Quantative easing - good time to have a mortgage?

Harricks

If the Government resorts to quantative easing - printing money - then the pound could devalue further against other currencies, and there could be inflation - even hyperinflation where the price of everything doubles in a year or less.

If you have savings would it be better to change the savings from pounds to a currency less likely to be devalued, and let rapid inflation shrink the mortgage e.g. £100,000 becomes worth about USD50,000! Then pay back the mortgage and have Euro or Dollars left over - or invested in something tangible, like another property?

With low interest rates and inflation possible, should we keep our mortgages rather than pay them off? And should we put savings somewhere other than the pound sterling?

Any views on this?

amcluesent

>invested in something tangible<

Merrill Lynch says rich turning to gold bars for safety

Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies

SGE1

Quantitative easing isn't necessarily about printing money. The Chancellor has said they're not considering it. They're considering whether the Bank of England should write cheques to banks in exchange for investment assets.
The hope would be that the banks would then lend this extra money to consumers who would in turn go out and spend it. The government could also borrow more from the Bank of England and then use this money to invest in the economy via spending or tax cuts. So, putting more money into the economy, but not printing money. Would probably lead to some inflation, but given that otherwise, inflation is expected to reach sub 1%, there is room to manoeuvre.

Generali

SGE1 wrote: »

Quantitative easing isn't necessarily about printing money. The Chancellor has said they're not considering it. They're considering whether the Bank of England should write cheques to banks in exchange for investment assets.

That is printing money though. The money that the Bank of England uses to buy assets from the banks with is freshly minted.

That it's done electronically rather than by the literal printing of fivers is neither here nor there.

SGE1

Generali wrote: »

That is printing money though. The money that the Bank of England uses to buy assets from the banks with is freshly minted.

That it's done electronically rather than by the literal printing of fivers is neither here nor there.

Surely by that logic then any recapitalisation of the banking industry is tantamount to money printing? So the we've already technically been printing money?

And surely the effect of this money printing isn't as straightforward (ie always massively inflationary), as some people suggest? If you add money into an economy where liquidity isn't great and money isn't circulating properly (ie everyone's keeping their money to themselves, banks and consumers), the effect will be very different (and less detrimental) that if you did so in a buoyant market?

drbeat

Generali, on order to recapitalise the banks the govt sold bonds to investors, in other words they borrowed the money to fund the bailout. So "by that logic" the govt didn't print money!

drbeat

SGE1 wrote: »

And surely the effect of this money printing isn't as straightforward (ie always massively inflationary), as some people suggest? If you add money into an economy where liquidity isn't great and money isn't circulating properly (ie everyone's keeping their money to themselves, banks and consumers), the effect will be very different (and less detrimental) that if you did so in a buoyant market?

Yes of course you're right! Argentina, Weimar Germany and Zimbabwe were all one offs...never to be repeated again!

Doh!

Generali

We're confusing two things here I think.

1. Quantitive Easing: Money is created and given to banks in return for assets. This increases the money supply and so is inflationary.
2. Bank recapitalisation: money is borrowed by the Government and given to the banks in return for equity. This does not increase the money supply, at least not directly.

drbeat

Generali wrote: »

We're confusing two things here I think.

1. Quantitive Easing: Money is created and given to banks in return for assets. This increases the money supply and so is inflationary.
2. Bank recapitalisation: money is borrowed by the Government and given to the banks in return for equity. This does not increase the money supply, at least not directly.

Generali, you are a man of vast financial knowledge. Can you give me a brief summary of your financial background?

Generali

drbeat wrote: »

Generali, you are a man of vast financial knowledge. Can you give me a brief summary of your financial background?

Undergraduate degree in Economics
12 Years in investment banking
15 months running a hedge fund (back office/business sides)

Generali

drbeat wrote: »

Generali, on order to recapitalise the banks the govt sold bonds to investors, in other words they borrowed the money to fund the bailout. So "by that logic" the govt didn't print money!

Exactly. The process is known as 'sterilisation': money is taken out of private hands and given to the Government by selling Gilts (Government bonds). The Government is then spending money that was already in existance, there is no more creation of money than if I give you a tenner to get a round in!