BoE hands QE income to Treasury

grey_gym_sock

with wages not rising in real terms, and more of wages going on utilities, fuel and food, there's not much scope to increase discretionary consumer spending - except by borrowing more, which a lot of ppl are more reluctant to do now, and lenders are more reluctant to lend to them. so i'm not sure that the usual way out will work from here, or not for a good few years.

Linton

GeorgeHowell wrote: »

......

Inflation is simply an increase in prices, that's what it means. A consequence of it is depreciation in the spending power of funds held. It can be caused by 'demand-pull' ie too much money chasing too few goods. It can also be caused by cost push, as for example in the case of utilities where demand flex opportunity is fairly limited and a cartel can use cost increases on its raw materials (gas and oil) as an alibi to price almost as it chooses.

.....

However you define words, two different causes of prices rising implies two different remedies. I suggest that we currently live in a cost push environment, where the push is coming from outside the controls of our local economy. In that situation decreasing local money supply is surely counter productive, especially where it is being decreased anyway by the global credit situation.

talexuser

I wonder if we would have had the required property bubble correction (like John Major's negative equity period, although it would have been worse this time) and a year or three of bad recession, the correction would have given real growth again quicker.

In other words have we put the pain off by having a (relative) little pain for 10 or 15 years, and would it have been better to have 3 or 4 years of worse pain and then back again to growth as the economy re-balances and new companies (banks?) emerge?

gadgetmind

grey_gym_sock wrote: »

not if there is no need to reverse QE.

Do you really think that monetising this debt is a sensible option?

grey_gym_sock

gadgetmind wrote: »

Do you really think that monetising this debt is a sensible option?

i think it has been monetised.

the question is how to manage the money supply and public debt in the future. de-monetising this debt (or should that be: debtizing this money?) is a 1 possible policy tool, but it's not obvious that there will come a time at which it should be used. in general, 1 expects the money supply to expand over time.

clearly it would be dangerous to give the government free reign to monetise public debt whenever it's convenient.

i'd suggest we should be moving to something like the ideas proposed on http://www.positivemoney.org.uk/ , in which, instead of money being created by banks lending money, it would be created in quantities determined by the MPC and credited directly to the treasury.

in a sense, we are already part way there. QE involves money being created in quantities determined by the MPC, and indirectly credited to the treasury (i.e. that is the real effect of the BOE crediting money to its BOEN subsidiary, the treasury issuing gilts, and BOEN buying gilts with the new money).

but we have not changed the regulation of banks to prevent them creating new money. so when we return to an environment in which banks are keen to lend more, there is the danger that too much money will be created. i would suggest that the fix for that is to prevent banks from creating money, not to reverse QE.

Thrugelmir

grey_gym_sock wrote: »

but we have not changed the regulation of banks to prevent them creating new money. so when we return to an environment in which banks are keen to lend more, there is the danger that too much money will be created. i would suggest that the fix for that is to prevent banks from creating money, not to reverse QE.

Without QE the broad measure of money supply M4 would have contracted. Highly possible with a deflationary impact.

As banks are having to hold increased capital. Then they are in effect deleveraging. So less money is being created. After 40 years of unbridled growth fractional reserve banking is in reverse.

So don't expect banks to lend more. ING exited the UK leasing market this week. There's more contraction to come yet across all banking sectors.

Thrugelmir

cloud_dog wrote: »

No one is denying prices haven't gone up, as I have stated in my posts but, there is a differences between inflation and the price rising due to demand, or supply issues.

Commonly known as good and bad inflation.

Currently we have bad.......

grey_gym_sock

Thrugelmir wrote: »

So don't expect banks to lend more.

agreed: i wouldn't expect it any time soon.