Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
25 February 2009
09:1316073In recent weeks there has been a lot of talk about 'quantative easing', so what is it and what does it mean?
At the beginning of this economic crisis I warned of the dangers of losing control of the money supply and pumping too much cash into the system along with excessive borrowing. I warned of the potential for a 'double dip' recession.
Quantative easing is the last throw of the dice you take when you cant borrow any more. Its the modern version of printing money. These days money is not mainly notes and coins, it is represented by no more than electronic pulses. In the 1970's we learned about the dangers of printing cash and, it seems, we are now making exactly the same mistake as we did then and risk making the recession even worse and yes, causing a 'double dip'.
We are told that it is necessary to reflate the economy and is needed because the many other Government initiatives of late have not worked.
Just because this frantic activity by the Govenrment has not shown results does not mean that you need to do more. Sometimes it is best simply to do nothing and allow nature to run its course.
The problem really though is not the amount of money in the system but the fact that it is not circulating in the way it ideally should. Just pumping in more money will not solve that one.
The risks are massive. It can undermine trust and confidence in the bond markets and create massive inflationary pressures.
The current level of government debt is now over £2 trillion. That is a massive sum. Lets put it into perspective. In 5 years the UK has increased the national debt by more than all the debt that we had previouslty borrowed in the last 300 years.
Printing money is the route to fiscal and monetary destruction.
The consequences are dreadful, taxes will have to rise when we should be trying to reduce them, unemployment could reach heights that are unprecedented and inflation could reach double figures within 2 years.
The next Government will inherit an economic wasteland compared to the 'golden economic legacy' the present Government inherited. Putting this right will be a monumental task.
Guest 640- Registered: 21 Apr 2007
- Posts: 7,819
25 February 2009
19:4816151Ah yes Ive heard of quantative easing, yes indeed.. when I first heard the term I was convinced it was some new cure for blockage of the inner tract, and this remedy would/should lead to smoother flow through, as so many of the adverts tell us, but no...as BarryW says its when all hope is lost you print money like mad to save the ghastly situation from getting even worse. We're not quite there yet as far as I understand it, and I still beleive Brown is doing roughly the right thing, as Barack Obama has followed a similar line and his line wasnt supported by the conservatives in the US either. Massive borrowing by Brown, massive borrowing by Obama.
The next government here in the UK will indeed inherit one hell of a mess but its not a mess thats been created here within our shores...I think everybody understands that, I even heard a French minister saying such this very morning, although the conservatives like to point the finger of blame at our beleaguerd Prime Minister.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
25 February 2009
20:4416158PaulB - You really are still, like Brown, in denial.
Yes, we have a cyclical global downturn which was made worse by the American toxic debt issue (Clinton being the culprit with changes he made in his presidency).
What you cannot get away from is the way our Government has made the present bad situation worse for the UK.
1/ The bankers are being blamed by Brown but that ignores the idiotic changes he made to banking regulations in 1997. His crazy tri-partied arrangment that removed the stringent controls and oversight that the Bank of England had before that. Brown also made an error in the terms of reference for the Bank of England Monetary policy committee and on that, I like most people, did not spot his mistake. I did read one right wing commentator point this out at the time but I did not play any regard to it.
So thats Brown mistake number 1 (probably the most important single error)
2/ He as Chancellor did not repay debt during the long growth cycle of the economy brought about by benign international conditions. He actually was foolish enough to think he had cancelled the economic cycle, hence his hubris of a 'no more boom and bust' claim. That probably demonstrates why he did not do so. Now we are faced with that downturn we are already in hoc up to our eyballs and are in a far worse economic situation in the face of the world recession than other countries are. He repeatedly makes false claims here that have been contradicted by his own Office of National Statistics.
There is Brown's error no 2
3/ Brown and Blair over the last 11/12 years have been busily introducing rafts of social policies and imposing extra costs and red tape on businesses. These costs have been mounting up and in recent years have been seriously affecting the competetiveness of British busineses. This means they are now less able to face the rigours of the recession resulting in an increase in business failures and unemployment on top of what might have happened otherwise. remember, it is only profitable businesses that can pull us out of recession and the more you hamper them the worse things will be.
That is Brown's error no 3.
4/ Taxation. The overall level of tax has been increased steadily over the last 11/12 years. Much of the extra taxation has not been wisely spent. In fact there has been massive waste. This tax burden takes money out of the pockets of people and businesses and have a detrimental effect on economic health.
Brown error no 4.
