Should the Bank of England buy shares?
Is the Bank of England buying the wrong stuff, if it wants to reflate the economy and put the private sector on a sounder footing?
This is something I am increasingly hearing, both in the City and in political circles (notably from leading Tories).
As you doubtless know, the Bank's programme of quantitative easing involves it purchasing up to £150bn of UK government bonds and corporate debt, to increase the stock of money in circulation, encourage lending and stimulate economic activity.
But arguably it is purchasing a sub-optimal mix of assets, if it wants to maximise the stimulus to the economy.
In theory, it would derive much greater bang for its quids if it bought shares in British companies.
How so?
Well, if it bought equities from pension funds and other British financial institutions, it would still be increasing the stock of money.
But there could be a series of spin-off benefits.
Or at least that is the plausible argument of bankers, including one who helped the Hong Kong authorities to do just this - to considerable beneficial effect - in the late 1990s.
One advantage of buying shares is that it would address directly one of the causes of our economic woes, namely the over-indebtedness of companies.
In general, the British economy is struggling under the burden of excessive borrowing by companies, financial institutions, households and government.
Many of our biggest companies and banks need to strengthen themselves - to re-capitalise themselves - by issuing new shares.
The massive share sales announced in the past few weeks - from the likes of HSBC, assorted property giants and Centrica - won't have escaped your notice.
But investment institutions and retail investors have only a finite capacity and a limited appetite to buy these news shares.
With the FTSE 100 index malingering at well below 4000, companies' ability to sell new shares - to raise cash from investors to replace debt - could well disappear before too long.
However if the Bank of England were to wade into the stock market and buy existing shares, that would significantly improve the tone and liquidity of the market - and make it easier for businesses to raise new equity capital in rights issues and in share placings.
It could, in that sense, relieve some of the financial stress on companies that lies behind our recession.
Surely, as a matter of public policy, that would be preferable to the Bank of England's stated aim of helping companies to raise new debt.
If too much debt got us into this mess, surely it would be better to pay down the debt than accumulate more of it.
Funnily enough, this seems to be the view of the shadow chancellor, George Osborne. In a little noticed section of a recent speech, he said:
"We don't just need to recapitalise our banks. We need to recapitalise the whole of British business....Given the scale of the debt problems, I believe there is role for government in encouraging this recapitalisation of British business to take place more quickly than it otherwise would."
Which rather implies that he could be in favour of the Bank of England buying equities.
There could be a further attractive consequence of state-funded purchases of equities.
As I've been boring on about for months, there is unlikely to be a significant increase in bank lending until asset prices in general find a floor - because all lending is either directly or indirectly linked to the price of assets (from shares, through to property, and so on).
A credible equity-purchase programme by the Bank of England could - in theory - provide such a floor. And if the value of equities stabilised, there should be helpful knock-ons to other assets.
Which is turn could reinforce banks' confidence to do more lending.
Now the notion of the Bank of England buying shares is pretty unorthodox - but then our economic crisis is of a different complexion from anything we've suffered since (possibly) 1913.
That said, the technical difficulties would not be trivial.
Deciding which shares to buy and from whom would not be easy. Probably the sensible thing to do would be to acquire a stake in every company in either the FTSE 100 index of the biggest companies or the FTSE 350 (which includes middling size businesses).
Also, there's an interesting question about what to do with the acquired shares: one possibility would be to use them to endow public-sector pensions or provide a stock of assets for the soon-to-be-launched national pension savings schemes (the government-sponsored scheme for the millions who aren't saving enough for retirement).
One of the strongest arguments for buying equities now is that - on most analyses - they are cheap. Of course, they may yet become cheaper still.
However if the shares were acquired and held with the intention of holding them for a couple of decades - which the public sector can do - well if we didn't make a substantial capital gain on that kind of time horizon, then we'd be in doo-doo of a depth and toxicity that doesn't bear thinking about.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~25~RS~)
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Looks like the BoE has picked right up from GB in doing all it can to re-inflate a bubble that has long gone bust.
Whatever way they play it from this point on they are spending money that we don't have. That can only be storing up further problems down the line.
http://creditcrunchedoutinuk.blogspot.com/
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This is so wrong on so many different levels, that I find myself unable to untangle the obvious failure in logic that you have.
Next you will be telling me that everyone who loses on the races should be made whole?
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The government should buy vast amounts of shares, and hold onto them for two decades, until share prices recover, and use the resultant fund to underpin public sector pensions...?
A few assumptions being made here, Robert. Then again, if the stock market is merely "malingering" at the moment, then perhaps a spectacular recovery WILL soon occur.
Nice to see you in optimistic frame of mind, for once.
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why cant they leave the markets to find their own levels. the sooner they reach the bottom the sooner we can try to get out of this mess.
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Warning the value of your shares might go down as well as up...
Well unless the BoE decide to prop up the market. Surely there will be those that milk the system. So yet again the 'financial intuitions' win at the expense of the taxpayer, irrespective of the potential 'long-term' gains.
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What really needs to happen, is that the shape of recovery needs to be defined by the Government.
What do they intend to return us to, what are their aspirations?
The media need to press this issue; the Government should be made to state some clear objectives that are measurable and accountable.
In the real world however...
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YES.
And they should be buying shares, or making other investments, in areas where it will impinge upon the UK population's ability to survive this enduring crisis.
That is, investing in 1) food production (e.g. agriculture and horticulture, community food-growing projects), 2) energy production (especially community and micro-energy projects) and 3) in infrastructure to protect and enhance the distribution of food, power and people.
Oh and 4) other schemes and iniatives that will make UK communities more self-reliant and self-sufficient and better able to weather the storm of share prices going down and down, companies going to the wall, unemployment, unstable commodity supplies and increased general poverty.
If the BOE invests in the right things, people will have stuff to eat and will be able to cook it and keep themselves warm.
Pieces of paper, such as share certificates, bonds and gilts, don't taste nice and get caught in the teeth.
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I absolutely agree that this would be a better way to stabilise asset prices, help decrease the indebtedness of companies and get the flow of money turned back on.
It's time to think outside the box. the BoE are halfway there but they need to take things a step further and to be a bit more imaginative.
The Tories seem to be of this thinking - who says that they don't have any ideas?! More than Gordon Brown and his sidekick chancellor!
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How about setting up a Government bank that rewards saving with a decent rate of interest?
We could save, withdraw the interest, and spend it prudently.
We might even begin to re-establish a saving culture. Mmmm, there's the problem, the Government don't want that.
Debt, debt and more debt, if you don't have debt we cannot control you.
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Robert
An interesting piece but I shudder to think about any government buying shares in preferred businesses - this will invevitably lead to inefficient businesses being propped up by the taxpayer again.
The scheme would only work, I think if the shares were bought in new small business operations where the effect can be most widely spread around the country but it is very high risk unless on a tracker.
We/ the UK and the rest of the world will have to get used to e.g. whole market sectors stagnating/failing completely in the coming years and other difficult economic situations, political and other strife and worse. banking is the first major sector to fail - the next one will be sky high energy costs.
Selective buying of shares is beyond the competence of most governments, particularly Goondog Trillionaire Brown's goon show.
The world has changed!
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Peston:
"well if we didn't make a substantial capital gain on that kind of time horizon, then we'd be in doo-doo of a depth and toxicity that doesn't bear thinking about."
The same depth and toxicity of "doo" that "we" are in fact submerged in.
What a desperate scam it all is.
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Should the Bank of England buy shares in major quoted companies, or should it invest in riskier but fast-growing private companies? I think most of us here will agree on the answer:
http://www.knowingandmaking.com/2009/01/private-investment-by-central-banks.html
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Buying equities by the BOE would be a bad move. It would artificially prevent the share price bubble from deflating properly, and is not the most efficient way of increasing demand.
It is understandable that companies and individuals who are exposed to shares and other assets the values of which are deflating, should want someone to put an artificial floor under them. But deflation is an important part of the natural mechanism by means of which recessions are corrected. Assets should be allowed to fall to a price at which people want and are able to buy them, so that demand returns into the market. Equities should only have been bought for the long term.
The government should use the additional money it will be able to borrow to directly increase demand. It should by now have many construction projects "shovel ready". It should forget about PFIs , which were never a very good idea, and certainly now are quite pointless. The demand generated by reactivating the construction industry would rapidly spread through the economy.
It should also increase benefits, particularly unemployment benefits, so that those most affected by the recession do not have to reduce their expenditure so much. This is also guaranteed to help to reduce the reduction in demand.
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Well there's a novelty. A good idea. Perhaps HMG should be buying shares in companies that make things or are utilities. That way we reinvest in our futures, protect jobs, create investment capital and can then compete in a world market when sterling is cheap.
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Alright in theory as was the recapitalisation of the banks.
Not handled properly and who can we now trust that knows how to handle anything properly it will create a market distortion that could blow the whole lot into the stratosphere.
Perhaps it's time to accept that this is how it is so let's see where it ends up.
Each and every idea that someone comes up with is distorting the situation in some other direction.
You can't make order out of chaos until you know when and how the chaos is going to end.
This is experimentation on an enormous scale with no-one even knowing what they are really doing and what the consequences will be.
They've already thrown everything they know at this recession and it hasn't worked
The panic is really setting in now and it is showing.
We are in even more dangerous territory when they start experimenting with the unknown.
The world economies are completely out of balance and until this rectifies itself we will not know who are winners and who are losers. Only then will the winners be able to support the losers. In theory!
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Robert Peston
Which CEo have you had lunch with who needs the Government to buy it out for a short time? Are you proposing that we go down the road of Nationisation of business? I know plenty of people who would agree with you. If you have become a nationalisationist, I applaud you but ask you to consider this proposition.
Instead of the Government buying the equity stake in the companies, why not the government guaranteeing loans to the current employees to buy the business. Capilalisation from within, rather than external capitalisation.
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Rather than a shotgun approach to invest evenly across the index, better still to target strategic equity investment to take back greater ownership of key infrastructure assets and reduce the risk of assets being held by foreign investors
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Re 8
Labour steal all of the Tories good ideas as soon as they announce them.
Interesting to see a policy that might help pension holders and savers for a change rather than the feckless.
Pretty unlikely that pensioners and savers will re-inflate the economy though...
IMO the real problem is still that no-one can properly assess lending risk due to the toxic waste still in the system. Any policy that helps to flush out the toxic waste as fast as possible and allows lending to increase (not to where it was, but to some happy medium between where we are now and where we were) has got to be a good one. It's a shame no one can think of anything.
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The B of E by exchanging debt for shares appears to have set a value on toxic positions yet banks have been singularly unable to volunteer how much damage they are looking for. Let alonme establish what they can unwind if there is any value at all.
The Bof E should restrain itself from entertaining the idea any further until it can definitively declare it knows the value of all liabilities in all companies both on and more particularly off balance sheet.
Given that it can't do this it should stop even thinking about such an exercise.
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I dont like this idea
The speculators would take the money and in a months the market would be back where it is now. On top of that the shares may include shares that tank over the coming months/years and then we get little or no return.
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Why shares? Why not houses?
Or for that matter why not just send everyone a cheque in the post?
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Robert,
Can you write in joined up sentences please? I mean paragraphs so that your thoughts look more organised and considered.
