If QE Was Withdrawn....

Jegersmart

QE is purely for banks and financial institutions' benefit - it has nothing to do with the "real" economy at all, although it may have some unintended minor benefits as a by-product.

The sooner people realise this the better.

J

dktreesea

pqrdef wrote: »

It's the concept of overspending that I'm querying. I see no virtue in a balaned budget where spending equates to taxation and there's no borrowing. We need the government to take our surplus money off our hands (or we only go and pay silly prices for houses) and it's better if they take it by borrowing, so we know they'll return it. The government should be encouraging us to buy even more gilts than it actually needs to sell, simply on the principle that it can make better use of the money than we do. We just blow it all on crap and then complain about the state of the economy and mutter about lack of investment.

Spending one's way out of a recession is one thing. The Americans were fairly successful in doing that when they dug themselves out of the 1930s depression. It's what we're spending on that bothers me. £23.8 billion on housing benefit alone. That policy has driven up the price of housing for everyone, because it encourages BTL landlords to enter the market, knowing that the LHA represents the minimum price they can charge for their property. #

I would rather see major construction projects, including for affordable housing located within easy reach of cities on good transport links, employing thousands, than money wasted on benefits.

vectistim

pqrdef wrote: »

The government should be encouraging us to buy even more gilts than it actually needs to sell, simply on the principle that it can make better use of the money than we do.

Really? You may think the government can use your money better than you can, in my case I'm rather less sure.

Glen_Clark

Headlines in the Telegraph today;
1) UK Indiustrial Output has risen
2) FTSE has fallen
Yet another example of how QU has turned conventional economics upside down. It has never been more true that past performance is no guide to the future.

srcandas

Glen_Clark wrote: »

Headlines in the Telegraph today;
1) UK Indiustrial Output has risen
2) FTSE has fallen
Yet another example of how QU has turned conventional economics upside down. It has never been more true that past performance is no guide to the future.

Headlines are very dangerous.

UK Indiustrial Output has risen as expected but

Manufacturing output, on the other hand, decreased at a 0.2 per cent month-on-month

I wish missleading headlines were taxed. Every little helps

grey_gym_sock

dktreesea wrote: »

QE is already causing high inflation, due to the massive depreciation of the pound since the beginning of the recession. And because we have price rather than wage inflation, people's real incomes are dropping like a stone.

you can't read inflation off from changes in exchange rates, because exchange rates are volatile, and currencies don't usually have equal purchasing power at the current exchange rate.

inflation is not high. over 10% would be high.

shrinking real wages are a real problem. it's not caused by inflation, though. it's the balance of power in the labour market. some employers are struggling. others know that their employees are more desperate than they are.

dktreesea

Jegersmart wrote: »

QE is purely for banks and financial institutions' benefit - it has nothing to do with the "real" economy at all, although it may have some unintended minor benefits as a by-product.

The sooner people realise this the better.

J

I disagree. It has plenty to do with the real economy. The main effect of QE is that it expands the money supply and in so doing, it depreciates the currency. Which has the potential to ruin our standard of living, because we depend so much on imports for essential items, especially food.

This guy explains it far better than I could:
http://www.daytradingbias.com/?p=88232

The depreciation of our currency couldn't have come at a worse time. We have just had our worst wheat harvest in decades. We are going to have to import millions of tonnes this year to offset the poor harvest. Our currency has tanked against all the major currencies in the last five years, even the Euro. And even some of the minor currencies like the NZD.

In theory the upside to a weaker currency is better revenue from exports. Companies that export should, in theory, be expanding production and taking on people. But they haven't been. Partly because the cost of the raw materials they need to import is going up. Meanwhile our import costs are on the rise. Sooner or later importers will have to pass those costs onto consumers.

And then there's inflation. We haven't made the 2% target for the last five years. Do you see us achieving it in the next five years, other than for wages?

JohnRo

grey_gym_sock wrote: »

inflation is not high. over 10% would be high.

Does the number itself matter, without reference to other metrics?

Surely the important factor is, according to Tullet Prebon, that everyday essentials inflation has outpaced the increase in earnings by a factor of more than three over the last five years (to 2012).

That might not matter if you're a wealthy suburban home owner in a cushy job on QE mortgage welfare but for many it means an accelerating downward spiral as the die seems cast regarding downward pressure on income, as you say, and the likelihood of ever increasing costs for basic essentials.

dktreesea

grey_gym_sock wrote: »

you can't read inflation off from changes in exchange rates, because exchange rates are volatile, and currencies don't usually have equal purchasing power at the current exchange rate.

inflation is not high. over 10% would be high.

shrinking real wages are a real problem. it's not caused by inflation, though. it's the balance of power in the labour market. some employers are struggling. others know that their employees are more desperate than they are.

Overall inflation may not be high, but when you look at individual parts of the CPI, it's a different story. The problem with our inflation calculations in the UK, they include a lot of items that are really luxuries and not purchased by the mass market. So, for example, airfares fell in the last 12 months, but how many people travel by air on a regular basis? Not many, I would venture.

Food and non alcoholic beverages went up 0.7% between march and April 2013. In one month alone. (Source ONS: http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/april-2013/stb---consumer-price-indices---april-2013.html#tab-Consumer-Prices-Index--CPI---What-are-the-main-movements-)

Combine that with shrinking wages and you have a rapidly falling standard of living.

redbuzzard

grey_gym_sock wrote: »

inflation is not high. over 10% would be high.

It surely will be high at some point, it's the only way UK can get rid of its debt? High enough anyway.

In 1977 I bought a house, and by 1983 I owned half of it without paying anything off the mortgage.

Had I kept an equivalent amount of money in the bank, I would have lost half the value of a house, rather than gaining it. As my parents did in fact. Nasty.

Now that I have no debt, and a modest pile of hard-saved money I will need to live on for up to 30 years, the shoe is on the other foot. Time to gear up and buy a couple of houses on BTL? Or is there any more liquid way to have a reasonable chance of preserving savings in real terms?

If history is to be repeated, the debt will take care of itself.

I do have a core of FS pensions to come, but RPI linkage is capped at 2.5%-5%. That's going to look a bit sick if we get 70s/80s inflation. Oh why didn't I work for the council!

On topic, I see the market is moving down again today. No point flapping though, having reorganised my modest portfolio to reduce risk a few weeks ago, I am sitting on a few visible losses.

I have a PCLS coming this month, that might go into premium bonds for a few weeks as an each way bet...if the current blip becomes a trend, at least I'll have something to buy in with.

Forecasting the direction of the markets is not something I feel able to do - but it's reasonable to think there's more scope downwards than upwards for now and that means less risk, though even that isn't easy to pick through. When the reverse becomes true, I'll add back the risk.

Doesn't feel like a foolproof plan though.