大象传媒

are there any examples of QE actually working? it certainly did not work in Japan, or Zimbabwe....or are we relying on the same economic theories that got us in to this position in the first place...

Q: Will the British pound have more zero's then the Italian Lira?

The truth is they simply do not know.

I prefer the idea of the Bank buying corporate bonds which addresses a problem of the credit crunch directly i.e helping companies to borrow. The idea of one arm of the government buying debt off another part is fraught with hazard. With this lot it will be hard for people to believe it will do any good and a rational person might expect higher prices rather than higher GDP.

Even buying corporate bonds is a risk....

RIP GBP

So...Keynes was right all along..?

Wrong solution to the wrong problem.

Absolutely typical of the Bank of England they are still addressing an historic problem and are out of date.

The problem is lack of demand - not liquidity.

The Bank seem to think that by tinkering in the bond market they can some how kick start the economy again. They are, as usual, wrong.

The desire to spend by the tens of millions of normal people who make up the mass of consumers is being savagely eroded and depressed by squeezing their savings income and salaries at the same time as the mortgage support schemes talked of by the government are yet to be implemented.

If you take the icing off the cake (savings income) consumers will cut back viciously. There must be today an explicit indication that interest rates will go up very soon to 4 or 5 percent to overcome this massive error by the Bank.

The bank should be concentrating on schemes such as scrapping old cars 'gifts' and such like to get people spending rather than continuing to bail out their friends in the city.

The Nation is being ruined by these (possibly - I am being charitable) well intentioned moves by the Bank and they are as out of touch now as they were last autumn.

Quantitative Easing should certainly work to boost the money supply (in its true sense of the amount of money available to be "bought" i.e. borrowed).

BUT this policy is directly opposed to the policy of low interest rates.

The problem here stems from the confusing use of the phrase "money supply" to mean the quantity of money in the economy. This is boosted by lower rates IF the amount of money is being limited by people's propensity to borrow.

But like any other commodity, the true "money supply" (the amount of money available to "buy" i.e. borrow) is decreased by a lower price.

Lower interest rates will WORSEN the credit crunch. Maybe the numpties in the BoE who have brought us into this mess should remember how the price mechanism works. If there's a shortage of something, the worst thing you can do is reduce the price!!!

But what could be the negative affects of Quantitative Easibility?

QE attempts the impossible in finance - a one sided accounting entry. It attempts to create an asset with no corresponding liability. If it was that easy, the government would be using it all the time, and there would be no want, unemployment or poverty anywhere in the world.

In business and finance, there is always a liability, there is always a price which must be paid. The liability which will arise from QE is a fall in the value of sterling. Our currency will depreciate, as our underlying economic activity is not strong enough to support the volume of money in the UK economy.

Britain has a trade deficit, a fiscal deficit, and a shrinking economy.

Therefore, we have two likely outcomes:
(i) QE has no affect at all. Demand is not stimulated by the money printing. The increased money just sits in deposit accounts as no-one borrows it; or
(ii) QE causes sterling to fall, as investors worry that the British government is simply printing money to pay for its stimulus plans. The government is spending more than it can raise through taxation. Our currency falls, as foreign investors who nromally buy gilts decide that the British Government's credit rating is not worth the risk of default. These investors will then sell their gilts and take there money abroad, to somewhere safer.

"... the Bank is trying to engineer an unexpected cash windfall for the institutions selling the bonds..."

This is precisely what is wrong. Institutions that have made bad investments will get a windfall. Is there even any guarantee that this money will even stay in the UK?

QE/Printing Money will devalue savings in Sterling which will be a double-wammy to savers onto of the expected cut in interest rates.

Surely, everyone in the UK is going to end up paying for this when our currency devalues!? In which case, why does the government not just print money to go into the Treasury so that there can be tax cuts for everyone?

It seems that this is yet another scheme that will be cost us all, but primarily benefit only the bankers that have screwed up.

"Brigadier Brown...."

"Yes, Major Darling?"

"We're caught in a terrible crossfire.
We've got over-supply and over-capacity on one flank, and over-indebtedness and lack of demand on the other flank."

"It's a killing ground out there. We're facing unsustainable losses."

"Contact the BoE and tell them to parachute in more reinforcements."
"We have to show our allies we won't let them down."