Otherwise, I agree. If companies had more financial strength (aka less leverage) they would not waste so much money on silly wasteful credit insurance.
Thanks
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Robert,
It is not the job of a capitalist goverment to allocate capital.
If they did, it can be argued that the BoE could incur huge losses should the economy not recover and the value of the shares boughts crashes.
That would create a big problems as it would permanently increase the supply of money.
At least by buying guilts and bonds they can be sure to get a substantial amount of their cash back.
Duncan
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Robert - have you tried to buy any shares recently? It is almost as frozen up as the banks' lending policies!
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buy shares lol, what you really mean is re nationalise everything ;-)
Its all coming out, slowly but surely!!!
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"Instead of the Government buying the equity stake in the companies, why not the government guaranteeing loans to the current employees to buy the business. Capitalisation from within, rather than external capitalisation."
This gets to the real issue. Brown said that there would be no return to boom and bust, yet that is inherent in free-market capitalism. We need to restructure the whole economy, not by propping up the speculators and their allies, but by strengthening the intelligent, rational parts of the economy. The BofE should be looking to buy long-dated bonds from those institutions who have lent sensibly, i.e. Co-operative Bank, Triodos Bank, other Community Development Finance Initiatives and the Building Societies. These organisations also know where the environmentally and socially beneficial projects are, because those are their customers. Supporting employees to purchase their employers allows them to prioritise employee and community benefit and not speculative gain. The Co-operative and Mutual sector is nowhere near as damaged by the recession as the speculative sector. This is because the business model is more robust, if not as "sexy" to the speculators. Stop backing losers and start backing winners!
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The Bank of England will eventually become a rag and bone man, collecting up other people's junk assets.
Maybe the BoE could buy up the whole UK economy, and store it on its balance sheet for years, awaiting cryogenic resuscitation.
If the BoE buys equities and holds them it is effectively part nationalising British companies, as the shares are taken out of private ownership. Shares owned by the BoE would restrict the dividends distributed to private sector investors, as the private sector investors would own less shares.
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On reflection there's more to this issue and I have written a followup at:
http://www.knowingandmaking.com/2009/03/rationality-and-todays-bbc-bloggers.html
This is another example of a 'rationality trap'. In theory, rational private investors will provide all the capital that's appropriate for companies to invest. But in reality we rely on central coordinating mechanisms (the Bank of England in this case) to be somehow "more rational" than any individual.
Are we going to trust the central bank to make the right "rational" decisions? Yet another good question!
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There is of course another interesting angle on this. If the Government is effectively looking at public ownership of huge swathes of the economy then it needs to be clear about what it is buying and why. The PM has bought heavily into the sub-prime market of New Labour assets at a time when what we need is a good dose of Old Labour strategic intervention.
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The more I think about Peston`s argument in this post the more ludicris it sounds. It`s certainly not the place of the BoE to start dabbling in the stock markets.
I have read some very credible articles in recent months which points to the role of central banks around the world in contributing to this whole mess. To have the BoE play with £150 billion of taxpayers money on the FTSE is a recipe for disaster.
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Robert,
Have you ever heard of the Man whose car broke down and several people came along giving technical analogys on what was wrong ,all to no avail.Along came a chap and said have you checked the Petrol.
The Banks have Traded Bonds with no substance, with Money that had no substance, now the Bank of England is trying to Trade with Funds of no substance.
The only answer is to cut away all bad or Toxic Investment from Banks Assets then to Trade the Bank as normal.This is what happens in any Liquidation and assets are redistributed.I f the BoE thinks it needs to get Money working again push Funds to the small Building Societies and let them do the small to Medium Volume Lending to UK Limited and Man in Street.
What the Govt is trying to do at the moment is National Suicide and anyone with any Savings needs to take it away from these Shores as soon as posible.
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Desparation, pure desparation! Things must be worse than we all think!
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Robert,
I fail to be convinced that recapitalisation measures taken by any Central Government or Central Bank will have the desired effect of bringing a swift return to economic growth. Politicians and Central Bankers seem to be missing the key point that a recession is a painful, sometimes lengthy correction of market excess.
Your blog states: "In general, the British economy is struggling under the burden of excessive borrowing by companies, financial institutions, households and government". Recapitalising British companies would, I agree, strengthen their balance sheets, but it would do little restore business confidence and encourage investment until the fragile consumer confidence is restored. Expectations of further falls in property prices, prolonged currency weakness, future tax increases and cuts in Government spending do little to restore business and consumer confidence. The recovery will only begin when equity and property prices bottom out, and households and companies start to see the 'green shoots of recovery'.
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This government and others around the world will not be able to deal with this 'crisis' until everybody excepts that the business model does not work. Why is GB hell bent on trying incourage people, business's and government to take on more debt??? when it is patently obvious that excessive debt has caused this crisis. This government and the money markets keep trying to find 'the bottom' instead of dealing with the cause of the problems. If the money moarkets really want to find 'the bottom' they need look no further than GB, he has been talking out of his since this crisis started.
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Nice trial balloon. I like the colour. BBC livery? The effect on sterling would be devastating. Debasing the currency to save the economy saves nothing. It sinks everyone indiscriminately. This idea is nuts.
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Government leaks like a sieve. The well connected can easily make another financial killing before we get a drop.
Why not give tax payers the money which can ONLY be spend on buying FTSE350 shares ? The shares bought had to be held for, say, at least 20 years. The reduces insider information sharing and political/financial corruptions which are certain if the politicians, i=with advice from lobbyists, are to spend the money directly "on our behalf".
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The Bank of England should lead by example, its a bank it should start lending money! For economic growth we need a flow of credit which is currently missing. Buying gilts from banks wont get them to lend any time soon, they have piles on non-performing loans to work through first.
New loans well underwritten, using today's asset values and sensible credit pricing will perform well. If the Bank of England doesn’t have the right level of skilled staff to lend itself then buy into the Credit Funds being launched by M&G, Business Lending or the like! These funds will invest sensibly and every £1 invested by will represent a £1 lent into much needed businesses and households.
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Nice theory but a lot of companies outside the 'group' what ever it is will suffer as funds are succed in to the group from else where as they will be seen as a 'safe bet'.
How about using the much under rated post office bank to provide loans to small business, this will help keep post offices open in rural areas. The post office franchise owners are small business men and women who operate in the community and should be quite well qualified to hand out small to medium size loans to small businesses.
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this article is at best naive, at worst frightening
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Is it true that equities outperform cash over the long period? I know that it is the conventional wisdom but The charts are usually of the FSTE 100 or some such index. The shares at the start and the shares at the end are not the same so in order to get that rate of growth you have to move in and out of particular shares at the right moment. - Which is not when they have just gone up and got into the FTSE but just before. So actually in order to get the equities rate you need to be able to see into the future.
I have just had a pay out on a 20 year insurance policy that seems to have yielded the equivalent of about 5.7%. I gather that this compares well with other companies. Over the last 20 years I suspect that a building society account would not be that far behind.
I would be interested if someone who can do the calculations could suggest what a cash fund might have done.
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I am still reminded of Winston Churchills quote of watching a government trying to resolve the economy being like watching a man standing in a bucket trying to lift himself up by the handle. Nothing reminds me more than this latest Trasury/ BofE/Bruin folly . Even throwing millions at the feckless idle lifetime unemployed would work better as it would generate some demand . all Brown is doing is chasing his own tail and hoping no one notices that it is their own money that is being reprocessed round the chain of dodgy debt with taxpayers finest lent to themselves with devalued coinage. Anyone foreign investor with a brain would exit stage left pronto.
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reminds me of a pink floyd concert with flying PIG and Beds etc. Are the BOE/GB/AD and ZANU-LABOUR been taking some of the drugs they down graded like canibbis
Verything is in debt nothing will change untill there is a step change in attitudes right from the top , you cannot overdrive the public finances into debt like the last 13 years, people follow the same lead as if its a good thing to do,
GB is doing so why cannot I do the same.
its going to be painful and there might not be an end in sight for 20 years. unless there is an election or revolution soon
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This comment was removed because the moderators found it broke the House Rules.
If the BOE does buy shares, then it should do so with money earmarked for public sector pensions. The public sector pension rules would have to be changed so that the final salary schemes would have a flexible element. ie Public sector workers would get their final salary plus or MINUS the percentage of money (of the required pot) used to buy up the shares.
This would thus represent a method of diluting the vast inequity between pulic and private pensions as well as helping business!
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I thought we already had with the large chunk of Lloyds and RBS?
When El Gordo has sanctioned further fiddling in the share markets can I be the first to suggest that the BOE should buy oil next to try to re-inflate that market, sure his city friends would like to cash in their money on this also.
When groups who make their money out of dealing in shares suggest you buy them - they may be right or alternatively they may just be taking you for a ride.
It seems analagous to scam artists having scammed you once then calling again to offer to help you recover the original money if only you send them some more.
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"Is the Bank of England buying the wrong stuff, if it wants to reflate the economy and put the private sector on a sounder footing?"
I'm sure Gordon would think so! His government is bankrupt and the BoE is creating money out of nothing which will ultiamtely bail him out.
Also... I'm no economist but isn't one of the main features of a market that it determines the price? More government meddling in markets means less certainty over the real value of things. Presumably this is ultimatley going to (continue to) spook a lot of investors who will stay out of the market. So any recovery, through the reinvestment of capital, is just being postponed (?).
All I can say is that goodness we haven't got a 'do nothing' party running the show.
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IT was obvious that the greatest ponzi credit bubble in human histoy was only taking a rest,it was pining for the fjords like the parrot in the monty python sketch ,it will now resume growing into a Gordonzi super credit bubble to infinity and beyond by courtesy of the QE'ers running the sodukomite economy .
Future generations will be forced to buy into Gordonzi pie in the sty as part of their pension pot full of fools gold to be placed at the end of their rainbows and swapped for soylent green at the appointed hour.
Politicians and bankerrs are fearful of the simple truth that they are now mostly obsolete for selling indulgences[AAA] on a SCALE THAT WOULD HAVE MADE THE PAPACY BLUSH ,UNLESS OF COURSE THEY HAVE SOME CLAAAY LEFT OVER FROM THE CREATION OF ADAM TO BRING TO MARKET.
The financial system was allowed to expand crackhead delusion to a global level ,in order that its colapse would appear a global phenomon that would defer culpability away from the crooked fools running it ,whilst they converted its seed capital into bonuses wheeled out the front
doors OF BANKS and long since spent on wine women and song ,leaving nothing but bats droppings to lever infinite loans .
If QE were simply about increasing liquidity it could and would be handed out to all citizens,of course it is not just about liquidity ,it is about preserving the staaataaas quoers from reality cheques for 0 pounds sterling and getting Labour follies past the next election ,hence the obsession by our twitocracy to save worthless Scottish banks.
Why not labour simply buy teeth that have fallen out, or would that infringe the toothfairys intelectual copyright.?
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How deep does RP think the DOO DOO is now!!!!!!
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The BoE and the committee have brought interest levels to the floor, this has not improved lending to companies, or those who are looking for a new mortgage, or are not on a variable rate mortgages.
What it has done is cause havoc for institutions who need funds that they take in in savings to lend. So they have made a bad situation worse.
Savers are not getting any interest worth talking about and are certainly not spending, so that has backfired.