5/ The change to the Bank of England's role and the parameters for the MPC as previously said were too tightly drawn. As a result interest rates were held down too long encouraging people to borrow more and fed the housing bubble. That is a secondary impact of error no 1 and therefore has already been counted but this problem was compounded by Brown's discouraging people to save. He undermined pensions and tax free savings by taxation policies reducing the tax benefits and reducing the allowable investment levels in non-pension tax shelters. The impact of these issues combined to reduce what is called the savings ratio and therefore the amount the public have to fall back on for emergency purchases (car repairs, new biolers and so on...). this meant that people became more reliant on borrowing for emergencies. This of course increased the levels of private non-mortage debt to an unacceptable and unprecedented level. People also, now in this recession have less of a financial buffer, if any and the level of house re-posessions is heading for levels in excess of 1990.
So there is Brown's mistake no 5
Those are the main problems behind the very serious UK domestic situation. None of these errors are the fault of international factors, all are down to Brown.
If the Government had a lower debt at the beginning of the recession it would be better able to stimulate the economy without causing other problems and a massive debt that future generation will have to repay.
If Brown had not changed the banking regulations he would not have had to bail out the banks in the way he has, people would not have so much individual debt, there would have been less of a housing bubble, people would have more money as a buffer and fewer would be faced with reposession.
If businesses had been left free of most of the extra taxes and red tape more would be able to survive the recession so more people would be safe in their jobs.
Brown may not be responsible for us being faced with the recession but is responsible for how deeply the UK will be affected and how long we will suffer.
I have previous pointed out that international organisations such as the OECD, IMF and the EU have all said that the UK is in a worse situation than other developed countries. Who is responsible for that - Brown as he has been in charge of the economy for 11/12 years.
What we have seen of late is a Government running around like headless chickens with failed policy after failed policy to deal with the problem. Much of Brown's medicine is making the patient worse.
Can you go through each of the points above and say why Brown would not be responsible them? or, can you give reasons why these policy errors would not make the UK position worse than it need be? The fact is you cannot do it. No-one can. This is not just a matter of Conservatives pointing the finger these brown errors are facts of history. the impact of these is born out by the ONS, EU, OECD, IMF among others, no, not Tory politicians making mischief.
You cannot airbrush Browns incompetence.
Brian Dixon
- Location: Dover
- Registered: 23 Sep 2008
- Posts: 23,940
25 February 2009
21:3316174zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
25 February 2009
23:0816181Brian - I have tried to explain things so anyone can understand.
If you have no interest in economics or are bored by it, then dont bother to read it but then do not try to defend Brown when you do not understand the case against him and do not have the arguments and evidence to defend him.
Sid Pollitt
25 February 2009
23:2916185I have those probiotic yoghurts after a meal, it does the trick.
Ross Miller
- Location: London Road, Dover
- Registered: 17 Sep 2008
- Posts: 3,696
25 February 2009
23:3016187You did indeed explain qualitative easing very well
Just not sure the party political broadcast on behalf of the "anti Brown party" really helped.
And before you start I agree that Brown has to shoulder his share of blame, along with the regulatory bodies and the banks both here and abroad for the current global economic crisis.
"Dream as if you'll live forever. Live as if you'll die today." - James Dean
"Being deeply loved by someone gives you strength,
While loving someone deeply gives you courage" - Laozi
howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
25 February 2009
23:4416190my knowledge of history and economics is not that good, but did this "qualitative easing" cause problems to the weimar republic?
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
07:5316195Barrow fulls of money to buy a loaf of bread Howard - no credit cards then. I really must get my credit card limits increased ready!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
07:5716196Ross - I stated the basic facts of Brown's economic errors, you cant get away from that.
If you think differently can you not refute those points or excuse Brown's errors one by one?
At least though you do acknowedge that Brown at least has some responsibility. I have never excused the bankers for their mistakes.
DT1- Location: Dover
- Registered: 15 Apr 2008
- Posts: 1,116
26 February 2009
08:1316197Yes it was a good post Barry. I would have to say it is impossible to judge the outcomes of Mr Brown's decisions against the alternatives, it just becomes party rhetoric. Much in the same way that many claim that Mrs Thatcher's 'success' had nothing to do with policy and everything to do with north sea oil (something the next Conservative government will not inherit) It really is impossible to 'know'
We should also be careful with a quantitatives and qualitatives (ever the pedant) It is the qualitative things that are generally the more important. Something that Capitalism will always forget!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
10:1716203DT - I will not get into the Mrs T discussion but I do believe and can evidence that you are exaggerating the North Sea Oil impact, though of course it did help.