"If we send in reinforcements they'll be cut down like the rest."
"We'll simply bleed the country dry....."

"We won't retreat - pour in more resources, I tell you!!"

"Yes sir, Brigadier Brown, sir!!"

Jings ! This sounds complicated, if not surreal.

Any one for a game of Monopoly ?

If the Government were playing, they would land on "Go to jail, do not pass Go, do not collect 拢200".

I cannot say I understand finance, especially on this scale but I have a nasty feeling that this QE suggestion is going to backfire.
What, for example, would be the effect on our currency with all that that means on imports of food products in particular.
And is this a backdoor way of reducing longer term government obligations on pensions and benefits, remembering that governments are notoriously slow in equalising the effects of a reducing monetary value?
Seems to me that 'The pound in your pocket' argument is about to reassert itself and once again the weakest will suffer most.

So, this all relies on Consumers, eventually borrowing more to spend in the shops.

It won't work.

Workers at the moment are struggling with the debts they already have.

They are not receiving pay rises.

In very many cases their dispoable incomes have fallen.

So buying Bonds in the Bond markets will not have an appreciable effect on the High Street.

This means Consumer dependant Industries will continue to suffer.

The Gov't needs to look at introducing policies that will create more export driven economic activity (manufacturing or otherwise), and policies that will create real jobs.

It needs to reverse its pay restraint straitjacket (especially on the Public sector).

It should consider limiting certain types of imports, in order to give local manufacturing a chance to compete on a fair basis.

The truth is no one really knows how effective QE is and so what.

What is clear is that the MPC is obsolete and should be abolished immediately. It is entirely possible that the reduction in interest rates is like overcorrecting a skid of a car and it will unleash enormous dissaving
and a spending - borrowing spree with many undesirable consequences in the medium term.

Monetary theory I recall says that there is a lag of two years or so before the effects of large changes in the money supply are seen.

Mind you this theory is 30 years or more old and there have been many structural changes to economies and banking practices since then.

Have we a tiger by the tail?

This is the final madness to try one last throw of the dice for Labour, not for Britain. Printing money is no different to a rights issue by a failing company. The shares in circulation become watered down.I t is nothing short of criminal negligence. You, Madame, ought to realise that. However your pension from the taxpayer funded 大象传媒 will be OK. Just need a bigger barrow. As for us ordinary people, our pensions will be even further eroded. That's what depressions do. To print money is an admission that control is lost.

stephanie you ask,

"Today's big questions are (a) will it work? And (b) how much will the Bank need to spend?"

I think we all know the answer. no and everything.

The bank is issuing gilts to fund government expenditure, and buying gilts to reduce supply and thus increase gilt prices.

Why not just issues fewer gilts?

An excellent explanation to the uninitiated of the principles of QE. Thank you.

Just to depress everyone further,

This is the planet of the apes moment, You know the one, where Charlton Heston looksup at the Empire State Building.

Yep they really are going to do it, Every decision the Government and the BOE have taken has lead us down one path.

This will destroy Britain as a nation for my lifetime, Its going to be very, very bad.

I can think of hundreds of things the government could have done, and yet Gordon Brown is almost autistic in his belief that there is only one solution.

Recreating the very conditions that got us here in the first place, he is Captain Ahab pursuing his very own white whale (wash).

Will we have access to the sorts of sums the BoE are "trading"? ie 10Bn or 100Bn?? What will this QE effect be on the value of the Pound against say the Euro where we source a vast amount of fresh and processed foods?

QE will be a disaster.

The markets have routinely trashed the currencies of countries which have done this, rightly regarding them as banana republics.

QE is addictive as well as destructive.

Any benefits from QE will be lost through the higher interest rates that will be needed, in short order, in an effort to stave off a currency collapse.

QE is idiocy.

Stephanie

We know "they" don't know how much and whether it will work. I sense we are still in palliative mode with BoE/government trying to fill the void left by collapse of wholesale credit markets.

QE as a policy seems to be indifferent as to how the multiplier allocates any benefit generated - if the money supply generated is all spent by UK consumers/investors on imported goods/assets then there is no net benefit to UK economy having incurred a potentially enormous liability.

Without heading off too far down the corporatist state planning route is there no sense in trying to implement a mid term focused fiscal policy/structural plan to push the economy into a positive more sustainable structure and direction for the (20-25 year) future (i.e. not dependent on financial services, d-i-y, and estate agents)?

