Printing Money

crazygaijin

Even if interest rates go as low as they are in Japan right now (Bank of Japan base rate 0.1% at the moment) its ok to have cash savings because we are going to be looking at a period of deflation. If your money is in the bank getting virtually no interest or under the mattress its the same, cash is still king because its going up in value compared with everything else.

But our crazy government is going to try and print its way out of this catastrophe. They will go into printing overdrive even more than the Americans. Truck loads of new money will be printed every week which we all know what that will mean. Hyperinflation, Zimbabwean style.

So your average 2 bed terraced house in London which you may be able to buy for about 100K after the deflationary period will be looking at being worth literally millions of pounds. This sounds like a lot but not if you have to take a wheel barrow full of 50quid notes just to buy a loaf of Tesco value bread.

chucky

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.

so what happens when people take out money from here, don't spend it and repay debts - would this happen here?

Really2

chucky wrote: »

so what happens when people take out money from here, don't spend it and repay debts - would this happen here?

Thought I would have a quick pop back on the board mean as it is Christmas.

The point is QE is what Japan used finaly to get it's self out of recession during the 90's onward.

Did they suffer hyper inflation etc?

I don't see why people compare our housing bubble to Japan then think the same solutions will have a different outcome over here.

WTF?_2

tradetime wrote: »

Whilst that quote, may seem alarming, may even be alarming, it would be far more alarming to find that the US was exactly mirroring the Japanese, step for step quantity for quantity. Remember the Japanese failed to achieve what they set out to do.

That's because the carry trade 'exported' much of the inflationary effect. They could make money available but they couldn't control where it went.

However, it had the effect of keeping the yen low which helped Japan greatly as it had a huge export base. Plus, the general level of savings was high which meant that the general population wasn't as hard hit by deflation as our debt-crazy public would have been.

Much of the criticism leveled at their efforts to control their crisis centered around the fact that they seriously underestimated the severity of the situation and thus were much too slow to react, and when they did react, they were nowhere near aggressive enough. I think we can safely say whatever criticisms are leveled at the US in the PM, those won't be amongst them.

The US certainly didn't see it coming either and have reacted over-zealously once it was blatently obvious what was happening. And because of the USes position of global reserve currency and petro-currency their eventual over-inflation will spread out to hit most of the rest of the world too.

WTF?_2

purch wrote: »

It's a very high tightrope they are walking.....when they finally have to bring these Bonds to the market, getting the timing right to get this huge amount of money out of the system appears at first sight to be an impossible feat to accomplish.

Maybe Gordon can tell them. He seems to have the measure of this global crisis.

harryhound

The Japanese government and its banks, with their consensus style of dealing, never dared to "put the boot in" and put the walking dead institutions out of their misery.(and allow the vultures to pick the carcass clean).
As a result their economy failed to restructure and staggered on for years with banks and companies that could not prosper but would not die.

The world seems to be heading towards a similar situation with its automotive industry. I for one cannot see the sense in putting money into gas guzzling Jaguars, so any profits there may be end up in India. Meanwhile that same government puts up my electricity bill to subsidise windmills to save carbon.
Has the left hand any idea what the right hand is doing?

WTF?_2

Generali wrote: »

IMO this is cr ap. Debt is the problem not the solution.

Bingo.

Until the fact that we are collectively living way above our means is addressed, the consequences of this crisis will keep getting bigger.

Right now seems like they are trying to partially default on debt through inflation, ripping off the prudent (people who have cash savings) in the process. Can't see the creditor countries who collectively hold trillions in US bonds putting up with that. Right now, if I were the Chinese I'd be making plans to dump my dollars on the market whilst they were still worth something. Snapping up as many productive assets as possible. That'll send inflation through the roof in the US and by default, put massive inflationary pressure on the rest of the world too.

cogito

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 big problem that I have with trackers is the amount of churning that has taken place within the FTSE over the last few years. We've had periods when tech stocks, financial stocks and mining stocks all went from boom to bust and many of them dropped out of the FTSE forcing fund managers to sell at the bottom of the market and buy whatever fashionable stocks replaced them.

As Generali said:

If we get deflation then companies with solid cashflow and little debt should do well.

but these are companies that will do reasonably well whatever the economic climate by providing capital growth in a rising market or higher yields in a falling market. My gut feeling is to stick with exactly this sort of stock or buy a fund such as Invesco High Income.

WTF?_2

free4440273 wrote: »

People look at the Bond market now and cry 'horror :eek:, look at those yields' (as do i). Yes, the Bond market is telling us something, but it's important to remember it is yet another bubble - and it's the Hedgies who are front-running this, just as they did with commodities (gold, copper et. al.) a yr ago.

People are buying bonds now out of pure fear and total mistrust in the banks, the hedge funds and the markets in general.

Once the money printing starts to make a perceptible impact, watch the panic as people move to put their cash into tangible assets.

That's why I'm on the alert to turn my savings into bricks and mortar. Probably at least 6 months before it happens in the UK though or a year and the house market turns slowly.

lethal0r

woahhhh the 2nd page is even more complex than the first. IM OUT (thats my bannatyne impression).