It has also affected the value of the pound, thinking that this would help our exports. That hasn't worked because other countries are broke and can not buy our goods.
There is no easy solution to our dilema but manipulating the markets has become an obsession with this government. They have been in power for 12 years and talk a good talk, but that is what it is.
Remember ending Boom and Bust?
So now they want to prop up equities and the housing market?
Where is the logic in this solution?
The markets will find their own level. The last thing we need is to be saddled with more debt to pass on to our grandchildren.
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I think the BoE should buy houses instead of shares or gilts. There's no safer investment than good old bricks and mortar. If the BoE can buy enough houses to get the market going again, confidence will return and house prices will start rising again. Banks will lend more because house prices are rising and people will feel wealthier and borrow more. This will lead to further house price rises, at which point the BoE can sell its houses for a tidy profit (it could even fit a new kitchen or strip the floorboards to maximise profits). The MPC could start a TV series following their property developments and charting their profits. Eventually, we can all buy and sell houses to each other and no-one need ever be poor again. Remember, we do live on an Island and there is a shortage of housing supply. That'll put a stop to boom and bust.
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The government should be buying houses. This would free up the housing market. The mortgages would be repaid to the banks, thus helping them, and the government would have a stock of socially owned housing to rent to those who have lost their homes. The property would be a real asset that we all know will eventually go up in value. After all they are not making any more land, and people will always need somewhere to live. Also, the UK economy would get most of the benefit. Some rules would be needed, but it would stabilise the housing market.
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All these efforts may stabilise the markets a little bit for a while, but they won't cure the corrupting impact of too many activities in global banking that constantely try to outmanouvre national laws. Very strict global banking regulation is needed, nothing less will cure/control the mindset of a greedy elite that believes that they are beyond the law, as long as they can make huge profits and get away with it, no matter the consequences for their 'homeland'. The bermuda triangles of tax havens, offshore banking, hedge funds and all sorts of casino-like derrivatives, are in truth public wealth destruction zones, where trillions of dollars are hidden away and often used for extreme speculation.
You can read more in the following blog:
http://globalinsights.wordpress.com/2009/03/04/offshore-banking-and-tax-havens/
Now is the time to stop the mad excesses of casino capitalism, and prevent the next Madoff!
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Robert,
This is a very interesting concept which should be explored further
After all, what are the Middle East "Sovereign Wealth Funds" except their Governments investing in Global stock markets and diversifying oil wealth?
There is no doubt that £75 Billion intelligently placed over three to six months or one year in the FTSE and the other markets could vastly improve matters and hammer short sellers too. Sorus and others could not easily "read" where UK markets were going and up would be nice for all our pensions too.
If George Osbourne is talking about this you should take it up with the Conservatives and see if it is policy. A good Blog all around Now, since you have been to China for a week you are thinking positively and not like a Merchant of Armageddon!!!
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Just seen the streetwalker Darling on the C4 news and I have to wonder whether he's challenged Harman to a stupidity contest?
After weeks and weeks and months and months of demanding that the banks return to 2007 levels of lending, he seemed to suggest that in future an international regulator would have to make sure that banks were not over-stretching themselves when it came to lending.
On the one hand he wants banks to continue lending recklessly and on the other hand a regulator to stop them lending recklessly.
Such, it seems, is the crass stupidity at the heart of Golem Brown's government.
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DOH!
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as any stock broker will tell you ...
"The value of shares may go down as well as up"
if the BOE/GB were to buy them, they would surely go down.
There is only one solution to this mess, and even that is a seriously long term one. It starts by getting the idiots who got us into this mess out of power. Robert - you should be leading the charge to have Gordon step down and take his sorry excuse for a government with it.
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If they want to get people spending - perhaps they should ensure that all quitable Life pensioners are fully re-imbursed for the governments regulatory shortcomings earlier in the cycle. Many, if not all of those pensioners, including the surviving spouses of those who have died, would dearly love to be able to live a little less frugally than the government's shameful attitude has allowed so far. Quantitative easing for elderly pesnioners who have also lost any remaining dribs and drabs of interest income would help considerably - and relieve a lot of sleepless nights.
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Why doesn't the bank buy credit card debt? If it offered a scheme to convert every credit card bill over a certain threshold (e.g. £10k) into a low cost loan with means tested repayments, similar to Student Loans, this would surely have a far greater stimulus effect.
Banks would have the book value of all credit card securities, consumers would be unburdened of mountains of personal debt and more willing to spend, any fiscal stimulus would have a greater multiplier effect thanks to the higher spending propensity, plus a short term spending boost would come from people spending to capitalise on the scheme before it's initiated.
It would be like a huge state sponsored balance transfer deal.
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Such massive purchase of shares will push up share prices which increases market capitalisation which can used in a number of ways. One of which is the computation of fees, salaries and bonuses.
In theory, only a small number of shares need to be trades to grossly inflate the market cap which is divorced from the a realisable worth of the company. Apart from takeovers, can every shares be sold at the same time without depressing the share price?
I was once puzzled by why we use market cap. Now I realised it is a good for swindles.
Here is a simplified example.
10 people formed a public company and put themselves on the board. £100 million is raised from issuing 100 million shares at £1 each. The shares are listed on the stock exchange. The board decided they should draw no salary and claim no expense but are bonused collectively annually at 5% of the capitalisation.
In the first year, there are no commercial activities but 1 million shares (1%) were traded at £1.20, so the board members awarded themselves a bonus of £6 million.
Next year 1 million shares (1%) were traded at £1.40, so the board members awarded themselves a bonus of £7 million.
In the third year, another 1 million shares were trades but due to global economic crisis, the average price is £0.60, so £3 million of bonuses were rewarded. Etc etc.
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Not equities Robert!
In the event of default equity holders are last in the queue for any remaing value.
Another good deal for the taxpayer then.
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When will it dawn on people that it is the real economy that needs saving not the hangers on?
Throwing money at the markets will only encourage the markets and banks to further flog the dead horse of the real economy.
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Other things they could usefully do..
Establish a scheme to provide grants of up to 33% of the cost of undertaking significant home improvements, e.g. loft, cellar conversions, extensions etc in the next two years.
It would triple the impact of the governments initial spending, would keep craftsmen & builders in work, would help add equity value to properties and actually, when you consider the VAT, paye, NIC and corporation tax generated, probably wouldn't cost the government a bean!
Even better from GB's point of view, it would garner votes among middle class swing voters.
Better than blowing £15bn on a VAT reduction, 40 - 50% of the benefit of which was immediatley exported.
Come on George, I am doing your job for you!
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Before a problem can be solved its cause has to be understood. The present situation was triggered because too little money was circulating among the general population. Too much had to be borrowed. How did this come about? Simply because too much of the circulating money was being bled off in interest paid to the mega rich and also money exported by foriegn workers.
Re injecting large cash amounts into general circulation will ease or cure the problem provided the loss of this money out of the circulating system is stopped. Either way it will devalue the cash at present in circulation.
Putting the money into the banks, and expecting repayment at some future date, will not achieve this. It will just make the future debt burden even worse. The way to inject this cash/capital would be for Government to use the money to pay for revenue generating capital projects such as building nuclear power stations, instead of selling them off to the French. Defending the coast against the sea, inland flood prevention schemes, are some other examples. The only proviso is such money needs to be spent with British companies and British workers, otherwise the loss of cash from the system will continue. If this means leaving the EU, so be it.
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An initiative a day keeps doomsday away.
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Can someone tell me how a private bank ("In this case the Bank Of England") which is not owned or run by either the government or the monarchy has such a say over the British Taxpayers Money, both in the "Quantitive easing" (Printing money in the royal mint - owned by the taxpayer) and then charging the taxpayer interest on this money that the taxpayer has payed for already by owning the royal mint?
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Whether the current QE activities help the real economy is unclear. Apparently much of the purchases of Gilts have gone to Hedge funds who previously bought them from the Debt Management Office, making a profit in the process.
Buying equities sounds an interesting idea but I think the portfolio should be given to the Pension Protection Agency to help cover bankrupt private pension schemes. Public pensions have already had far too much given they are final salary schemes underwritten by the taxpayer which are unavailable now to most private sector pension scheme members.
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"But arguably it is purchasing a sub-optimal mix of assets, if it wants to maximise the stimulus to the economy."
At last, someone's asking the right questions!
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That's right. We should do just what the snake oil salesmen tell us. They've given such good advice thus far haven't they?
I have some magic beans for sale as well. Perhaps the Bank of England would like to take them off me for a billion quid.
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Mmm... 20 years is about the same time that I've held Lloyds (nee TSB) shares and the capital appreciation from then to today would struggle to fund my pension! However, I do understand that portfolio theory negates the single equity risk and, therefore, the FTSE350 looks better than the 100 in this respect. BUT, to take this argument to its logical conclusion, the BoE should be buying shares worldwide to ensure the best spread of risk/return? This view would also tend away from the parochial attitude suggested and enable the stimulus of economies that may provide us with a pension. I am very patriotic but also unsure about our 20-50 year wealth generating ability.
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Robert this is a terrible idea. You see the new money would no longer be backed by more debt. And since debt increases exponentially, it would reduce the need for the UK to get into deeper debt to pay off the existing interest. This would be very bad for the banks and bankers. Hence it's a terrible idea.
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18 tufftimes
"labour steal all the tories good ideas?"
When did the tories come up with the minimum wage?
Sure start?
Family tax credits?
Banning of Fox Hunting?
Free bus passes?
Have you thought that it just may be possible, that with-in the civil service, there could be a few old Etonians that might let it slip in an old boys' get-together, about the latest thinking in government, so the dear old, Old Etonians temselves can announce it just before, so it looks like their idea has been stolen?
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How about this.
The government pays all of it's bills. Civil servants, contractors, heating, rent etc. In newly printed £100 pound notes, for a whole year.
Instead of borrowing money which will never ever be paid back.
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Knowing our luck and GB's he would probably be buying shares at the top of the market; who knows how much lower they have to go.
It's often said that you can't buck the market, and yet that is all we have done to get into this mess thus far and out of it.
Sometimes I think we should actually do nothing; there is no easy way out of recessions and rather than draw out the pain over a long period, why not get it over and done with now and quickly?
Having asked the question, I'm going to answer it.
We won't do it the painful way because that would be political suicide for GB now.
No, we're going to do it the cotton-wool pain free way at least until the next election.
If GB gets in (Gord help us!)or the Tories in May 2010, you will start to see companies being allowed to drop like nine pins. It's hard but it's effective and quick.
I mean the way the government is behaving at the moment with our money, you wouldn't think that anyone is being repossessed, losing their jobs and seeing their companies go under.
Get real, this is happening anyway so let it happen without interference. With the amount of money being thrown at the problem, you could even continue to pay the unemployed the same salary they enjoyed before their redundancy and you'd still have change!
This government is spending its way to bankruptcy.
See you at the soup kitchen.
