printing money what does it mean

drex_123

Thanks econo think i'm getting paranoid due to the fact i don't understand a lot of it. I'm not particuarly looking for the bottom although it would be nice. I sold last july and was forced into renting [hidden blessing as it turns out]as the market was stagnant here [glasgow] and still is just worried what could happen to savings in next couple of months regarding inflation deflation

ad44downey

drex_123 wrote: »

Hi can anyone explain in laymans terms what this means.

Sterling will be like confetti and we'll all be millionaires. It's fantastic, isn't it.

Reaper

It is being used to prevent deflation (negative inflation) and try to stimulate the economy. It is a valid but dangerous weapon as the economy can flip very fast between deflation and inflation.

So what does it mean to your savings...? Well inflation is bad for savings but can not be looked at in isolation. High inflation is normally contolled by putting interest rates up. If the government do that by as much as inflation is going up then it makes no difference to your savings.

If, however, the worst happens and we get "stagflation" (high inflation and recession at the same time) then the govenment won't be able to put interest rates up for fear of damaging the economy further. If this happens then one possible strategy is to spend your savings and load yourself up with debt - eg buying the biggest house you can get. The theory being that low interest rates make it affordable and high inflation means the value of the debt plummets until you can pay off the mortgage with half a stale biscuit. A controversial stategy but one I would consider if the worst happens.

lostinrates

Reaper wrote: »

If, however, the worst happens and we get "stagflation" (high inflation and recession at the same time) then the govenment won't be able to put interest rates up for fear of damaging the economy further. If this happens then one possible strategy is to spend your savings and load yourself up with debt - eg buying the biggest house you can get. The theory being that low interest rates make it affordable and high inflation means the value of the debt plummets until you can pay off the mortgage with half a stale biscuit. A controversial stategy but one I would consider if the worst happens.

I understand the shorter term benefts of this, but what about after the period of stagflation if it is a shorter than expected period and you are still left with high debts...and the risk of high ionterest rates?

ad9898_3

Reaper wrote: »

The theory being that low interest rates make it affordable and high inflation means the value of the debt plummets until you can pay off the mortgage with half a stale biscuit. A controversial stategy but one I would consider if the worst happens.

Correct, however without wage inflation, debts will not be inflated away, and at this moment in time I can't see anyone going to their employer and saying 'I think I'm worth a rise.' At best QE will just make us all poorer, at worst, well it doesn't bare thinking about. I thought Brown was dumb, but christ his economic intelligence is even worse than I suspected.

Reaper

lostinrates wrote: »

I understand the shorter term benefts of this, but what about after the period of stagflation if it is a shorter than expected period and you are still left with high debts...and the risk of high ionterest rates?

I did say it was controversial! However the last period of stagflation around the 70s lasted over a decade. If it were to last that long again the mortgage debt would have dropped nicely. Of course it works best after the house price falls have bottomed out but I have no idea when that will be.

lukekelly_2

ad9898 wrote: »

At best QE will just make us all poorer, at worst, well it doesn't bare thinking about. I thought Brown was dumb, but christ his economic intelligence is even worse than I suspected.

Why do you think Brown is doing it then? And, since you might reasonably answer that he's just a particularly stupid individual, do you think that a substantial proportion of economists think it is a good idea?

One answer is that sustained deflation and contraction in the supply of money is believed by many to be the primary reason for the scale of the Great Depression. Risking serious deflation is seen to be a bigger risk than those involved in quantitative easing.

StevieJ

ad9898 wrote: »

Correct, I'm sure Gordon must have looked and saw how well it worked in Japan and Zimbabwe.:rolleyes:

Two opposite examples, in Japan they applied it to late, in Zimbabwe they used it to finance GOVT deficits. Here, well hopefully it will be applied in good time and just to fight deflation, not to inflate away govt debts But you never know :eek:

piggeh

Not to inflate away Govt debts - hmmm..... Probably would be the only way that current deficit wont cripple us long term. Not sure on the effects of high inflation would be though.

I guess buying a house and loading yourself with debt in such a scenario is a high risk-high gain strategy, could always go halfway though, or just put your money into steady ETFs? Whatever they are ;o

lukekelly_2

Why should the current government debt levels cripple the UK in the long term? Could you compare current levels to those of other countries and to historical debt levels and show that they are particularly bad? You'll find that ours are pretty low internationally and historically they're not abnormal. The debt will slow UK growth when we come out of the recession, but I have yet to see any coherent argument that they will "cripple us".