Quantative Easing

Masomnia

treliac wrote: »

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.

I'm really not going to be the best at explaining this. It isn't about the government buying greater stakes in the banks, rather it's the bank of England buying government debt from the banks, putting more liquidity in the banks. So I suppose the theory is that the money slowly filters into the economy through lending - assuming the banks will lend in the first place.

I agree there's a lot could go wrong.

mvengemvenge

kwikbreaks wrote: »

At the end of the game the Germans didn't do too badly and Mr Mugabe is still in control of Zimbabwe so I guess it can't be ruled completely bonkers.
http://en.wikipedia.org/wiki/Quantitative_easing

So we'll be ok as long as we take over another country?

That's ok, then.

treliac

Masomnia wrote: »

it's the bank of England buying government debt from the banks, putting more liquidity in the banks.

Thanks for your replies.

Buying debts, though, is the activity that got us into trouble in the first place.

Isn't is about time we were encouraged to pay back our debts, and not take on more? We've been living beyond our means for much too long. I don't want future generations suffering for current irresponsibility.

Presumably the banks don't agree with HM Govt, which is why they aren't playing. Even vast swathes of the public have started to realise we've overspent for too long.

I think we should return to an old fashioned approach to borrowing and spending, one that brings an end to living on debt and encourages saving towards what you want. Less manipulation from the govt, not more (though some sensible regulation wouldn't come amiss) - they've already c0cked it up, for too many hard working families.

Edale

Generali wrote: »

This was my response to another thread.



Basically it's a terrible idea.

What is the alternative though Gen? Just take a look at the figures coming out such as manufacturing production today down 2.9% m/m. The risk is we are already going down the road Japan went and cutting rates too late and slow and by the time we get round to QE it will be too late to pull us out of a very long and hard recession and possible deflation. Deflation was the risk for the last few months and initially the BOE (with the exception of Blanchflower) completely missed it.

97trophy

Video explanation of quantitative easing.

http://marketplace.publicradio.org/videos/whiteboard/quantitative_easing.shtml

Masomnia

97trophy wrote: »

Video explanation of quantitative easing.

http://marketplace.publicradio.org/videos/whiteboard/quantitative_easing.shtml

That was pretty good, thanks

treliac

97trophy wrote: »

Video explanation of quantitative easing.

http://marketplace.publicradio.org/videos/whiteboard/quantitative_easing.shtml

Thanks very much for that - very well and clearly explained.

So, it has to be delicately balanced in order to achieve the right outcome, if that is possible.

If the idea is to get the banks to free up normal lending to good businesses who are going to make them money, then that in itself is surely very risky in a climate when the public have become scared, are not spending their money on those businesses and companies will be going down the pan. There's a growing fear of spending now, housing values are being lost and there's more concern about getting out of debt than adding to it.

Any alternative theories?

Generali

treliac wrote: »

Thanks very much for that - very well and clearly explained.

So, it has to be delicately balanced in order to achieve the right outcome, if that is possible.

If the idea is to get the banks to free up normal lending to good businesses who are going to make them money, then that in itself is surely very risky in a climate when the public have become scared, are not spending their money on those businesses and companies will be going down the pan. There's a growing fear of spending now, housing values are being lost and there's more concern about getting out of debt than adding to it.

Any alternative theories?

In a modern economy there are 3 different ways to expand the money supply:

1. Allow banks to lend a higher proportion of their reserves. Fractional reserve banking means that the extra money released will be lent many times over.
2. Increase the bank balance of the Central Government by just typing in a credit amount. In normal times, this is done when the Government wants to borrow money but the increase in borrowing is 'sterilized' by selling bonds in the same quantity and so taking the same amount of cash out of private hands that is being put into the Government's hands. If the new money isn't sterilised it will add to the money supply.
3. Increase the bank balance of the Central Bank. Use that money to buy assets from the normal banks.

Clearly 1 can't be done as the banks need to increase not decrease their reserves. In the 60s and 70s, changing the level of bank reserves was often used as a tool of monetary policy.

2 is happening in the US right now. The US Government says it will steralize the new money it's creating but hasn't quite gotten round to it. I think that they won't be able to sell the bonds they need to at current rates of interest.

3 is clearly an option as it props up the banks as well as increasing money supply.

The velocity of circulation is as important as the quantity of money out there. I covered it briefly in my earlier post. Basically, if banks hoard cash then it isn't available to be spent so may as well not exist! (That's very simplistic but a start).

neverdespairgirl

SGE1 wrote: »

That's not the same thing. In this instance, he's telling people what his policy WON'T entail.

Like GB's policies wouldn't entail:

A weak pound
Boom and bust
rising house prices
breaching economic stability?

fimonkey

97trophy wrote: »

Video explanation of quantitative easing.

http://marketplace.publicradio.org/videos/whiteboard/quantitative_easing.shtml

massively interesting video. However in the UK, the BoE base rate has nowt to do with LIBBOR, (is it different in the USA? is the FED rate the same rate banks lend to each other)?

Confused as to how it applies here in UK when LIBOR is what encourages the bansk to lend to each other and therefore 'us' and not the BoE base rate. can anyone explain please?

thanks