Printing Money

Generali

lethal0r wrote: »

I THINK I understand now.

So the principle is to create more money now, but ensure it is paid back at a future date to stop inflation?

And the bond is the mechanism for stopping inflation - if the money was printed without a bond it would not go out of circulation & thus there would be inflation?

That's about it. The process is called sterilisation. The bonds that are sold take out an equal amount of cash from circulation to that which has been created for the Government.

The US Government is trying to prevent deflation by increasing the amount of cash in the system. The thing is, that doesn't make the fundamental problem of people spending more than they earn go away. GDP will shrink by about 10% in the UK just so people go back to saving a little of what they earn rather than spending a little more than they earn. That is going to be a very painful contraction regardless of what the Government tries to do.

They didn't understand the boom and they don't understand the bust. IMO.

Generali

ad9898 wrote: »

Some great posts in this thread Gen.

Thanks Adam(?) old chap.

IveSeenTheLight

Generali wrote: »

That's about it. The process is called sterilisation. The bonds that are sold take out an equal amount of cash from circulation to that which has been created for the Government.

The US Government is trying to prevent deflation by increasing the amount of cash in the system. The thing is, that doesn't make the fundamental problem of people spending more than they earn go away. GDP will shrink by about 10% in the UK just so people go back to saving a little of what they earn rather than spending a little more than they earn. That is going to be a very painful contraction regardless of what the Government tries to do.

They didn't understand the boom and they don't understand the bust. IMO.

Don't the govt also have bank shares they can sell in the future to claw back the debt.
They did buy at relative lows

bubblesmoney

any suggestions on where to be investing spare cash for the risk averse and also for those willing for moderate risks. since quantitative easing will be decreasing the value of my cash assets. buying gold etc is cumbersome plus it is at historic highs and it is not exactly liquid.

any suggestions on low PE ratio companies that give a good dividend plus have a good outlook in the present climate, plus have reasonable market capitalisation etc to make them safer bets. just planning on hedging my savings against inflation that is bound to follow printing money.

all the more worrying that u get the statistics for how much money is being printed in usa but in uk they seem to be making amendments to the law in a proposed bill to avoid releasing that data now as i read on a link in another thread on mse today. looks like they plan on a printing money spree and want to avoid releasing the data to prevent a run on the pound. does anyone have any links to how much each country is printing so that one can have some vague idea where it might be better to park savings etc

bubblesmoney

IveSeenTheLight wrote: »

Don't the govt also have bank shares they can sell in the future to claw back the debt.
They did buy at relative lows

wife is buying rbs shares on a cost averaging basis for the last few years by drip feeding it monthly. but were saved a bigger loss as one part of the investment had a cop out line where we could get back money invested (for employees) at par if value less than paid up. so managed to pull out 9000£ without a loss and got a small bonus of 450£ i think for keeping it in the scheme for 3y. but did lose money in the part of the scheme that isnt protected by the money back guarantee. that part of the investment is next to worthless now so still keeping it as can afford to lose the 50pence per share that is the present valuation only keeping it in the hope that things might improve and worse come worst will lose a few thousand pounds. still investing monthly in this bit as getting more shares for the money but dont know if this is a wise thing to do. just hedging my bets as the interest rates dont seem good for savers. i wont be surprised if the govt removes the tax exemption for ISAs etc to force people to start spending money instead of saving it. cant put anything past this govt anymore.

GDB2222

Generali wrote: »

Take a simple economy. 3 people, 3 cans of cold beer, 3 pound coins, one each. It's clear that the beers will sell for a pound each.

Now set up a second example, 3 people, 3 cans of cold beer, 6 pound coins, two each. It's now clear that the beers will sell for 2 pounds each.

Putting more money into the system doesn't make more beer but it does make the money worth less. People may feel richer ("Hey, I've got 2 quid now!") but it'll do them no good as they can't buy more stuff.

You've missed one of the nuances. 3 people A, B, and C - as above, with £2 each. A borrows £1 from C (secured on A's beer) and then buys B's can of beer for £3.

Result is that they are all worth more:
A has 2 cans of beer at £3 but owes £1 = £5.
B has £5 cash, but no beer.
C has £1 cash plus £1 secured loan to A, plus a can of beer = £5.

You can see how a small degree of leveraging has increased all their wealth from £4 to £5. B can see what a good investment beer is, so he borrows £1 from C and buys both of A's cans from him for £4 each, with £2 deferred consideration.

So, now they are worth:
A has £6 cash and is owed £2 by B but owes C £1, net = £7
B has two cans of beer worth £8, but he owes £3, net = £5
C has one can of beer worth £4 and has £1 owing to him from A & B, net = £6

So, this hasn't increased the wealth a lot, but fortunately A splurges £6 buying C's can of beer, so now:

A has beer worth £6 and net current assets of £1, net = £7
B has two cans of beer worth £12, but he owes £3, net = £9
C has cash of £6 and A & B each owe him £1, so net = £8

It's fascinating how introducing a little finance into the equation has increased everyone's wealth from £4 to £8 (on average) without any government intervention.

Generali

GDB2222 wrote: »

You've missed one of the nuances. 3 people A, B, and C - as above, with £2 each. A borrows £1 from C (secured on A's beer) and then buys B's can of beer for £3.

Result is that they are all worth more:
A has 2 cans of beer at £3 but owes £1 = £5.
B has £5 cash, but no beer.
C has £1 cash plus £1 secured loan to A, plus a can of beer = £5.

You can see how a small degree of leveraging has increased all their wealth from £4 to £5. B can see what a good investment beer is, so he borrows £1 from C and buys both of A's cans from him for £4 each, with £2 deferred consideration.