There is surely a political trick being missed here. The BoE and government have their hands full but need to also look to the future beyond all the current problems to define where we want to end up in the post bubble real economy.

11. newsjock:

"If the Government were playing, they would land on "Go to jail, do not pass Go, do not collect ?200"."

Absolutely right, but in this instance, surely it would be "Go to jail, do not pass Go, do not PRINT ?200"!

Although nobody knows which element of any stimulous is the more effective, nor how much of each is optimum, we do know that sentiment is also vital. So every time commentators and others proclaim that this or that "won't work" or are "ruinous", they also promote the paradox of thrift that will divert our recovery. That paradox also slows the circulation of spending money.

Which presents a political problem for HM Opposition. How much can they afford to spin that this or that stimulous "isn't working" without making themselves part of our global problem? On the other hand, if Opposition don't make contrary claims, they stand to look irrelevant in the battle to bring the collapse of confidence to a speedy end. It's a fine gamble in this crisis.

The hair of the dog that bit you.

The government doesn't like the drunk who is not drinking because he's passed out.

The government slaps the drunk about the face, by reducing interest rates. This partly revives the drunk, but he still doesn't want to drink.

The government holds the drunk's mouth open while the Bank of England pours whisky down the drunk's throat. QE.

The drunk then dies of alcohol poisoning.

Whoops.

The government then says it couldn't have seen it coming.......it could not foresee the outcome.

So if I understand correctly....

Because our savings are gathering little more than dust and the value of sterling is going down, we are being "encouraged" to spend; thereby money circulates, the economy staggers up on to its knees.

Banks will be able to lend to businesses so we can buy whatever they produce. Then inflation kicks in and we all live on bread and water, because no one has any savings left?

Isn't anyone, sometime soon, prepared to accept that those who have overspent are in debt up to their ears and CANNOT spend and the rest of us (the canny savers) have no intention of going down that route?

Money supply is not the problem - it's trust!

Bankers no longer trust each other, and the public has had a nasty shock from the use of credit and how violent a backlash it can have when used excessively.

Trying to restart the economy to put it back where it was before is not going to inspire anyone.

We need new ground rules on how things are run, that inspire confidence because they are transparent and honestly policed, and then the money can arrive.

There is no substitute for a return to integrity as the spearhead to getting us out of the mess we are now in - why is Obama so popular?!

Macroeconomic and standard microeconomics only go so far in predicting the effectiveness of this policy.

The really decisive factor is going to be people's behaviour and how they perceive the extra money in their accounts. Will it work? There are two ways that the Bank of England can make this happen:

Solution seems quite easy to me:

The gov should give first time buyers (yep... me too) the 25% deposit that they now require.

This will be spent immediately... the banks will lend and house prices are kept at the artificially high level that the gov desires.

Yes... I know it's not fair but maybe they could help with neg equity too!

Are there any instances where QE has worked?

What QE boils down to is this: transferring wealth from individuals and smaller businesses to the Government and selected large institutions.

QE is the ultimate stealth tax, and a regressive tax in its disproportionality.

Worse still it is taking from the innocent victims and giving to those who are responsible for the creating the current crisis.

One final thing,

Capitalism is predicated upon hope and trust.

The hope that if i start a business i will make a profit.

The trust that if i dont recieve my pay in gold, then the shop will accept my promisary note for its equivalent worth.

The hope that if i invest in a currency i will recieve a return from said currency.

Hope and trust.

I and many others have very little hope and no trust.

To borrow from the awful business lexicon:
"its time to shift some paradigms"

That's it. I'm off to buy a huge stack of tinned beans this afternoon. I recommend everyone else do the same. 29p per tin at Aldi's, so it won't cost too much to protect yourself for when the Depression goes into its death spiral.

I understand the theory but not the logic. The hope is that injecting a relatively small amount of extra money into the bond market will lead to a cascade of consequent activity. But, as Ms Flanders says, the concern must be that cautious investment institutions will simply hoard the money. Perhaps the government should just buy up the whole of the HSBC rights issue.

The trouble with adding money to the economy in this way is that it is inherently inflationary and we all know where that leads. Doesn't classic Keynesian theory tell us that the way to proceed is for the government to spend money on capital projects thereby forcing economic activity to take place and generating extra tax revenues as a consequence?

