QE: What if...

antrobus

mwpt wrote: »

No, not really. Sometimes you actually have to spell things out. If I'm understanding you correctly, you're specifically referring to the 2009 UK QE which your link shows was the BOE buying government debt, only? ....

Yes, that's what the BoE did. That's the question I thought the OP was asking.

mwpt wrote: »

...In which case, it is a means of both suppressing government borrowing costs while also providing funds to central government. That is instead of QE aimed at buying commercial bank assets to provide liquidity to lend into the economy? The latter being the type of QE targeting consumer spending?

As a previous poster put it;

It's a bit like saying 'we wanted this car to go faster, so why did we put some petrol in the tank when we could have put explosive rocket fuel in there instead?'. Both are things that 'make vehicles go'. but the results would be very different and not necessarily give you the sort of stimulus you want.

There is a reason why the BoE decided not to simply hand over £375 bn so that people could spend it.:)

DRFC1879

Thanks for the mixed responses. I understood the purpose of QE to be re-capitalising the banks so they would lend to small businesses and individuals, creating demand and growing the economy out of recession.


There is a case to be made for helicopter money to land in the pockets of the public through tax breaks or similar whilst discouraging saving to ensure that consumer spending gets a shot in the arm. Exactly how it would be administered is up for debate but we're in danger of entering a long-term deflationary spiral. The Tory cuts will only exacerbate this IMHO as consumers are less confident about their long-term finances and more inclined to save for a rainy day.

Generali

DRFC1879 wrote: »

Since 2010, The Bank of England injected £375bn of cash into the economy through QE. This was meant to stimulate lending, drive demand and restore shopper confidence but a fair old wedge of it seemed to end up stuck at the top of the system with the banks and bankers.


The sum involved equates to almost £6000 for every man, woman and child in the UK. Had it been shared equally amongst the population surely it would've been much more effective at driving spending and preventing deflation.


Ok, some people would've saved/invested it but others would have spent at least a portion of the cash. Then there would be people like me with a few grand of loans and credit cards who would've wiped out their debt and started contributing more to the economy through increased consumption each and every month.


I know that's a simplistic view but I'd be interested to hear some thoughts on it.

The point of QE wasn't to put cash into the economy as such, it was to drive down interest rates by buying interest bearing assets.

By pushing down interest rates the idea is that you force investors into riskier behaviour such as investing in companies and kickstart the economy that way by unleashing what JM Keynes called 'animal spirits'.

mwpt

Generali wrote: »

The point of QE wasn't to put cash into the economy as such, it was to drive down interest rates by buying interest bearing assets.

By pushing down interest rates the idea is that you force investors into riskier behaviour such as investing in companies and kickstart the economy that way by unleashing what JM Keynes called 'animal spirits'.

And the housing boom was just a nice side effect. :cool:

Generali

mwpt wrote: »

And the housing boom was just a nice side effect. :cool:

Houses are a risk asset. Shares and bonds and commodities have also risen considerably off the back of QE.

michaels

At a slight tangent but part of the reason banks were haemoraging capital (and thus having to contract their balance sheets) was losses (or reduced profits) as a result of shovelling money out the door to customers (those who had demonstrated a high marginal prpoensity to spend) via PPI refunds....

QE exchanged 'cash' for assets, in the UK the assets were govt debt. So rather than giving money to individuals it would be a better analogy that consumers would be asked to sell assets to the BOE in exchange for cash - thing is most consumers don't have assets they can just sell to the govt at the drop of a hat even if the govt is offering the best price.

CLAPTON

michaels wrote: »

At a slight tangent but part of the reason banks were haemoraging capital (and thus having to contract their balance sheets) was losses (or reduced profits) as a result of shovelling money out the door to customers (those who had demonstrated a high marginal prpoensity to spend) via PPI refunds....

QE exchanged 'cash' for assets, in the UK the assets were govt debt. So rather than giving money to individuals it would be a better analogy that consumers would be asked to sell assets to the BOE in exchange for cash - thing is most consumers don't have assets they can just sell to the govt at the drop of a hat even if the govt is offering the best price.

I guess PPI's keynes boost was an unintended side effect but it would be nice to think some-one planned it

antrobus

DRFC1879 wrote: »

Thanks for the mixed responses. I understood the purpose of QE to be re-capitalising the banks so they would lend to small businesses and individuals, creating demand and growing the economy out of recession....

Then your understanding would be incorrect. QE had nothing to do with recapitalising the banks.

DRFC1879 wrote: »

...There is a case to be made for helicopter money to land in the pockets of the public through tax breaks or similar whilst discouraging saving to ensure that consumer spending gets a shot in the arm. Exactly how it would be administered is up for debate but we're in danger of entering a long-term deflationary spiral. The Tory cuts will only exacerbate this IMHO as consumers are less confident about their long-term finances and more inclined to save for a rainy day.

Helicopter money and QE would be two different things. For one thing QE is (at least in principle:)) reversible. Helicopter money isn't.

antrobus

Generali wrote: »

The point of QE wasn't to put cash into the economy as such, it was to drive down interest rates by buying interest bearing assets.

By pushing down interest rates the idea is that you force investors into riskier behaviour such as investing in companies and kickstart the economy that way by unleashing what JM Keynes called 'animal spirits'.

Yup.

Which is what happened. Investors sold gilts and bought corporate bonds instead.

Crashy_Time

DRFC1879 wrote: »

Thanks for the mixed responses. I understood the purpose of QE to be re-capitalising the banks so they would lend to small businesses and individuals, creating demand and growing the economy out of recession.


There is a case to be made for helicopter money to land in the pockets of the public through tax breaks or similar whilst discouraging saving to ensure that consumer spending gets a shot in the arm. Exactly how it would be administered is up for debate but we're in danger of entering a long-term deflationary spiral. The Tory cuts will only exacerbate this IMHO as consumers are less confident about their long-term finances and more inclined to save for a rainy day.

Cutting CGT, forcing up the minimum wage, raising the tax threshold for starters? Oh and dismantling the BTL monster, that would free up lots of money after people buy flats/houses at fire sale prices? This thread has some unusually interesting debate BTW, unusual for on here I mean.