So, now they are worth:
A has £6 cash and is owed £2 by B but owes C £1, net = £7
B has two cans of beer worth £8, but he owes £3, net = £5
C has one can of beer worth £4 and has £1 owing to him from A & B, net = £6

So, this hasn't increased the wealth a lot, but fortunately A splurges £6 buying C's can of beer, so now:

A has beer worth £6 and net current assets of £1, net = £7
B has two cans of beer worth £12, but he owes £3, net = £9
C has cash of £6 and A & B each owe him £1, so net = £8

It's fascinating how introducing a little finance into the equation has increased everyone's wealth from £4 to £8 (on average) without any government intervention.

It is a simplification. There's no ongoing trade and there's no velocity of circulation as a result for example.

Generali

bubblesmoney wrote: »

any suggestions on where to be investing spare cash for the risk averse and also for those willing for moderate risks. since quantitative easing will be decreasing the value of my cash assets. buying gold etc is cumbersome plus it is at historic highs and it is not exactly liquid.

any suggestions on low PE ratio companies that give a good dividend plus have a good outlook in the present climate, plus have reasonable market capitalisation etc to make them safer bets. just planning on hedging my savings against inflation that is bound to follow printing money.

all the more worrying that u get the statistics for how much money is being printed in usa but in uk they seem to be making amendments to the law in a proposed bill to avoid releasing that data now as i read on a link in another thread on mse today. looks like they plan on a printing money spree and want to avoid releasing the data to prevent a run on the pound. does anyone have any links to how much each country is printing so that one can have some vague idea where it might be better to park savings etc

Diversification is your friend. I know that a lot of people disagree with me but I reckon the best thing to do is to invest in cheap trackers or ETFs, feed your money in month-by-month and look to hold for the long term.

The biggest problem is that everything seems to be screwed. Of the biggest 5 economies which would you choose to invest in.

US? Maybe on the basis that stocks are oversold but I don't think they are personally.
Germany? Possibly - they're likely to be amongst the first to recover as they sell so many 'capital goods' (things that are used to make other things), recovery looks a long way off right now though.
Japan? Nope. They're screwed by demographics. Screwed by not enough screwing if you like.
France? They must be due another revolution.
UK? Hahahahaha.

Quite honestly, I think the only thing you can do is diversify and hope for the best and try to console yourself with the thought that at least you've got your health.

harryhound

Thanks to this thread and a little help from the BBC World Service, I now understand:

The Yen is strong because the Japanese are not creating so much funny money.

The dollar is still relatively strong because it is a "reserve currency".
(Generali will explain what this means !? but as I understand it, they can still get away with the celebrity trick: It works like this: Celebrity goes into Pub and orders a modest round of drinks, let us say 15 quids worth.
"Oh dear I have not managed to get to the cash machine, can you cash me a cheque?"
Landlord recognises celebrity and is happy to accept cheque.
With a bit of luck the landlord will not cash the cheque as just having the cheque & signature of someone so famous, seems more valuable than the money.
The Americans have been freeloading like this on the rest of the world for decades)

The euro is the world's fastest growing reserve currency, so it too is strong.

The pound is probably the world's fastest shrinking reserve currency. Any suggestion that the government of the dear leader is :rotfl: the figures, will make it collapse even faster

The amount of money able to slop around the world far exceeds the flow of real goods and services. The world economy looks to me like a fleet of car ferries stuck in port because their captains know its rough out there and their board of directors has pumped several feet of water onto the car deck.

Back to you Generali, what do we do with our money while it still has some value?

Harry

PS Has any body seen a credit crunch update to the "two cows" text book explanation of how the world works?
http://blog.wired.com/sterling/2008/02/new-and-improve.html

Generali

harryhound wrote: »

The Yen is strong because the Japanese are not creating so much funny money.

The dollar is still relatively strong because it is a "reserve currency".
(Generali will explain what this means !? but as I understand it, they can still get away with the celebrity trick: It works like this: Celebrity goes into Pub and orders a modest round of drinks, let us say 15 quids worth.
"Oh dear I have not managed to get to the cash machine, can you cash me a cheque?"
Landlord recognises celebrity and is happy to accept cheque.
With a bit of luck the landlord will not cash the cheque as just having the cheque & signature of someone so famous, seems more valuable than the money.
The Americans have been freeloading like this on the rest of the world for decades)

The euro is the world's fastest growing reserve currency, so it too is strong.

The pound is probably the world's fastest shrinking reserve currency. Any suggestion that the government of the dear leader is :rotfl: the figures, will make it collapse even faster

The amount of money able to slop around the world far exceeds the flow of real goods and services. The world economy looks to me like a fleet of car ferries stuck in port because their captains know its rough out there and their board of directors has pumped several feet of water onto the car deck.

Back to you Generali, what do we do with our money while it still has some value?

Harry

PS Has any body seen a credit crunch update to the "two cows" text book explanation of how the world works?
http://blog.wired.com/sterling/2008/02/new-and-improve.html

The Yen is strong because Japanese people are taking their savings that they invested abroad and repatriating them to Japan. Also non-Japanese investors we engaging in the 'carry trade' where they borrowed Yen at as 0.5% and invested in non-Japanese assets at a higher rate of interest. It's a bit like stoozing really only on a bigger scale. Now that trade is becoming unprofitable so investors are buying Yen to repay their debts.

The rest is about right really. Also, US investors are having to repatriate investments to some extent to make good their losses.

I really don't know what a good investment is right now. If we get deflation then companies with solid cashflow and little debt should do well. If we get hyperinflation then no investment is really safe. If we get regular inflation then land, houses and companies with large debts and solid cashflow look good. I have no idea which scenario will occur - I'd assumed deflation but then I'd assumed no Government would print money in large amounts.