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The Bank of England creating new money is fine if it is done in a very controlled manner (not like Zimbabwe). The new money is to allow for extra business and population. All existing private bank deposits, and any new money created by the Bank of England should be electronically registered with the BOE because 97% of all money now is electronic. The key is the ability of the banking system now to multiply up a deposit to many times (fractional reserve banking), we need 100% reserve so banks cannot create money from thin air. The fact that deposits in all banks in the UK are 100 times the amount of what they were in 1963 shows that all this new money has been created but population has gone up by only 20%. We do not have 100 times more business, houses, assets compared to 1963 but we have had massive inflation caused by all the extra money created through being lent into existence. See example in Wikepedia as to how fractional reserve system works and can create huge amounts of money from nothing.
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Obama’s stimulus plan isn’t working, and it cannot work according to the laws of Nature! This was already clear the day it was approved. None of the politicians or economists understand what kind of world we are now living in.
http://www.laitman.com/2009/03/the-failure-of-obamas-stimulus-plan-is-another-reminder-that-we-are-all-in-one-boat/
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This is so plonkers its not true.
I'd call it hare-brained but that's not kind to hares.
Might have come bolting straight out of the FSA barn door. Hector 'can't now let the banks bat an eyelid without us and don't tell anyone but I was there since 2004' Sants probably thinks its a good idea. Less to vet.
Equities?why not consider the Grand National?
But actually the quote says 'we need to re-capitalise the whole of british business'
Re-capitalise doesn't have to mean buying shares. It means renewing the short term borrowing some businesses indulged in, rather like the banks.
So, the BOE could buy corporate bonds with much less risk and some return, if you think they should poke about any more than they are.
I don't, frankly
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This sounds like institutionalising the coming inflation.
These are the very people who once believed in free markets. Now they engage in conspiracies to create a bubble economy.
Hasn't anyone learned anything?
Or is this just the old elite looking around for anything that will keep them secure in wealth, power and influence?
Those whom the gods wish to destroy they first make mad!
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This little blip will be over in 12mths, in five years we will have the big one, unless we get rid of the top layer of managment who caused all this. White coller crime rules!
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More yobs for the joys in banking,the kiss of life for every AAA's hole ,lip service on demmand .
Is the government suffering from such a loss of farce that they must nationalies the three card trick and provide index linked pensions for its best practitionerrs
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Holding shares for a couple of decades
Puhleese
Just which shares would you have held for a couple of decades
What would you pick right now?
Are they the 'deserving cases'
The FTSE100 changes every quarter with relegations and promotions
None of it stays the same
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It is good that there is discussion about what to do. There is no doubt we need to put business on a sounder footing but what exactly is meant by reflate the economy? We got into this mess by credit that was too cheap and easy, just like many of the other bubbles.
Some of the problems are caused by not correctly pricing the toxic rubbish. There is no such thing as an illiquid asset, merely one that has a difference between buyer and seller. Why is there such a difference, it is because the seller (bank) is hoping that a bigger sucker (govt) will come along and pay more.
To resolve the problems we have to allow the correct price to be found without govt interference otherwise the solution will be merely postponed.
It seems to me the main people problem is the rapidly rising unemployment, leading to lower taxes and higher govt expenditure. Thus we should be making it cheaper to take on new staff by e.g. cutting NI tax and stopping the nationalised banks such as RBS from offshoring any more jobs.
Our North Sea oil and gas are past peak and declining so we urgently need to move away from fossil fuel for the economy, let alone the problems of climate change see latest report out in Copenhagen today.
Heavily insulate all buildings, much more wind and probably nuclear. Significantly improve rail not airports because in ten years time cheap flights will be history.
Boost agriculture.
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Robert, that's an interesting idea.
But there are quite a number of companies that are so heavily indebted, and whose business model is so flawed (i.e. based around such a low cost of capital) that they really should go bust so that their assets can be passed on to others who will undoubtedly manage them better - I'm thinking of those ridiculous Pub Cos here.
But, by saying the govt would buy a complete index I guess you're saying that this will even out in the long term, which is fair enough.
If this was taken up as an idea then how about this as a further element....
You are assuming that a stronger share price for these companies will enable them to issue more shares.
This would mean that, following the govt purchase of shares in the market, and a stronger share price, they then have a chat to a merchant bank re a new share issue, and as we have heard, get royally shafted on underwriting rates/commission levels etc etc.
But the govt is a guaranteed buyer with no risk!
So rather than buy in the open market and then let the companies do a rights issue, why not do a straight rights issue to the govt, and save all those stupid underwriting fees?
Or does the govt want all the FTSe 100 or FTSE 350 companies to pay huge charges to those ***** banks, in order to recapitalise them as well?
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Oops, forgot to add. the plan is to buy up to £150bn of UK government bonds and corporate debt. But in the present climate who will trade government bonds for cash to invest in who knows what when the bonds are likely to have a higher price in the future?
If the holders of the bonds thought there were bargains out there they would already be selling the bonds and buying shares etc.
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MrMosky #51
I was joking (#50). Please reassure me that you are too? Please.
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We are where we are and whoever was responsible for getting us there can be voted on at the next election.
What we need to do is agree on how we can act to redress the current indebtedness and attempt to avoid a recurrance of the same situation in the future.
Most contributors to this blog seem to agree that we up the proverbial creek without a paddle and that we need to be prepared to take our share of the medicine to purge the debt mountain that we, as a nation, have accumulated.
A few random thoughts for Mr Darling to consider for the next budget:-
1. A formal abandonment on the National ID scheme - on purely financial grounds due to the current economic situation. No political ground lost on that basis.
2. A formal abandonment of the NHS database system - (As 1. above)
3. A freeze on ALL public sector pay for three years w.e.f. April 2009. ALL public sector to include civil service, MPs, etc not just town hall front line staff, although they will, unfortunately have to be included.
4. Scrap all public sector final salary scheme pensions entitlements from September 2009. Thereafter, money purchase schemes to put them on a par with the private sector, but prior earned benefits to be guaranteed. This also to include civil service, MPs etc, not just front line staff. Any new entrants will know what the deal is and can accept it or not, as they choose.
5. Abolish the Regional Development Agencies w.e.f. April 2009. These are a quite unnecessary level of government who simply syphon off, as a middle man, much of the funding that would otherwise finds its way from the treasury to Local Government. The annual cost is measured in billions. Local government officials are, IMHO, as well, if not better placed, to decide on local priorities.
(Didn't the North East tell Prescott where to put his great idea only to have it foisted on them anyway?)
6. Ask Paris of they would like to take on the next Olympics (only joking).
7. A three year freeze on the cash value of all state benefits (other than old age pensions) to address the minds of the feckness of their required contribution to the society in which they live.
That's half a dozen or so to be going on with.
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Well that's it official, Protectionism! I knew anyway after gormless Gordon's uneventful trip to the states. Looks like all that sucking up failed!
http://news.sky.com/skynews/Home/Politics/Barack-Obama-US-Not-Looking-To-Negotiate-Specific-Agreement-On-Economy-At-G20/Article/200903215240379?lpos=Politics_First_Buisness_Article_Teaser_Region_1&lid=ARTICLE_15240379_Barack_Obama%3A_US_Not_Looking_To_Negotiate_Specific_Agreement_On_Economy_At_G20
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not sure i will still be alive by the time thios gets moderarated.......please move to post moderation as you are unable to pre mod!
Anyway to get back to the matter in hand...if i have it right the BOE is spending £150 billion that is doesnt have to buy stuff it doesnt want from banks, so that they will lend the proceeds..........you couldnt make this up. Why doesnt the BOE just lend the £150 billion to those that want it, why go through this convoluted system, freeze out the banks and they will soon start lending ........
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If BoE and HMGov want to stimulate (= put money into) British companies, why do they not just order stuff, buy equipment, sponsor projects?
After all, our roads, railways, hospitals, armed forces, housing, energy generation, schools, universities, almost anything you can think of all need re-building, re-stocking or re-equipping.
Moreover, it appears to be cheap. As I have noted elsewhere, the recently publicised investment in Land Rover costs about the same as the pension for a top banker. And it must produce a much better return for the UK economy.
Should the BoE and HMGov stop, take a couple of deep breaths and think a little harder about the what, why, who and how of their actions to resolve the economic crisis? It is often a good idea when you are in a panic.
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The older people running the show [pollytricks, blanks ,pinching funds]wish to secure their annuities before the insolvency and bankruptcy of the key institutions that they ruin becomes irreversably transparent.
The fact that those still paying into bankrupt and insolvent pension ponzi schemes, still prefer a game of lets pretend, bares witness to the self delusional power of the thinking of the enlightenment that persuaded fools of its rationality.
My diversified portfolio consists of bottled water ,bags of rice, salt and soft toilet paper [which will replace the offical currency if all goes well in three years time and their is a run on the pound ]
Before it is too late ,soft toilet paper could also become the main numerator of economic value determining the rise and fall of interest rates to stabilize the rollover economy.Of course no futures market in stp's that debased their value prematurely would be tolerated.
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There is an interesting plot on Stephanie Fleming’s blog Stephanomics: How much is all going to cost? It shows the public debt to GDP ratios of the UK, US and Japan over the last 130 years. It makes me wonder if the Great Depression was actually resolved by the expenditure of World War II.
It seems to support the argument I made in #88 that the best way to invest is by spending in UK industry: buy stuff, sponsor projects, whatever. Or is this just too obvious?
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On tonight's Channel 4 news we had a Chancellor of the Ex-checker talking like a man who had one foot nailed to the floor and was walking around in ever dereasing circles.
Can we begin to hope that he will finally disappear up his own !!!!!!!!!!!!
(Sorry, but mum would lever allow me to use such language).
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I am not so sure that the BOE buying shares is the answer.
So many things could go wrong. The scramble to get your company inside the FTSE 100/350 would be brutal. Additionally the interference of politicians acting as "consultants", not to mention how rabid the lobby groups would become. Spend the money else where, but focus it.
Seeing as the government and the BOE seem to be able to magic money out of thin air at the moment, ask yourself where could the smallest amount be spent most effectively?
Forget buying shares, gilts and bailing out.
Why doesn't the Government return the last years income tax to everyone who earned less than £50k?
The new tax year is only round the corner, it would be a good time to do it.
Make sure everyone knows this is a one time deal and that interest rates are about to climb sharply. Then people would be encouraged to pay off debts and start saving.
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#45 Whistling_Neil wrote:
"It seems analagous to scam artists having scammed you once then calling again to offer to help you recover the original money if only you send them some more."
It is called advance-fee fraud.
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It won't matter now Bob - we are all going to be saved!
All of the big US banks have declared they are now profitable again in the past few days. Surely the UK will follow suit as GB`s magic has finally taken hold.
Bank of America, Citibank and JP Morgan are all in the money again!!
We can now all say we have witnessed a miracle first hand. A month ago these banks were all dead in the water and still sinking. Now out of now where they are pronouncing all is ok. BoA has even gone as far as to say they will not require any further funding from the Govt.
Why do I get the feeling we are being lead down the garden path???
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Those with an attention span of > 5 years will recall that a certain economic genius, one G.W. Bush, proposed getting the U.S. Social Security System out of deficit by investing its funds on the stock market. We now all know what a narrow escape U.S. retirees had. You don't have to look far for the motive behind this proposal, examine its constituency, that small army of petty bourgeois parasites with their commissions, percentages, fees and cream offs relying on a steady stream of wide eyed punters buying their bits of paper to keep them in the manner to which they have become accustomed. If they can't get at our wages, they'll take our taxes instead,
Yours Aye,
Graucho
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Hi Robert
You are half right.
