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McMcKinsey believe households have lost out through QE
grizzly1911
Posts: 9,965 Forumite
Perhaps more surprising is that McKinsey believes that households have been significant losers from cheap money. I say that may be surprising because one motive for quantitative easing was to ease the pain and financial stress for those millions of people who had borrowed far more than was prudent in the boom years.
However McKinsey looks at the whole picture of household financial assets, including pension fund savings, life policies, and other forms of long-term savings. And on this basis, households in the US and Europe are net savers, rather then net borrowers. So when interest rates fall to exceptionally low levels, in the round they are losers.
How much have they lost? Well McKinsey says that from 2007 to 2012, the cumulative net loss of interest income for American households was $360bn, compared with a cumulative net loss of $160bn for eurozone citizens and $110bn (£70bn) for British people.
It is important to stress, however, that these bald numbers gloss over some very important differences for different categories of people.
The young have been beneficiaries of quantitative easing, because they tend to be net borrowers.
And some would say that's only fair, given that the impact of an economic disaster caused by the older generation has been felt most acutely by younger people unable to get jobs.
What is also striking is that if you strip out the impact of lower interest rates on pension funds and insurance reserves, the impact on households shrinks dramatically. So the cost for UK households excluding those long-term savings would be just $15bn over the past five years.
In other words, quantitative easing raided the savings of those who had been prudently putting money aside for decades to tide us over a short-term disaster - which may or may not have been sensible.
There are three other striking McKinsey conclusions:
Big companies have gained to the tune of $710bn in the US, UK and eurozone from a cut in the cost of servicing their debts.
US banks have been winners, as they have been able to widen the gap between what they charge for loans and what they pay to borrow. But eurozone banks have seen a shrinking in that gap, and have therefore been losers from cheap money. UK banks have been modest net losers, on McKinsey's analysis.
Possibly the biggest losers have been insurance companies, which have been unable to earn as much on their investments as they are obliged to pay to long-term savers. McKinsey worries that many of these would be driven out of business, that "their survival would be threatened", if the epoch of low interest rates continues for several more years.
http://www.bbc.co.uk/news/business-24939396
Who would have thought that?
However McKinsey looks at the whole picture of household financial assets, including pension fund savings, life policies, and other forms of long-term savings. And on this basis, households in the US and Europe are net savers, rather then net borrowers. So when interest rates fall to exceptionally low levels, in the round they are losers.
How much have they lost? Well McKinsey says that from 2007 to 2012, the cumulative net loss of interest income for American households was $360bn, compared with a cumulative net loss of $160bn for eurozone citizens and $110bn (£70bn) for British people.
It is important to stress, however, that these bald numbers gloss over some very important differences for different categories of people.
The young have been beneficiaries of quantitative easing, because they tend to be net borrowers.
And some would say that's only fair, given that the impact of an economic disaster caused by the older generation has been felt most acutely by younger people unable to get jobs.
What is also striking is that if you strip out the impact of lower interest rates on pension funds and insurance reserves, the impact on households shrinks dramatically. So the cost for UK households excluding those long-term savings would be just $15bn over the past five years.
In other words, quantitative easing raided the savings of those who had been prudently putting money aside for decades to tide us over a short-term disaster - which may or may not have been sensible.
There are three other striking McKinsey conclusions:
Big companies have gained to the tune of $710bn in the US, UK and eurozone from a cut in the cost of servicing their debts.
US banks have been winners, as they have been able to widen the gap between what they charge for loans and what they pay to borrow. But eurozone banks have seen a shrinking in that gap, and have therefore been losers from cheap money. UK banks have been modest net losers, on McKinsey's analysis.
Possibly the biggest losers have been insurance companies, which have been unable to earn as much on their investments as they are obliged to pay to long-term savers. McKinsey worries that many of these would be driven out of business, that "their survival would be threatened", if the epoch of low interest rates continues for several more years.
http://www.bbc.co.uk/news/business-24939396
Who would have thought that?
"If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham
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Comments
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Carney has just appointed McKinsey to shake up the BOE organisation. They are unlikely to spout out anything that is contrary to Carney's wishes.
