Quantatitive easing and savings - what effects?

1984ReturnsForReal_2

gozomark wrote: »

mute point - QE might have saved Japan from even worse. It was also used very late in Japan

I know it was 9pm when they announced their QE.

I really do think 12:00 was a little early for the UK, the Bank of England really should of held off for a bit, at least until I was back from walking my dog..

FoxtonsRIP

Spanglear wrote: »

Hello All, I've finally registered on this excellent forum after watching from the sidelines for some time now.

I have been a cautious saver for some years after having paid off most of my debts, so I'm more than a little irked at the current status quo whereby savers seem to be being penalised with poor returns while borrowers are basking in a sea of low interest paradise.

After todays announcement of the BoEs intention to push ahead with "quantatitive easing" (or the virtual printing of money in lay terms), I am a little unclear on how this will affect savings in the long term. Is it yet more bad news for savers?

Already reeling after the harsh interest rate cuts of the past few months, do you think we now about to see savings eroded further by this new measure?

I'm seriously considering going on a monster spending binge at the moment, afterall, you can't take it with you, and I'd rather they didn't take it down with them either.:D

Your thoughts, Cheers.

My understanding is that yours and my savings have been devalued at a stroke by about 10%. So if you had £100k savings in the bank now it's only worth about £90K. It's scandalous.

sh856531

Other countries may be doing the same, but, sterling has fallen against most currencies and it remains firmly in the doldrums.

That's perhaps true but I think a lot of the loss was due to the fact that people thought Britain was going to get hit harder than the likes and Germany and Japan. Looking at the export figures for those two countries (and China) I'm not sure that we are in much of a worse position. Our finance sector has tanked, but then so have their exports - no one can afford to buy German cars or Japanese electronics.

So we're all in the !!!! :-)

I think I'm also correct in saying that Sterling a £1->$2 was overvalued anyway. I think the I heard that the historical average was nearer $1.60, so you could argue the currency was overdue for a correction - it just hurts when it happens all at once.

Best Regards

S

sh856531

It is a valid but dangerous weapon as the economy can flip very fast between deflation and inflation.

Hi Reaper,

I've never really understood why the economy would flip to inflation so quickly.

I would have thought that it would be a gradual thing as demand gradually picked up. Even if it weren't that gradual, surely the BoE could just reverse the QE activity and hike interest rates to reduce the money supply?

Many thanks

S

withnell

LardyCake wrote: »

Won't QE lead to the pound loosing its value against other currencies and mean for us in the UK, more expensive imports and thus cause inflation? I ask, in genuine ignorance!

They've injected a further 75bn in - but think how much Sterling there is in existence - it's a real drop in the ocean, if it was going to devale the sterling the GBP/USD and GBP/EUR FX rates would have changed today after midday - but they didn't

Steve_xx

sh856531 wrote: »

That's perhaps true but I think a lot of the loss was due to the fact that people thought Britain was going to get hit harder than the likes and Germany and Japan. Looking at the export figures for those two countries (and China) I'm not sure that we are in much of a worse position. Our finance sector has tanked, but then so have their exports - no one can afford to buy German cars or Japanese electronics.

So we're all in the !!!! :-)

I think I'm also correct in saying that Sterling a £1->$2 was overvalued anyway. I think the I heard that the historical average was nearer $1.60, so you could argue the currency was overdue for a correction - it just hurts when it happens all at once.

Best Regards

S

Yes I agree with you by and large that the thought was that UK would be hit harder, and maybe it's been just as bad elsewhere in the world. However, that said, the currency hasn't recovered as yet and therefore this may illustrate a lack of confidence in UK plc.

I would hope to see sterling pick up against the euro in the coming months as the true state of the euro economies is realised and the ECB lowers its rates further.

Steve_xx

withnell wrote: »

They've injected a further 75bn in - but think how much Sterling there is in existence - it's a real drop in the ocean, if it was going to devale the sterling the GBP/USD and GBP/EUR FX rates would have changed today after midday - but they didn't

I think that the markets had already priced-in a reduction in UK base rates, as well as the likelihood of QE, and this is the reason that sterling seems stable. In addition. I feel it likely that the ECB will not be able to hold off from dropping their rates this month and this too will assist sterling.

FATHEROFTWO_2

A few questions for anyone that has a clue what is going on?

If they are performing QE and purchasing back debt that they owed and it has no effect then the 150 Billion they have wiped off the national debt is a good thing for the economy as its free money ?

If inflation goes up it will be because the price of imported merchandise cost more.....is this because the value of the pound has dropped ?

What is the opinion of the short term Pound /Dollar exchange rate ?If it goes down what downside are we talking about here ?

I am going to the States in the summer and bought my dollars today at 1.33 dollar to the pound.Fortunately I bought some dolars a few months back when the rate was a lot higher

If America dont participate in QE then our currency has effectively devalued similar to what a rights issue does to to a share price or am I wrong ?

tradetime

LardyCake wrote: »

Ok, thanks - here is another question: has QE been tried in the past and did it work then?

It was used in Japan in an attempt to stave off a depression and did not work, however as already mentioned, the Japanese were very slow to react to their crisis, relatively speaking the US and UK have been much faster. Secondly, Japan had another enemy at the time that is not present in this scenario, namely the carry trade. Since the rest of the world was expanding with normal interest rates, low interest rates in Japan meant that the money pumped into the system was simply borrowed and "carried" out of the country to be invested elsewhere around the world, so in effect they were unable to reinflate.

jon3001

gozomark wrote: »

its a very good question

simple answer is no - why ?

1. most other countries will do the same
2. countries that don't do it risk seeing their economies implode anyway

it would be yes if this crisis was only in the UK, but it isn't, its worldwide

Even if exchange rates remain stable, currencies can still lose their purchasing power.