They should not be buying long dated government bonds. That is insane as we are buying our own debts off ourselves.
Buying shares however is possibly even more crackpot.
Short dated gilts and short dated paper like cds and treasury bills are what we should be buying. This will put money in the economy and if we did it in the 3 and 6 month arena we might also help the problem of libor being well over base rate.
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To all other blogers:-
I apologise for the fact that my name appears in capitals whilst all others appear in lower case.
This does not represent any suggerstion of authority.
I must have "cocked-up" when signing on !
ebahgum - you do have to be careful at the BBC
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Complete and utter madness that you would expect from the Tories. Why follow a useless plan when you can make things even worse by bailing out more institutions sitting on investment losses ?
This investment should be going into genuine infrastructure assets like renewables- not useless bits of paper that someone was daft enough to pay over the odds for.
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Hey - Hows about the BoE buys up Tulips.
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Don´t like Tulips? how about buying some moderators for the BBC
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I've said it before and I'll say it again:-
And I'll keep on saying it:-
A three hour moderation delay on a blog makes the inter-change of ideas and opinions less than relevent.
Where is my annual fee being spent?
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I have a really bad feeling about printing money to buy bonds from banks. I suspect a lot of bond traders are going to get rich selling UK bonds high now and putting the cash into a safer currency.
The banks are about the worst possible place to insert new money into the economy if you want to control how and where it is applied. They are totally set up for arbitrage and playing angles rather than doing anything useful. The only thing that is certain is that it pushing 75 billion into the economy by buying assets from banks will make money for bankers.
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Is is not ime you and the BBC started reporting on the big issue or won't HMG let you?
Fractional Reserve banking (and the NWO), the cause of all our economic problems.
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I have 2 questions:
1) The interest on some of my savings has dropped to 0.01% this is devastating. Why can the Government not introduce a saving scheme with an interest rate of aprox 5%? They would then use the money invested for re investment in the banks or businesses which, they assure us, are set to improve and will repoup any monies invested. This will help and support savers many of whom are elderly and will take the pressure from the tax payer.
2) The Monopolies Commission look into take overs and mergers.
Why did they not review the recent Bank mergers ect?
Trudi
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That is a pretty good assessment Robert, maybe your friends in the Treasury might take note but I feel we have more dithering to come. On top of which the Treasury has begun briefing against Downing Street.
We have many mixed messages about "floors"
In my business I have already noticed deflation as businesses try to compete for what money the consumer is willing to spend
Coupled with reduced investment the program can only survive for so long
On top of all this private individuals are agreeing to no wage rise or reduced hours to stay in employment whilst Brown's public services sale on putting up bills and awarding themselves pay rises despite the economic conditions
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Much the simplest, and most economically efficient, way for the government to put extra capital into British business is, unfortunately, the way that is politically unacceptable. Don't put money in - just stop taking it out.
Cut taxes on business. For an even more immediate boost, the government could allow current tax losses to be carried back against the past few years profits. Businesses suffering from dicky cash flow ? Why spend hundreds of billions trying to get banks to lend ? Why not just postpone collection of some business taxes ?
Stop taking so much of businesses' naturally generated profits and cash flow, and you won't have to put much, if anything in.
The problem is that this removes all the fun for the politicians - they don't get to decide which businesses to prop up in which constituencies.
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three hours and more for moderation
I think they were watching football then Redriding
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However if the shares were acquired and held with the intention of holding them for a couple of decades - which the public sector can do - well if we didn't make a substantial capital gain on that kind of time horizon, then we'd be in doo-doo of a depth and toxicity that doesn't bear thinking about.
People are actually seeing negative returns on investments over this sort of period Robert.
My L&G pension is worth less than the money paid in between 1995 and 2005.
That amounts to 14 years of investment returns have seen a loss (Oh yes, my matress is looking very appealing as an investment vehicle).
With returns so poor they can not cover operational administration costs (and obviously IFA sales bonuses) then why on Earth would people have these investments.
It would be good for an insightful look at the investment market for the investment industry. With people suffering such poor returns, the pension industries emperors clothes having been revealed as missing, it must be impacting the contributions people are making to their funds. Irrespective of the general impact a recession/depression will have on contributions across the country.
I know that mine have stopped (migrated in 2005), and that were I in still in the U.K I would still have stopped them.
They are not meeting even the mimumum returns they quoted at fund inception, and those were way off the sorts of numbers the IFA was quoting as 'normal' returns to be expected.
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Government buying shares in FTSE100 companies!!!
Have we learnt nothing over the past few months.
It's the people and small businesses that need the money, not large corporations.
Another well thought out blog posting.....
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The only thing that is clear to all is that the Bank of England and the government are making it up as they go along and don't have a clue whether what they are doing will work or be a disaster.
I cooked some food for some friends last weekend (the nearest I come to having a "dinner party"). Someone casually asked what people thought the chances were that the UK would go bankrupt within the next 3 years. Amazingly we had a consensus round the table, which is *most* usual. "50:50" was the verdict. No real discussion, it was casually accepted and we moved on to other matters.
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King_Athelstan
What you are suggesting is the same (in my opinion) as letting the banks fold when insolvent and allowing the debtors to renegotiate their debts with the administrators.
I owe 150K on a house worth 110K I get to remortgage with a viable institution for 100K and offer this to the failed banks administrators. 75p in the pound is a good return under historical insolvency examples.
My debt mountain is re-alligned to 90% (ish) of the value of the property and the bank that was stupid enough to lend money on an over-valued asset pays the price.
Government sets up a bank of last resort (lets call it Northern Trustees Lloyds of Royal Scotland Bank) flood it with the new QE cash to provide for the re-mortgaging.
Dodgy bank A B C D and their suck the marrow dry executives go to the wall and the dole queue.
Surely that was the way to rescue the financial system not giving more marrow to suck on to the bankers.
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doesnt it just make you want to throw up to see brown involved in the comic relief thing, as if he could give a damm about ordinary people....do us a favour brown clear off back to wenst you came and give the economy a break.
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This problem has not been created by middle/working Britiain and these are the people who created our wealth, if this recession is allowed to find it's own level, thousands no probably millions of British families will suffer from irrepairable financial debt, for no fault of their own. Government and Financial greed have overseen this chaos, and these people as has been proven have massive financial protection from their own failure and will not even blink at this hiccup in their lives, this is the area that needs addressing and with forced purchasing of shares on a guaranteed minimum term basis I personally believe that suggestion would give us a good start to recovery.
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89 stillliterarty
So sorry
Your soft toilet paper idea as currency has already been patented.
It is called quantitative easing
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"Or at least that is the plausible argument of bankers, including one who helped the Hong Kong authorities to do just this - to considerable beneficial effect - in the late 1990s."
This is comparing apples and oranges !! Hong Kong had lots of reserves when its government, in the guise of HKMA (Hong Kong Monetary Authority or its central bank) intervened in the stock market !! UK is *BUST* !! It is printing money !!
Buying shares with devalued money is very different from buying shares with solid hard cash !! With solid cash, it pours more liquidity into the market that is trusted by the local and international community. Pouring in devalued cash just destroys more confidence locally and internationally without any benefits at all !!
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In a word, No.
I am quite happy with the concept of the Taxpayer buying shares. Nationalisation or part-nationalisation.
But not the Bank of England. We can't have the Bank of England being exposed to the whims and vagaries of the Stock Market. It's supposed to be a rock of stability that underpins everything else.
I'm happy for the BoE to buy back Gilts and Government Bonds, but lets leave it at that.
The BoE buying shares would be a radical idea too far. Lets leave that one well alone please. It reminds me of the parcelling-up debt and re-selling it as securities scam that got us into this mess in the first place.
If share prices collapse completely it would undermine the Bank of England, the very institution that we're all depending upon to get us out of the mess...
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Robert
A very interesting idea and one that I have heard little about. It seems to have merit in that companies would be re-capitalised by the BoE buying up rights issues, would use this money to pay down debt and therefore be able to maintain profitability, safeguard jobs etc. etc. The one flaw is that I am not sure how this would stop us getting into the same mess again!
I have also heard some talk of this 'new' money being used to pay off some level of domestic debt...be it mortgage, personal loans etc. Surely this would have the same effect ...reducing debt in the economy, re-capitalising in effect the banks, freeing up disposable income to start purchasing goods and services and so on.
Again, this seems a good idea, but fails to address the root cause of our ills...that we have all benefited from the debt boom in one way or another, and I see no-one actually addressing this fundamental root cause. Indeed, all the government and BoE activity seems hell bent on getting us borrowing and spending again!
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How did we end up in all of this mess in the first place???
The Banking Crisis, What Really Happened from 2001 to 2007
http://creditcrunchedoutinuk.blogspot.com/
A great read which will probably have you shaking your head!
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#104 babybearfriend
"Why can the Government not introduce a saving scheme with an interest rate of aprox 5%? They would then use the money invested for re investment in the banks or businesses which, they assure us, are set to improve and will repoup any monies invested."
- I guess when we all investors withdraw all money from banks, building societies, the current gov. schemes such as national savings, sell up their poorly performing shares and pile into such a scheme - there may be other consequences. As the saying goes - there's no such thing as a free lunch.
The government already have a savings scheme (National savings) which pays a pittance. They don't need to pay out too much interest as people will always go to it in times of trouble as it is deemed to be "safe". The rate of interest paid on investment is always a reflection of the risk of losing the money. Don't ever forget, the government do not want to pay you or I large amounts of interest. They are always more inclined to want to get non-returnable money from you in the form of taxation etc..
Sometimes I do wish myself that life was more simple.
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They have already been buying billions of pounds worth of shares.
You reported it Robert. RBS, HBOS etc.
All feels like bubble economics. Your idea could never work anyway as government attempted to inflate share prices speculators would sell. In the end government would pay over the odds for shares in markets that they themselves had distorted, invevitably followed with another crash.
Keep trying Robert.
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#116
"If share prices collapse completely it would undermine the Bank of England, the very institution that we're all depending upon to get us out of the mess..."
The Bank of England got us into this mess, you can depend on it. (With help from the FSA, Treasury, and the Blair/Brown gang).
The measures taken so far - bailout, devaluation, money printing - are designed to prop up a failed financial model and its beneficiaries.
Until the root cause is addressed - runaway debt - things will get worse. This is not being done as the criminals are still salting their loot away, and are now covering their tracks.
Eventually, we will have to repay all their debts, and the recession will end, hopefully during this generation.
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My guess is that no politician, or civil servant, is going to truly admit just how enduring and deepening this crisis is. We've already seen months and months of 'under-estimated' predictions which have been revised gloomwards. The intention is, presumably, to try to ensure civil order and security.
It also seems clear that no major government is going to admit that the current global financial systems of markets, shares, bonds, gilts and the like is liable to collapse completely. Seemingly this needs to be propped up at - quite literally - ALL costs, including billions in subsidies to banks, etc.
So, we are now presented with various ideas about paper investments with an implication that somehow redeeming the "paper investment world" is feasible and that miraculously everyone will suddenly trust everyone else and trade and behave much like nothing ever really happened at all. Whether or not the money is there, just where are the indications that the trust neede for such trading is? A lot of people have got a lot of fingers burnt.