I do know someone who was a bank Chief Executive before the change in regulation. He is not someone tainted by the malpractice that went on by the way. He told me about how he had to go to the Bank of England with his top team to get grilled every 3 months on every aspect of the banks operations. That ended and allowed the banks free reign under Brown's reforms, my friend was horrified by the changes at the time. If still left under the old regulatory system it is very unlikely that the excesses would have happened and our banks, like the Spanish ones and others would not be in the vulnerable position they are.
Also it is worth pointing out the error over the BofE's interest rate brief which ignored the levels of public debt in setting rates, referring only to inflation. If that brief included debt then interest rates would not have been so low for so long feeding the housing bubble.
The other errors basically compounded the mistakes.
I do not see that as just party rhetoric, it is simply a reference to what was done and the logical consequences.
On the Party political side, Mrs T and John Major always resisted toying with the banking regulation very wisely.
DT1- Location: Dover
- Registered: 15 Apr 2008
- Posts: 1,116
26 February 2009
11:1616210I do agree Barry, albeit afrom a relatively naive understanding. Too much tampering has taken place, however we must be objective and not let everything become party politcal (as I see it, the basis of our current politcal apathy!)
Guest 671- Registered: 4 May 2008
- Posts: 2,095
26 February 2009
16:1516252BarryW,
You state in first post "The problem really though is not the amount of money in the system but the fact that it is not circulating in the way it ideally should" is it not a fact that one reason that money is not circulating in the way it ideally should be, is because so much of it is being circulated to foreign banks?
"My New Year's Resolution, is to try and emulate Marek's level of chilled out, thoughtfulness and humour towards other forumites and not lose my decorum"
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
17:1016260No Gary.
Guest 684- Registered: 26 Feb 2009
- Posts: 635
26 February 2009
17:4716265'Quantitative easing' is a clunky euphemism for 'blind panic from headless cretins in power who haven't got the first idea what to do next'.
Yep, I think that's an accurate definition.
Guest 671- Registered: 4 May 2008
- Posts: 2,095
26 February 2009
18:2016269Well I was hoping for a direct answer, that I could understand but not as simple as that, there are lots of things we will never agree on, that's fine with me, but I am interested in learning about things and I am interested and willing to listen to your views, you just need to come down a notch or two, not as far as one word. It was not a trick question, lots of things you believe in, concern me and I want you to explain them to me. Please
I don't agree with vast amounts of money being sent out to foreign banks, I cannot see how this benefits this country, you state money is not being circulated properly, so surely sending money out of country is part of that bad circulation?
"My New Year's Resolution, is to try and emulate Marek's level of chilled out, thoughtfulness and humour towards other forumites and not lose my decorum"
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
18:4216270Gary - I answered you directly fully and briefly. There is no such problem in that respect that I am aware of and I am keeping a constant professional eye on financial news sites.
Some investors do choose to invest via the UK divisions of overseas banks but this is not a problem and relatively small beer. Besides it provides our banks some needed interest rate competition. I am about to do 'due diligance' on an Indian bank for two of my clients, but since the Icesave affair there is a great deal more reluctance to invest with these overseas banks anyway.
The problem is entirely down to banks not lending to each other and tightening their lending crieria to businesses and the public. The latter is actually a good thing up to a point but because of the lack of interbank lending is perhaps, in many cases, too restricting, horses and stable doors come to mind.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
26 February 2009
18:4716272DT1 - I forgot to mention that both the FSA and Bank of England have joined the ONS in having a go at the Government and pointing the finger, such is how the Governments authority has fallen.
Guest 671- Registered: 4 May 2008
- Posts: 2,095
27 February 2009
10:1716320I agree with you, the Banks Managers are greedy and inefficient, the fiddling four, never had banking experience prior to their posts, and all the other's that are to blame, should be made to pay, not rewarded with bonus's for putting our country into this crisis.
But my question was not about banking or investing, it was about vast sums of money being channelled away to offshore bank accounts, by wealthy people who have made that wealth from this country, then stashed it away, outside this country. you cannot believe that is good for our country?
That, along with all the other fiddles that are on going in this country, whether inside or outside the law or rules or regulations, are in my opinion, wrong.
people are really fed up with all this greed and one law for one but not the other.
"My New Year's Resolution, is to try and emulate Marek's level of chilled out, thoughtfulness and humour towards other forumites and not lose my decorum"