QE as proposed is introducing a middle man who may not act as predicted/hoped. Then more will have to be spent, and more, and more...

This seems ridiculous to even contemplate. Granted, I'm not a finance expert.. but as I see it for the man and small business in the High St, this issue is not about the actual availability of assets, its about the trust to loan which is the issue. As someone rather sadly wrote - RIP GBP. Up until today I really thought the Govt were incompetent. Now I'm convinced this is a deliberate breaking of the economy and devaluing the pound to such a level that we have no choice but to join the Euro... which of course is going to benefit big business rather than the man on the street.

my question at #1 was really rhetorical......

..what if i start to copy 拢20 notes on the photocopier and buy bonds with the proceeds, will that work, of course not. so why should the government 's action work, is there any guarantee that the increased money supply will not just be hoarded by the banks like all the other so called bailouts?
in fact has any one of Gordon Brown's great ideas worked?

This looks like Big Government bailing out their friends in Big Business at the expense of the taxpayer.

Will it work? The answer is that nobody knows. The acrid smell of panic permeates our streets.

Is this the fear itself which we should be fearful of?

The questions raised on this blog are numerous.

How certain are we that the money raised will stay in the UK, or is that just being `protectionist'?

Are there other measures we can take before QE which we haven't tried yet? The so called fiscal stimulus of a VAT cut wowed the audience in the aisles, didn't it?

How long and for how much will QE be applied? Can someone put some figures on this please so we can measure cause and aeffect?

Will we end up with hyper-inflation?

I must confess that I am now begining to panic as it seems the lunatics are now running the asylum.

The fruit of free market ideology?

"With a massive economic crisis underway I thought it timely to post The Take by Naomi Klein and Avi Lewis on Argentina鈥檚 experience. An inspirational look at how workers reacted to losing their livelihoods by occupying their factories, resisting the authorities and co-operatively producing goods for the benefit of themselves and their communities."

Meanwhile... two steps down, one step up, and

Meeeeoooowwwww!
ed

In the immortal words of Einstein -

"The same thinking that created the problem cannot resolve it".

We desperately need new leadership that understands this wisdom.

The only thing left after QE is the wealth tax - instead of interest you give, say, 10% of your savings to the government every year (a bit like with pensions). They then squander it, as they have done with all the other taxes, and just maybe the economy gets going again.

This is a bit like inflation, but more controllable, certainly better than QE. The only problem is that if you took away all of the savings and assets of people in the UK, it is probably not enough to pay off all the debts!

Do we live in a mad world - or is it just the people running it who are bonkers?

I seem to remember a little while back something about QE 2 heading off to somewhere in the middle east. Have I missed QE 1 ? I think we should be told.

The US publishes its money multiplier and it is under 1. We cannot be far removed. Eventually, if this point has not already been reached, expansion of the monetary base will cease to provide any economic benefit. News like this may encourage people to repay or default debt and lenders and investors to keep their capital out of play. People are a fickle bunch and nobody can say how they will respond to news like this, the printing of electrons. The effect may be quite unexpected.

Regarding this bloating of the money supply, I keep hearing on the news bulletins that "the policy has not been tried here before."

Short memories! I believe a very similar ploy on the part of one Chancellor named Barber led to the inflation of the 1970s.

Between 1970 and 1982, I seem to recall the real purchasing power of Sterling fell by two thirds...

It may not be too late to buy gold.

"Anthony Perrinott Lysberg Barber, Baron Barber, PC (born 4 July 1920), is a Conservative member of the House of Lords. He was appointed Chancellor of the Exchequer by Edward Heath in 1970.

During his term the economy suffered due to stagflation and industrial unrest. In 1972 he delivered a Budget which was designed to return the Conservative Party to power in an election expected in 1974 or 1975.

This inflationary Budget led to a period known as "The Barber Boom". The measures in the Budget were to come back to haunt the Government who were hit by high inflation and wage demands from Public Sector workers.
...
Anthony Barber was made a Life Peer in 1975"

Taking the ratio of base money to GDP as the multiplier implies a velocity of 1, does it not?Would it be better to take the ratio of M0 to M4?
Not being a professional economist, I don't know where to look for those figures, but I suppose they are published somewhere.