I just don't see a very high probablitily of that sort of finance recovering that quickly.
I would much rather see some "bunker mentality" - no, not nationalism or protectionism as such - but the UK protecting the essentials for life, i.e. food, water, power, infrastructure, housing and shelter, medical supplies and treatment.
And those initiatives tuned to different regional needs. How you would approach such social protection (for want of a better phrase) in dense urban areas like London, would be different to how you would approach it in say, the Highlands of Scotland.
But let us be clear that many, many people in the previous depressions, e.g. the 1930's, suffered severe poverty and that is very probably what is heading our way now for many people.
These ideas such as QE just sound to me like the major governments are addicted to gambling on these bits of paper and - although they know they really shouldn't - they've got to have just one 'last' game of poker.
Doesn't is all sound like the alcoholic who just MUST have "one for the road".
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"Increasingly hearing in City and political circles" Why are you listening to them? You may as well ask a chimpanzee his view of quantum theory.
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There are significant problems with buying shares, not least because it might be considered anti competitive and against EU rules. The main reason though is that it puts those companies which have their finances under control at a disadvantage in not leveraging up there balance sheet in the good times. The zombie companies, shareholders who renegaded on their responsibility get bailed out. In my book since many share holders were really a gamblers who did little to execute their responsibilities, then I don't have a lot of sympathy with them. Equally debt holders deserve to loose their money for making risky loans. Unfortunately both the debt holders and share holders tend to be the average worker through their pension. The problem is that non of this really works because as soon as you push down the cost of business loans you increase the amount of money they need to pour into pensions and the average worker gets the short straw yet again.
The problem always comes back to the consumer who is spending less. There are 3 reasons I can think of why the consumer is cutting back. The first is unemployment and the fear of that, the second is that credit criteria is more stringent and as a result is reduced, the third reason is that the consumer has less in their pocket. For me the critical one is the amount of money the consumer has in their pocket, since you can prop up zombie companies to protect jobs it does nothing really about demand unless you increase wages or employ more people. Giving away free credit just means you will make a loss on your loans.
Let us consider what the government has actually done to help the consumer. It has reduced vat which has made almost no difference. It has brought down mortgage rates, but although there are some winners at the same time it has caused sterling to drop which goes a significant way to counteract the gains. Take into account that QE is decimating pensions and those gains on the mortgage get wiped out. Zombie companies, badly run banks have done very nicely at the expense of the individual.
150 billion is roughly 2500 per person in the UK so if we add up all the money spent then the government could have slashed income tax in half. That would have boosted demand, would have helped those zombie companies, and reduced the bad loans to the bank. The reason why they will not do it is because it would be political suicide to ramp up the tax when things start to improve. It is probably too late anyway to do this as the unemployment drop during the early part of this year is likely to be so sharp that breaking the re-inforcing cycle will prove very difficult.
With DeAnne Julius (MPC Founder) and Danny Gabay (MPF Member) commenting in the Guardian today as I perceive it on how Sterling's demise is in part due to the government deficit and that they believe the UK authorities are downplaying the risk of high and volatile medium-term inflation there appears to be a lot of resistance to current policy. Even the chancellor is making noises about not increasing stimulus and you wonder if Gordon might be a bit isolated at the moment.
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Rather than have the government simply buy shares, why not mandate that UK Pension Funds must hold a certain amount - say 30% - of their funds as UK Equity stock? This still allows market mechanisms to operate.
Reinstating tax relief on dividends paid to pension funds would obviously be a quid pro quo for this commitment.
As a point of principle, it must be better to have a closer relationship between workers (paying into the fund), companies (paying into the funds and receiving benefits of investment) and pension funds. Given that pension funds are backed by the government in case of failure, I can't see any significant downside.
I suspect I'm missing an obvious hole in this proposal, and I would be interested to know what it might be!
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Are you seriously suggesting that the comrades would ever countenance it's regime buying into the stock market, that would be like the Ayatollas buying a bacon factory. Labour would stoop to just about any level to hang on to power however , so who knows ? Mervyn King long ago lost any credibility through association with Gordon Brown ,so anything is possible.
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If the shares bought were in the form of rights or convertible bonds there might be some benefit.
The convertibles could be zero preference or interest bearing, say a five year horizon. Rights as pure equity with voting as existing shares.
Either way this would have the effect of providing working capital to the companies involved leaving the companies in the position to decide whether how the cash should used to the best effect for the company.
This cash should have to be applied for and there should be stringent conditions, for example
No dividends to be paid except from audited profits on a one year lag.
No pay rises for any directors. All other pay rises no more than inflation minus 1%
Existing shareholders to be given pre-emption on the rights at the agreed issue price to allow first bite but also to keep the government honest. This also allows those who choose, to mitigate dilution.
No overseas acquisitions for a minimum of two years.
This could see many companies through the storm and not artificially ramp the market if the conditions were sufficiently stringent.
Admittedly there would be the government overhang on the market but this was always the case on privatisations. As long as government was restricted to no more than a 10% holding the effects would be lessened and the block would be sufficient to tempt a rival company to get a substantial but non controlling interest at any time.
It has to worth examination.
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Anyone else think that Labour are punishing the electorate for not voting for them for 18 years?
This idea IS that MAD, they are doing this on purpose its that insane!!!
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Will this be another opportunity for Gordon Brown to indulge in 'social engineering' by buying up shares in companies in areas which return Labour MPs or in marginals?
The collapse in the stock market and the introduction of quantitative easing either by default or design is playing into his hands to acheive his socialistic aim of wealth re-distribution.
Before this whole fiasco is over, we shall all end up with the same - nothing!! Marx would be proud of him.
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40
The people telling us that shares increase more than cash over the long term select 2 particular moments in time, the first when shares (in their fund, no doubt) were very low, and the second, some years later, when shares were particularly high
As you say, timing is everything and it is not possible for non-insiders to know when shares have hit rock bottom or are at peak
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King Canute, resisting gravity etc spring to mind.
The last ten years (glorious for some, good for most) have been based on a financial mirage.
Reality is that the wealth based on that financial mirage does not exist.
Sure the govt can throw money into the hole to fill it up again and keep the mirage going but now we can all see the reality it is a little like the Emperor with his new clothes once the little boy shouted that he had no clothes on - we can all see the reality so we have adjusted our spending accordingly. So the govt money is not producing any improvement in the situation. It does not matter how the govt gives out that money the people who receive it will hang on to it.
Give it to the banks - they're not keen to loan it on.
Give it to companies - they're not keen to spend it or let it fund losses so the redundancies/cost cutting continues.
Even give it to the people - they won't spend it, they'll save it up for a rainy day (and there's a storm brewing).
The only thing that would possibly work (but its protectionist) is grants to UK companies of any size that can be spent on investment but only with other UK companies.
At some point the artificial pumping by the govt must stop (they will run out of funds/become Zimbabwe). Then we will have to adjust to reality.
Why won't the government accept this and let us get on with accepting it too?
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The upside of putting money into the economy is in creating or sustaining jobs, the downside is in the money being used to reduce borrowing debt, with no product at the end to produce income.
As an alternative view which has a long history, is one of putting money into the countrys' infrastructure with government contracts, ie: roads, transport, urban regeneration, affordable housing, education, an endless list. At a time of having a large un-employed skilled workforce this pays huge dividends ( pun intended ) very quickly and has far reaching effects into the future.
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Capitalism has died. How can any serious investor trust the market any more? Farce.
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Government buying up private companies - sounds a little too much like 'Old' Labour Nationalisation for Goron to swallow
...and the irony is that the Tories thought of it
Where do we start? Railways? Utilities?
Has the stakeholder economy suddenly got a tummy upset?
Perhaps we wouldn't be in this mess if politicians (of both sides) hadn't sold them all off in the first place!
Devalued Britain (welcome to the third world)!
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I sort of understand the logic Robert....but isn't the problem with equities that given the lack of market confidence, the "players" will just hammer down the equity market...because they know roughly where the government's commitment is (£150bn)....and they also know that it is printed money and inevitably funded by further debt?
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Also on a separate tangent, whilst most commentators are hinting at deeper problems underlying (but no-one knowing what that is or how deep).....my day to day experience...is that there are quite a lot of people with money.....yes, there has been a reticence to spend.....possibly people recognising that they have to pay off their debts, possibly people with access to cash, holding on in case the prices might drop further...
all commentators seem to be analysing the current situation from single or at best two or threee perspectives...but no-one having enough vision to put everything into the balance, business and personal debt against the obvious day to day transactions both nationally and globally etc etc
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Perhaps those in charge should wake up andsmell the coffee!
The lack of liquidity in the financial system aka "the Credit Crunch" is not the only problem that needs solved.
The lack of demand to buy goods and services needs to be addressed, in particular individual real disposable income. This where a fiscal stimulus kicks in, with lower income tax.
Over the last 18 months certain basic foodstuff prices have rocketed, transport costs above the RPI, oil up and now down, utilities and gas in particular disgracefully high. The 10 pct tax band fiasco and temporary U turn for one year has not helped. On top of that those who are still working in the private sector are working shorter weeks and accepting pay cuts.
Unfortunately we have a gov that will dogmatically refuse to cut income tax, their comprehension of fiscal stimulus is limited to state spending on another needless IT system which is then outsourced overseas. China and India are usually the economic beneficiaries of the state's largesse.
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I only ever wrote here because I thought it might make a small difference. It doesn't. De facto we're in recession now so watch this space.
The only notable difference betw this recession Major's is they put interest rates up and Brown put them down.
Apart from that it will be the same dull, plodding muddle with the ghastly repertoire of foreclosures, repossessions, liquidations, court orders, seizures, bankrupcies, breakdowns (of all kinds), increasing welfare, crime blah blah.
No lessons learned, no contingencies in place, no planning, no forthought, no sympathy, no plan, no rescue, no hope.
GC
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We've thrown unbelievably huge amounts of borrowed money into a series of black holes. Now, we're just printing banknotes and pretending its money to buy other bits of paper pretending to be assets.
The concept of large-scale government intervention in the market is predicated on the idea that the government knows what it is doing, and that it has clear, reasoned objectives.
This is what the market is for!
For God's sake, Brown; stop faffing about and let the market get us to the bottom as quickly as possible!
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Do we need the City?
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Just noticed that my innocent little message (#43) has been referred to the moderator.
In response to the suggestion that the Bank of England should pile into the market and support the price of shares that nobody wants I quoted a Northern saying:
"Help yourself, mother's drunk....."
I have no idea why this should cause any possible offence, but we'll see if it gets referred a second time.
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My cousin thinks its a great idea Robert. He's 29 years old and his earnings in the City have fallen from £155,000 to only £50,000 this year.
Pumping taxpayers money into equities will stimulate commission earnings and so help our city friends recover their financial position.
I'm sure George Osborne would agree with this and we could fund it out of benefit cuts. The Conservatives would certainly get increased donations from its City mates so it would be good news all round.
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Asset prices were inflated and are now returning to a level supported by the population's and country's real income. It happens every 65 years or so. It's caused by the western banking model which accelerates money creation thereby inflating asset prices relative to consumer income until asset prices become unsustainable.
Governments are right to seek to alleviate the excessive falls in economic activity during re-balancing periods, but it is worth noting that the last depression/slump continued until the rise in real consumer incomes, resulting from the industrialisation of WWII, drove economic growth, not earlier policies.
