Quantative easing - good time to have a mortgage?

amcluesent

Reform plan raises fears of Bank secrecy

"The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

"If we went down that path we would be following a road which starts in Weimar, goes on through Harare and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about – but the Bill abolishes it."

Guido had this weeks ago, of course!

Generali

drbeat wrote: »

Will you be posting that tenner to me? I take it yours is a Fosters?

I've yet to go to a pub that sells Fosters in Australia. I'll have a bottle of Crown while you're up there please.

1echidna wrote: »

I am not quite sure what to make of this analysis. I am not convinced that we are not in a completely unprecedented position with the bursting of the mother of all credit bubbles and rather forlorn hopes, given world competition, of earning our way out of the problem. On the one hand inflation may be rather unfair by helping the undeserving with large debts (including perhaps HMG?) and penalising those with savings and investments of who have been prudent. On the other hand if it was allowed to burn for a while (say at 5 to 10%) and interest rates were kept low is there not a chance that it would stimulate the economy and prevent many from falling into dire poverty? OK many who do not have inflation linked incomes would suffer, but as I see it as most are going to suffer (unemployment, reduction in public services), anyway this problem is tackled. This is perhaps the approach that best meets the mantra of 'protecting hard working families' OK a desperate solution which in many ways sends all the wrong signals regarding individual responsibility, fairness etc but perhaps the circumstances demand it?

It's not really about what's fair or unfair, it's about what's workable.

The UK Govnerment is, I believe, fast painting itself into a corner marked 'default'.

1. I don't think high inflation is a realistic policy goal (for reasons I've already posted).
2. The liabilities that the Government has taken on and inherited simply can't be met.
3. The Government is unlikely to be able to raise the funds that it is seeking to in the bond market at a price that it's willing to pay.

So what are the solutions?

1. I think the Government will seek 'stealthily' to nationalise private pensions by changing risk rules to require them to buy more Gilts (UK Government bonds)
2. Longer term, the Government (this one or more likely a future one) is going to have to default on pension promises to Civil Servants, the second state pension and possibly curtail the size of other parts of the welfare state
3. The only other solution I can see is to choose protectionism and high inflation which implies an initial 10-15% drop in consumption (about GBP180/month/household - the gap of imports over exports) for a typical household followed by a drop of perhaps the same over the following couple of years.

1echidna

Generali wrote: »

I've yet to go to a pub that sells Fosters in Australia. I'll have a bottle of Crown while you're up there please.




.

You are probably too far North! They sell Fosters in Victoria (or at least used to)

1echidna

Rick62 wrote: »

Why on earth would low interest rates and high inflation stimulate the economy?

The problem we have now (going forward) is who in their right mind would invest in buying or starting and developing a business in a market that is so dreadfully mismanaged and aribitarilly managed that that business could be destroyed almost overnight not by management mismanagement but by political policy?

Effectively a way of obtaining goods/property on borrowed money much cheaper than if one waited ie stimulates borrowing and spending

Generali

1echidna wrote: »

You are probably too far North! They sell Fosters in Victoria (or at least used to)

Another way to look at it is that if I'm in a place that doesn't sell Fosters, I'm just far north enough!!!

1echidna

Generali wrote: »

Another way to look at it is that if I'm in a place that doesn't sell Fosters, I'm just far north enough!!!

Yes your partly right Victoria Bitter is a better brew.

nightwatchman

Generali wrote: »

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, as this money which is borrowed by the Government and given to the banks will go through the Fractional-reserve banking then in effect the government has print ten times the amount of money borrowed, is it not this the case?

Generali

nightwatchman wrote: »

Generali, as this money which is borrowed by the Government and given to the banks will go through the Fractional-reserve banking then in effect the government has print ten times the amount of money borrowed, is it not this the case?

Only if it's lent. In the case of the Government buying preference shares to recapitalise the banks, the money is going into the reserves and so not being lent out so not directly increasing the money supply.

I guess you could argue that the banks would have to recapitalise using profits not distributed to shareholders and so they can lend more cash and add to the money stock that way. That would be a little tangential but probably not unreasonable.

Lots of people that refer to franctional reserve banking seem to think it's some sort of con or secret bank cabal stitch-up of their fellow man. May I ask, do you subscribe to that theory or do you accept that it's just a function of the way that banks work?

WTF?_2

Generali wrote: »

IMO it doesn't really matter how you get the cash from the printing presses into circulation. You could drop it from a helicopter or pay people to dig it up from holes in the ground (as suggested by Ben Bernanke and JM Keynes respectively).

If the BoE turned lender direct to solvent businesses who just needed credit for day to day operations then they could maybe get away with 'printing the money' for the loans (just expanding their balance sheet for the loan) so long as the loans were paid back - as upon repayment the money is essentially destroyed again. They would just have provided liquidity as needed. However, I believe they are already doing more or less this with the banks?

If on the other hand, money is created by the government through the Boe buyingTreasury bonds and they then decide how to spend it we are all in the s**t.

amcluesent

Of course Clown will be running the printing presses and creating money as credit; he doesn't know or care what the consequences are.

I'm sure that policy now is to create, but falsify the figures, on inflation.