments equal to the size of the entire defence budget, then something has to give.
...
Doesn't reducing debt and destroying savings count as "stimulating demand" ?
I like your solution to the demand side, BUT given how this country is getting weaker compared to other counties in terms of its resources I believe that destiny is with ever higher taxes and more state jobs, rather than the opposite. If 1m manufacturing (productive) jobs were lost in the last xy years then haven't these been replaced with non productive public sector jobs?
DoubleYellow said:
Help a complete imbocile:-
If I have £10,000 in the bank, lots of money is printing and inflation is affected (wheel barrows of cash etc.) do I sill have £10,000 in the bank or do I have inflation adjusted amount?
Sorry for bringing it back to basics!
I think it will be a case of you still having £10,000 but £10,000 will only be able to buy you a loaf of bread due to the inflation.If I have £10,000 in the bank, lots of money is printing and inflation is affected (wheel barrows of cash etc.) do I sill have £10,000 in the bank or do I have inflation adjusted amount?
Sorry for bringing it back to basics!
(ok maybe thats a bit extreme)
DoubleYellow said:
So I might as well just spend all my savings that I have spent years amassing, before they are worthless?
It could be a good idea if you think you have enough for a rainy day to investigate bringing forward any investment (as in house improvement etc) plans you may have, depending if you think if they won't be better value in the future - as in will they suffer deflationary pressure. I don't think anything drastic will probably happen, it would take some major collapse for GBP to become totally worthless, but IMHO the probable end result will be most of us being a bit worse off...
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