QE3 = £75bn

worldtraveller

IMHO, as I've stated since January, and maintain, I believe inflation will fall off later this year into next. We have seen recent massive falls in commodity/oil prices and this will continue as we enter a global recession. I accept that the weak GBP against the USD will have some effect, but it will be small compared to the massive fall in prices. This will all eventually feed through to the price of goods in the shops as manufacturers costs fall. I also expect the Chinese economy to slow more than most economists are currently saying, this based on reduced exports, but also falling domestic demand.

My fear however is that if the global recession continues for some time, it won't take much in the way of any sign of new future global growth to push inflation rates up very quickly indeed due to speculation and a commodity/oil producer supply lag. The latter being caused by supply sources closing/coming off stream, or reducing production markedly during the recession period.

ILW

ninky wrote: »

not all economies are slowing down.

True, some are growing very fast.

The issue is that they tend to be the ones without and unions, employment law, minimum wage etc, which I cannot imagine is your sort of thing.

Degenerate

bugslet wrote: »

I lurk round these boards trying to understand the finance and economics talk but I've got stuck on the phrase from the telegraph blog...'monetisation of the deficit'. If someone could explain that bit, I'd be eternally grateful.

Sorry for the numpty question.

Under QE, the BOE injects the new money into the economy by purchasing gilts (UK Government bonds) from financial institutions. After the last round of QE, the UK Government owed £200Bn of it's debt to the BOE. This will now increase to £275Bn.

So, £275Bn of UK debt will be now be financed from newly created cash, rather than money that that came from companies and individuals and already existed in the economy. It could certainly be argued that that £275Bn has been temporarily monetised, but it differs from outright debt monetisation because the gilts still exist and the government is still commited to pay them back as they reach maturity.

In outright debt monetisation, the bank would simply hand the cash to the govenment without any commitment for it ever to be paid back.

shortchanged_2

kabayiri wrote: »

So why £75bn, and not 25 or 100 ?

Does anyone really think it will fix things?

The last 200bn didnt solve our problems , did it?

I thought that last time the banks were guilty of hoarding the money, and not lending. What will change this time?

It's the last throw of a desperate dice.

With the markets in such turmoil, it is a futile attempt to try to boost some confidence. Although the guys at the FTSE are having a 5 knuckle shuffle over it, currently up 1.6% _party_.

tomterm8

bugslet wrote: »

I lurk round these boards trying to understand the finance and economics talk but I've got stuck on the phrase from the telegraph blog...'monetisation of the deficit'. If someone could explain that bit, I'd be eternally grateful.

Sorry for the numpty question.

1) governments can print money.

2) governments can borrow money.

3) If government debt gets too high to pay back their borrowings from taxation revenue, they can print money in order to pay the borrowings.

This means there is more money in the economy.

Supply and demand applies to money, too, so if you print more money, the value of the money falls relative to things people actually want to buy.

So, you have more money, but it is worth less.

the 3) rd case is what 'monetizing the deficit' means : governments printing money out of nowhere to pay their debts.

bugslet

Thanks degenerate and tomterm8, for taking the time to post clear explanations.

Thrugelmir

shortchanged wrote: »

It's the last throw of a desperate dice.

Unlike Europe and the USA the UK has the ability to react quickly to events. Without recourse to political dithering.

European banks are at risk at the current time. Unlike the UK few have recapitalised since the crash of 2008.

shortchanged_2

Really2 wrote: »

If the world economies are slowing down much like 2008, why are people worrying about inflation?

If the world goes back in to recession do people really think inflation will stay at 5% ish?

If consumption goes down so will prices, I think they have made an early move on the inevitable.

It doesn't always work like this. Countries that are in dire straits often have high inflation as their currency weakens.

Prices are as you state are affected by supply and demand. If the the supply continually dries up even if demand is weak (the UK housing market is a good example) prices can stay high.

Ask yourself this Really2, why is inflation currently so high in the UK when demand is weak?

Mr_Mumble

Really2 wrote: »

Recession are by definition deflationary

So, Mugabe's Zimbabwe and Weimar Germany never had a recession?! A country experiencing 100% inflation and 99% nominal growth over a couple of quarters is in recession. Your definition is simply wrong.

Old_Slaphead

Degenerate wrote: »

After the last round of QE, the UK Government owed £200Bn of it's debt to the BOE. This will now increase to £275Bn.

So where will BOE eventually get the £275bn to repay the government - will it be from Treasury who will borrow from somewhere else when conditions allow ?