However, how the hell can McKinsey, or anyone else for that matter, decide how much specifically QE has cost savers/investors. How do you seperate it from all the other 99 factors involved... what 'would have been' without QE? Fingers in the air if ever I saw it!0 -
grizzly1911 wrote: »
Who would have thought that?
Management consultants - they borrow your watch then tell you the time.
An exercise in stating the bleedin' obvious, I would say.US housing: it's not a bubble - Moneyweek Dec 12, 20050 -
Do they go on to add that much QE money was used to prop up failed banks that otherwise would have gone bust and taken all their savers' money with them?
In addition there'll be a fair few that have kept their jobs due to the very low interest rates resulting from QE. That doesn't seem to be factored in either.0 -
A post that's so good, they named it twice!0
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Do they go on to add that much QE money was used to prop up failed banks that otherwise would have gone bust and taken all their savers' money with them?
In addition there'll be a fair few that have kept their jobs due to the very low interest rates resulting from QE. That doesn't seem to be factored in either.
I'd say that surely unless the gainers are outside the country, then the gains and losses must net out to zero on a household level (assuming that in the end households own corporations through pensions etc, and that households 'own' the liabilities of government).US housing: it's not a bubble - Moneyweek Dec 12, 20050 -
Kennyboy66 wrote: »I'd say that surely unless the gainers are outside the country, then the gains and losses must net out to zero on a household level (assuming that in the end households own corporations through pensions etc, and that households 'own' the liabilities of government).
Probably.
I suppose the bit that falls outside that is GDP. If QE made GDP rise, or fall less, then that would mean it was a net +ve. If the reverse happened it's a net -ve.
My opinion, as I don't have a couple of million quid and an army of consultants to do the sums, is that QE is probably a net +ve for the UK so far. However, unwinding QE and ZIRP is going to be very hard to do and if we see high inflation (say 10%+) because it's unwound too slowly or deflation because it's done too fast then it might end up at 0 or even a -ve overall.0 -
Probably.
I suppose the bit that falls outside that is GDP. If QE made GDP rise, or fall less, then that would mean it was a net +ve. If the reverse happened it's a net -ve.
My opinion, as I don't have a couple of million quid and an army of consultants to do the sums, is that QE is probably a net +ve for the UK so far. However, unwinding QE and ZIRP is going to be very hard to do and if we see high inflation (say 10%+) because it's unwound too slowly or deflation because it's done too fast then it might end up at 0 or even a -ve overall.
I was reading some analysis which suggested that whilst the US had spent something like 4 trillion on QE the net benefit to them was something like 40bn.
I don't think UK QE will be removed. It will be the tsunami effect from US stopping that will derail us and many other economies."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »I was reading some analysis which suggested that whilst the US had spent something like 4 trillion on QE the net benefit to them was something like 40bn.
Eh?
QE is liquidity. Nothing more or less.
It's not "debt", it's not "spending", it's not anything other than the BOE or Fed maintaining the money supply at appropriate levels.
We've seen what happens when a liquidity crisis is allowed to go unchecked, and it can create a solvency crisis pretty quickly.
Northern Rock being a perfect example of an otherwise profitable company brought down purely by a liquidity crisis.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »Eh?
QE is liquidity. Nothing more or less.
It's not "debt", it's not "spending", it's not anything other than the BOE or Fed maintaining the money supply at appropriate levels.
We've seen what happens when a liquidity crisis is allowed to go unchecked, and it can create a solvency crisis pretty quickly.
Northern Rock being a perfect example of an otherwise profitable company brought down purely by a liquidity crisis.
Semantics - created, produced whatever you want to call it. Call it an expensive plaster for a virulent festering sore that really needs radical invasive surgery.
NR was a basket case business model. Used to be called overtrading."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »NR was a basket case business model.
Nonsense....
NR was a profitable company taken out by circumstances entirely beyond it's control.
Nobody could reasonably have predicted a global liquidity crisis as a result of fraudulent ratings on American RMBS, and had the UK emergency liquidity regime been sufficiently robust it shouldn't have mattered one jot.
A perfect example of a liquidity crisis being allowed to turn into a solvency crisis through inaction and policy responses that were too little, too late.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0
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