During a slump, because that is what this is, growth can only be re-started by higher consumption born of higher real wages. This means severely restricting bankings ability to create money.
Not a single government in the world is addressing the slump correctly. They are all too wedded to the interests of their failed elites and appealing to an uninformed electorate. New blood is needed.
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What became of Discount Bills of old as a financial instrument?
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In other words, supporting asset prices is exactly the opposite policy to what is needed. This is just electioneering.
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Not a bad idea actually, we've already established that the BoE will probably make a whopping loss if it's bond crusade is actually successful so shares over the long term could stabalise the market now and make us a profit in the future.
One problem though, inflation. Should our little experiment fuel inflation the BoE will have to suck money out of the system again (read Stock Market) and at that scale we would have yet another equity collapse. Forgetting the loss that could be made, the crises in confidence would probably crush the economy (again!).
It's a good plan but a risky one. why not just mix the two.
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Hmm Shares.
Well let's just examine what shares are.
Shares attach a monetary value to an opinion of what a group of highly paid individuals say MAY happen with a bunch of highly paid financial reporters either supporting or denegrating that view.
In other words it's very similar to gambling. If you would argue the point just look at bank shares and prior to that the dot com bubble.
Ok, so you want the BoE to gamble.
Let's have a good look at what has happened in the past when a bubble bursts, say ANY of the previous financial crisis.
Shares and "assets" will continue to fall for at least 3 years.
It took 6 years for shares to recover to anywhere near previous highs.
Given the extent of this problem I guess at least 10 years until leveling off with recovery after 15 years. (Think Japan but worse due to world depression.)
Why ? The whole nation has a mortgage of at least 3.5 to 4 times GDP. Like any mortgage this will take many, many years just to bring payments to have any real effect.
If you want to lose money then buy shares.
The only way to get out of this situation has ALWAYS been to walk away from the debt loaned foolishly. A financial transaction has two parties who have their own responsibilities. The people who loaned the money should never have lent it,,,,
It has NEVER been the public`s responsibility - until GB stepped in.
Walk away from the debt.
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Shares up, £ up - phew its all been a bad dream - is that Bobby Ewing coming out of the shower?
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Calm down everyone.
As noticed above, we have been SAVED! The US banks are now flush with cash again and capitalism brought back from the abyss.
Surely it is only a matter of days before the same happens in the UK. HURRAH!
What heros Gordon and Alistiar have been and what an amazing part they have played in the recovery. Its up up and awayyyyyy . . from now on boys. Get your credit cards out and get down to the estate agaents ASAP.
REFLATE THOSE ASSETS . . .
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Robert really needs to get out and about a bit more but I suppose he does accurately reflect the unhealthy dominance of the Cty over the UK economy
Hey here's an investment idea for the government to consider:
something called a POST OFFICE
apparently they could deliver parcels, which is a growing business sector due to on-line shopping
also handing for delivering all the benefits cheques etc
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A wee spot of bother in the offing?
http://news.sky.com/skynews/Home/World-News/Japan-Warns-It-Is-Prepared-To-Shoot-Down-North-Koreas-Long-Range-Missile/Article/200903215240645?lpos=World_News_Carousel_Region_2&lid=ARTICLE_15240645_Japan_Warns_It_Is_Prepared_To_Shoot_Down_North_Koreas_Long-Range_Missile
Here we go!
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The problem is brain dead Banks/Bankers .... and dumb dodgy Politicians trying to act and take over as Banks and Bankers.
And that is what needs targetting and removing from the equation, as this simple program shares .... http://www.youtube.com/watch?v=vsPq-6kIkvM&eurl=http://www.engdahl.oilgeopolitics.net/
Anything less is a recipe for ........ well, a mob baying for blue blood from those sat at the top of all institutions is the most obvious danger, for the masses are no longer so stupid as the Money Control Elite would like them to be....... and it is a dis-service from media to hide that simple fact and propogate further disaffection and public anger.
The problem is in the Main Players who do not have the Intelligence to Lead in Peace, for they are Complicit in the Perpetration of a Deceit and thus Foster and Pimp Chaos/Random Violence/Terrorism.
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Why stop at shares they could buy houses, cars, TV's, holidays, clothes even food.
I knew once this printing money idea caught on we would be in for one big jolly.
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What? NO,
Let the share holders and savers burn, nobody should get money for nothing, in 20 years the stockmarket will be seen as a passing fad ponzi scheme to keep the rich rich and the poor poor. Bring on the revolution.
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The basic fact is that the stock market is at an artificially low point because it has overshot the bottom, this is why I am currently buying shares to hold for the long term, if the governemtn did the same, forget the short term winners and losers, in 20 years time they would have made a lot of money for everyone.
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This is a little off the point, but I used to work in the financial advisory function of a well known firm advising on high profile deals. I was effectively pushed out for refusing to advise clients on techniques and issues about which I knew nothing. I asked for training or at least some sort of introductory programme and was told that I didn't need training or support as anybody at the firm could 'do anything' because we were all so clever.
Only a small minority of the people working on client facing advisory services had any financial qualifications. The managers told me that they preferred people not to have any qualifications as they thought that such things made people 'less creative'.
There are many things wrong with the City but a good starting point would be to professionalise it by insisting on some sort of structured training programme. I.e. if you want a client facing corporate finance role, you must have a relevant degree/post grad accredited by a supervisory organisation.
Even now, people simply do not realise the extent to which people in the City went totally insane, drunk on arrogance, greed and self -delusion.
These are still very dangerous people - don't think that recent events will have chastened them. Those that survive will simply think that they have done so as a result of their own brilliance and will not modify their behaviour until they are compelled to do so.
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That is such a stupid idea...
Buying shares that no one else would touch with a barge pole...
I am moving to the countryside..
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Would Robert like to explain which companies the government should invest in? Would their competitors be pleased or would they rush to the courts claiming unfair government support?
Who shall be appointed to the boards, MP's who have failed to already find a job on a board?
Thank goodness the government, any governent does not yet run the breweries, imagine the civil unrest when they cock-up.
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Can we just accept that this government have killed capitalism, and move on.
The only way businesses can get any money flow is by effectively borrowing money from the BOE. Why is this?
I can only postulate from my own position,
i have a savings fund that i was going to invest in setting up my own business when my son was grown up.
currently i have this invested in several "high" interest bank accounts and ISAs. Along comes the BOE. They want me to spend my money to reinflate the economy, but i dont want to do this.
I WILL need this money later so perhaps i should invest it in shares, not likely cos i think the stock market is going to crash again, ultimately to protect my money im going to have to put it into gold or oil.
So thats the problem, the government wants me to spend my money, but i aint gonna, im not going to invest in companies i think are going to take a nosedive and until the morons in charge understand this very simple premise, capitalism is dead in the water.
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I don't think the BoE should be buying anything with money it had had to "create." Any such money is a debt for us to repay.
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as many have said we need to get to the heart of the problem
Mr Bob can you look at the impact of the
Minimum Wages "give a bone to the backbenchers to keep them happy" legilation has had on the credit crunch
from the following perspective
1) The number it has left idle on the dole queue(s) and the cost to the tax payer over the last 13years of this. These people could have done these jobs that were out sourced , to the black economy, inside our own borders
2) The amount of money that had flowed out of this country as a result of sending monies home
3) The future generatiion that have no hope as they have not seen anybody in there house work and have lost the work ethic for a generation
4) how this has kept wages actually artificially low as a result. Whilst still rewarding big bosses.
5) Why the unions have kept quite about this outrage
ps they are cutting police to allow burglars to steel things that will need to be replaced thus stimulating economic activity. why did we not see that before.
I'll have to work hard to by more stuff to replace stuff that has been damaged and stolen great plan that one
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#98 every thought that this might be a barium meal ?
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I'm not sure I get this.
Certain individuals, including Gideon, the Conservative Shadow Chancellor, want to see public funds spent on buying up (nationalising) shares in private business.
Labour is reluctant to commit public money on such a course.
And it's not even 1st April yet.
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How about we reduce taxes and stop bailing out Bankers, Failed Banks and a low stock market, and cut the imminent council tax hikes, then we could all get out of debt much quicker and I wouldn't be contributing to failed Bankers retiring on inflated pensions.
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If there is one thing that Gordon cannot be accused of, it is ending Boom and Bust, as far as I can tell there is now precious little chance of a boom in my lifetime. Mind you I suspect none of us thought he meant he had introduced permanent BUST!
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Hi Robert,
I think I posted on this point some time ago, although it was broader in nature and it was never published!
That said, the BoE /Government are buying the wrong assets. I think this assessment is correct.
To re-stimulate the economy, the Government must use the BoE to create the require capital to invest and spend on public services. This money will be spent by organisations like the NHS, MOD, Police, Firebrigade etc buying other supplies and services from UK Businesses.
This is what will stem the flood of job losses and give business the orders they need to continue employment etc.
The Government can then collect back in the money it has invested, by way of corp tax, and VAT etc.
This business of government budgets and balancing its books is a bit of a faux pa to honest, as a Sovereign Nation can create its own money supply and use it rather than be beholden to a PRIVATE BANK.
Lets get with the programme here, money is for spending and exchanging goods and services, it is a tradable bond between individuals and business and government alike. Its only purpose needs to be that of facilitating this.
If we need some of it, the government of a sovereign nation can create it and use it to build its own economy and industry and infrastructure. This is what is needed.
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Of course they're buying the wrong stuff. you can't count on this shower to do anything right.
At the core of the problem in this country is that the end user - the consumer - is overindebted. Until they become not overindebted, they won't spend.
Therefore, what the Government should do with the money (if they have to do this, with all the risks attached to it) is take equity stakes in the houses of people who have too much debt. In return, they reduce the mortgage - say by 50% or £75k, whichever is the smaller.
Once people have the debt overhang taken from them, they will have more money to spend - though we will have to make sure they don't get in a mess again.
In return, the money starts flowing and the government gets a cast-iron investment - a stake in property that won't shrink (since no property will reduce in value by 50% and the price risk is left with the individual).
We even have the mechanism to administer this - we use the branch network that the taxpayer part-owns.
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Well it just goes to show that the Tories are just as clueless as the Government when it comes to dreaming up solutions to this mess.
What will happen to these shares if they are to be held for decades and the companies concerned go bust in the interim?
One thing we do know is that you can never abolish boom and bust, therefore 10 years or so after we come out of this downturn we will be in another one. The world is at an economic Ground Zero and the foundations each country lay now will determin the strength and longevity of their recoveries. Only the UK seems hell bent on underwriting debt and re inflating another credit bubble. I just wish the people in charge of all this would just stop and think about the repercusions of their actions once in a while. Dream On Eh...
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When the public realies that their pension savings pots are non existant, having returned to the banksters at the end of the rainbow and that the financial system is no more than a potemkin villiage boiler room scAAAm set up to please the labour tutts and provide them with a lasting mammorial to suck on ,then they will vote for the monster [Gordzilla]raving loony party to be over.
Labour have left easy street and entered QE'er street and will use their inflated digits to 'save 'every AAA's hole from the light of day before the financial equivalent of a prostate operation prevents them ever getting their Rocks back up again.
