Quantative Easing

mewbie_2

jenner wrote: »

this all sounds quite upsetting,, what are we going to do?? whats going to happen? not sure i understand any of this, i cant be the only one

Please don't start them off again. There are a few knowledgeable people on here, and a lot of second hand Wiki and Google merchants (me included), and some not even at that level. They will not agree on what will happen, and no one actually knows. So we go round and round suggesting nightmare scenarios, then ridiculing them, then attacking the poster, and his mother - until finally the thread is moved to the Moneysavers and we are all left none the wiser.

er. that's a long way of saying I don't know... but I don't think anyone else does either.

Generali

This was my response to another thread.

Generali wrote: »

Personally, I think it's a crazy idea.

The money supply = amount of cash * velocity of circulation (ie the number of times it is spent).

Generally speaking, money supply rising faster than nominal GDP will be inflationary. The reason is imagine a situation where you have a certain number of goods and a certain amount of money to buy them. Increase the amount of money and keep the qty of goods the same and all that can happen is the price of the goods rises so the same amount of money will buy less.

At the moment, the velocity of circulation is falling as banks are hoarding cash. As a result the money supply is rising more slowly and may well start to fall next year. However, once the banks start to lend again, the money supply will rise quickly and about 6-18 months later so will inflation, at a dramatic rate.

Politically it will be very hard to destroy that money as it will mean taking money off people in tax and destroying it, in effect. This is a really dumb idea.

Basically it's a terrible idea.

Errata

Remember that well worn phrase "It's a licence to print money" spoken about anything iffy ?

kwikbreaks

purch wrote: »

Neither the Weimar Republic in the 1920's nor Zimbabwe have ever used a policy of Quantative Easing.

It is ludicrous to use those two examples to try and explain the process. Nothing could be further from the truth.

The first time Quantative Easing as a policy was used, was by Japan in the 1990's.

It does not involve Printing Money

Certainly it wasn't called QA than and the precise mechanisms used by Japan may well be rather different from those two (admitedly tongue in cheek) examples but in essence QA is in efect just printing money. The bad press that just printing money gains is probably why the term QA was coined (to disguise the truth) and why he of the strange eyebrows is saying it won't be considered.

It is rather telling that the wiki I linked to ( http://en.wikipedia.org/wiki/Quantitative_easing ) starts off..

"Quantitative easing is a tool of monetary policy. It effectively means that the central bank prints new money, in order to increase the supply of money."

Now wikipedia is certainly not a definitive source but I'd personally put more trust in it than the view of some anonymous forum poster even if he does read enough of it to come up with Japan as the original QA'er

treliac

Generali wrote: »

This was my response to another thread.

Basically it's a terrible idea.

Putting it simply, money equals the country's wealth. Therefore printing more doesn't make the country wealthier because that wealth divided into the money circulating means more money, proportionately, is required to make any purchase? (Please correct me if it's not that simple).

Two questions:

How does the extra money printed filter through into the economy?

and

Why is it that Brown and Darling seem to be lagging behind so many ordinary people in their understanding of the economy?

kwikbreaks

> How does the extra money printed filter through into the economy?

I'm assuming that HMG just spends it. If Brown/Darling do have problems putting it into circulation I'll volunter to launder it for them

mandragora_2

Shows how much I know. I misread the thread title as

Quantative Eating

and assumed it was just one more post-Christmas dieting self-flagellation thread - and popped in for a quick top up of schadenfreude.

Masomnia

treliac wrote: »

Putting it simply, money equals the country's wealth. Therefore printing more doesn't make the country wealthier because that wealth divided into the money circulating means more money, proportionately, is required to make any purchase? (Please correct me if it's not that simple).

Two questions:

How does the extra money printed filter through into the economy?

and

Why is it that Brown and Darling seem to be lagging behind so many ordinary people in their understanding of the economy?

It's not that simple.

The quantity of money in the economy is important, but so is the velocity of that money. Printing money affects both, and both are falling (or at least not rising as fast).

The money filters through as the money isn't 'printed', it's passed on to the banks in exchange for assets, and then the theory is that they'll lend it out.

treliac

Masomnia wrote: »

The money filters through as the money isn't 'printed', it's passed on to the banks in exchange for assets, and then the theory is that they'll lend it out.

So it's a form of nationalisation, or part? What if the banks don't want to exchange assets for unreal money? They are hanging on to what they've been given already.

Brown, Darling et al seem to make poor assessments of response to their strategies.

1echidna

I think there may be people here who feel vaguely comfortable (although anticipating losses) with their personal financial resources but are either in denial about the country spiralling downwards into depression or feel it is best to let the masses suffer in a way which will least affect them. I may be totally wrong and that radical solutions such as 'quantitative easing' are in fact bad as a whole for UK plc, but I remain suspicous that vested interests colour the arguments.