What we are witnessing is a contemporary drama,an amalgum,a farce
The MPerrors close
Faustus
The diddlymen of naughtyAAA'S
The pied piper of Sedgfield
Donkeyote , Sancho Pansy and city wind up mills
Cannedeed
Gulliver
and more,that when taken together erflects the apogee of self delusion and the perfection of the bankrupt thinking of the entitlement born out of the renaissance
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#150 Pirate
You never know, if might even make a profit if the management is any good...
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NO!
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Bernard Madoff has been sent to prison for fraud, selling worthless paper. This should be a lesson that finance, trading paper, without industry, production of something of physical use, is not at all a good idea. In the short-term, it enriches only the traders and financiers who started the mess. In the long-term, it serves absolutely purpose.
The government and the Bank of England believe that the road to recovery consists of pumping money into the economy. It sounds reasonable. However, the money to be pumped is public money. It should not be used for trading paper, it should go directly to industry. Spend it on goods and projects to re-equip our nation. If the government lacks the capacity to think of anything useful to buy, though the needs of public and other services in the UK should be obvious, give the pensioners a huge rise. Most of them are sufficiently badly off that they can be relied upon to spend their increased income.
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Labour are just a load of multiplying QE'ers
They should be castigated using electoral shock therrapy,hanging from their Rock is much to good for them
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The Government is trying to save the city financial potenmkin villiage boiler room scAAAm with its QE'er stuff,whats the point of saving our industrial manufacturing system, when it is unlikely to be able to compete with the overproductive capacity of the oriental express.
Gordon is Dostoyevskys gambler...in for a penny in for a pound, buddy can you spare me a dimeocracy type cAAA'sin0 crapitallism at its best.
If you keep doubling up you have to win,you have to,you must ,its inevitable.
LOL
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Robert, you disappoint me.
Is it just me or is this de facto-Communism.
Please try to follow my thought process here, first the banks get re-capitalised - then businesses......why not just re-capitalise Mr & Mrs Jones.
Expand money supply by creating a differentiated currency unit independent of banks and importantly interest free, this new unit created through QE will run parallel with sterling, it can be used on goods and services from the UK.
This is the only way to expand money supply where you can be 100% sure of its success. No one can tell you today how much of the present QE strategy goes to de-leveraging/hoarding and how much will actually increase the velocity of money supply.
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The Bank of England are fools stuck in the past intent on reflating the busted balloon.
They should neither buy shares nor stocks. Instead interest rates should be put back up and the specific parts of the economy that cannot afford to pay their own way should be gracefully closed down so that assets can reach their natural value. (That includes houses. There should be a commitment to build public housing for those who become dispossessed.)
These men must be sacked before they drive us into a far far far deeper recession that it is possible to imagine. They are still digging the hole and must be stopped. They are taking the economy in the wrong direction towards destruction of all assets and of all money. They are all clinically insane.
Even to ask the question - "should the bank buy shares" - is bordering on madness. At what price? How do they determine what to pay? etc. etc. How can they value a share when there is no market for the shares? This is the same problem with the 700tn of synthetic financial instruments - no market and in consequence no value!!! These men are are a billion times more dangerous the Madoff.
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If it is fraud that stBernard Madoff [ patron saint of ponzi schemes] has committed, then he has also proven that life can exist over a barrel of toxic FLUID for decades
Perhaps the great Gordoni could give him a life peerage ,the nearest thing we have to sing sing in the gravy train and appoint him as CHEFF economic adviser to the QE'ER STUFF ,of course he will have to become a stoned mason to enter sing sing city
Alternatively he can remain where he is awaiting despatch over the niAAAgrAAA fAAAlls in his EMPTY bAAArrell of laughs.
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This is an excellent idea. As you suggest, taking a small, passive holding in every company in the FTSE 350 would be the ideal way of doing it, so as not to give state preferment to particular businesses or, indeed, particular equity fund managers.
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It is rather obvious reading some of these posts that plenty of people do not understand the nature of shares; why they bother to read an economic reporter's blog is a mystery. Buying shares means owning a slice of the company that issue them, and while it is true that many companies were (and will be again) overvalued on the basis of their share price, there will always be solid companies that will survive and grow; we all have to buy food and clothes for a start. The present drop in the purchase price of shares in some very sound companies presents a great buying opportunity for people who are in a position to do so. Buying shares for the long term is nothing like gambling as long as you understand what you are buying, the nature of the company in which you are investing and can leave the money invested for the medium to long term. How else can business grow? Where do people imagine the funding for private companies comes from?
It is in the interests of everybody that the stockmarkets regain the confidence of investors (including pension funds and the like) so that normal growth can restart. Pumping in government money however does not seem to be the answer. The last thing that most sound companies need now is the government taking any sort of stake at all - they would almost certainly want their pound of flesh and become a very troublesome shareholder. The government has done more than enough damage to private enterprise in this country already, without suggesting that they assert even more influence by buying up shares. Bad enough that they are majority shareholders in the banks now; we don't need them running Tesco as well!
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Is Robert Peston out there?
Is ther any point in his or any of these blogs if the author doesn't respond to the posts it generates?
How much of the licence fee goes to these bloggers, for just a few paragraphs?
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I see the Footsie is rising today.
A reality check was provided this afternoon by the newspaper of our little town in Sussex.
"Council overwhelmed by demand for allotments".
Ordinary people can see what's coming....
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How about crediting all basic rate taxpayers, pensioners, the unemployeds' accounts with an equal share of the £75bn we plan to use for QE?
I guarantee people will start spending, some might even have enough for a deposit a house or flat.
They who choose to save, would stick in the banks, who would in turn have more cash to lend to those who need / want it.
Job done (but watch out for inflation).
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Excellent idea - of all the schemes so far tried this is by far the best.
The BoE, Government etc through their collective incompetent actions to date have destroyed investor confidence in the UK, from nationalisation to picking up world class banks on the cheap (interestingly it will be the Tories in a few years time who will gain the benefits of floating these - probably some £100b plus, which has effectively been stolen from our pension funds)
Investors are fleeing to gold and gilts, both of which do not help investment in the real economy.
People will only regain confidence in saving in pensions, and institutions which are increasingly fleeing equities will only see equities as attractive, when there is a clear signal that the bottom has been reached - the BoE purchasing equities would be such a signal. The government is very likely to profit from such purchases.
Will Merv the Swerve have the sense to see this? - sadly I doubt it on past performance - he seems stuck in his academic textbooks or busy denying responsibility for any of the mess.
His latest piece of swerving is his puzzlement over Mandelson's (you may not like him but you've got to admire him!) comments and the car industry's on blaming the BoE for delays in financing solutions-although King need not have told us he is puzzled over this - as he appears to be puzzled by everything.
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As your latest post is broken I'll post the comment here:
Thanks Robert for your and Hectors contributions to Red Nose day, very funny, certainly made me chuckle.
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Do we need the City?
Can we afford the City?
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Never mind the BoE, if MPs and bankers (let's say anyone on higher rate tax)were made to buy shares out of their excess salaries, then we would see the market recover in short order.
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it seems its easier to get Michael Jackson tickets than it is to post in Pestons latest granstand
in answer to his latest cameo
quote RP
"This represents quite an ideological shift by the regulator. It's a recognition (which many would describe as long overdue) that the disciplines of the market place are no guarantee that the management of businesses - and Sants is particularly concerned about banks and other financial firms - won't routinely make calamitously stupid decisions."
So Robert its taken until 2009 for them to realise this has it, if it has then they are not qualified to be in office, the whole damn lot of them,
And a proper regulator that did not have its jobs given to it by the Government to act in the way it wanted to act rather than independent would have stopped this
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From Pestons latest post, the comments of the FSA chief: "Markets have shown not to be rational; excesses have not been corrected by market discipline".
----- ----- ----- -----
Poppycock.
Markets are rational and if they left well enough alone they'll work. The problem we have is that the market was corrupted, inflation was ignored or sidelined to keep interest rates artificially low in order to prolong the boom and keep golems like Brown in office.
Now the market is trying to correct the mistakes of the past, but again it is being corrupted by golems like Brown, who is desperate to do anything to lessen the impact of his earlier corruption of the market on voters.
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From the new posting which no-one seems to be able to post into!!!
R.P. says "However, recruiting such highly-skilled individuals, with relevant experience and no competing commitments, is easier said than done."
Let's be clear, how can you measure experience, skill and competence when the whole profession is unregulated? Sir F's qualifications were just what exactly?
HMG, through the Audit Commission, Ofsted and the like, has cleaned up the acts of other professions over the years, from Teaching to Social Work (and others). What banking and finance needs is not just the FSA but also the equivalent of an Ofsted or a GSCC to set standards of professional development and performance throughout the industry.
Their has to be better ways of assessing bankers and the likes other than just "did s/he make loads of dosh?" (in the short term!)
THEN, people would have some stick by which to measure these (allegedly) "skilled" individuals.
Yes - and its been said many times by many people - the banking and finance industries have to seriously, radically and significantly change or die.
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Classic from Peston !
Addiction to greed !
The financial system ,our beloved market, has been gorged by sheer unadultered greed. We have watched the feeding frenzy
unfold right in front of our eyes and no-one blew the whistle or called a stop, until we hit the brick wall.
History had the answers ! Our self-regulating professional classes failed miserably. Like all addictions they are essentiallly a problem of behaviour.
Change the behaviour. Put these financial geniuses back on a course of pure ethical behaviour. Lets face it the last time these chief executives met the word ethic was 20 to 40 years ago ! Then we shall have the roadmap to future financial stability.
Let's get the job done !
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Why shares?
A lot of ppl have been spending money from re-mortgaging their property - as it has risen in value - perhaps the Gov should buy property?
Or maybe just put £1000 into everyones bank account.
Or an easier way to effect the same - Cut income tax.
Yep - that gets my vote.
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179
I certainly do not understand much about shares or the economy but I imagine that, like other non-experts who contribute to this blog, that I would like to know more
and it is not easy to find out because so many sources have their own agenda
Lack of knowledge is not to be ashamed of
it is lack of interest/caring
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Hi Robert,
Sorry, but have you taken leave or your senses? Buy shares in failing bank companies which? Please don't write anymore drivel like this. You are in danger of loosing your economics 'street cred.'
Absolute nonsense.
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I really do not think the BoE should be helping out all the banks they need to get them selfs out of this. I would like to know why Mr Brown also will not get the BoE to help out manufacturing in the UK out.
I think that we should have let RBS go down the "pan" as it was the fat cats running it that got all of us in this mess. I think the banking world needs to stand up and start saying sorry and the BoE should be asking for a not more than Shares they should be asking for peoples jobs, pay cuts and the money to start going to the business that is should be for mr blogs to be able to live.
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IF ANYTHING NEEDS UNDERWRITING ITS
THE CREDIT INSURANCE MARKET!
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All of these measures in whatever guise are flawed in as much as they are trying to return the economy back to a position that never really existed.
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Quantatative easing is another name for
robbing the very poorest in our community,and
giving money to the middle classes with mortgages. Leaving the wealthiest. CEO's
et al to continue feathering their nests at
everyone else's expense It is a shameful thing that New Labour has done.
So much for its false claim of wanting a fairer society.
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By buying shares of different companies, government can get into real trouble. Buying any stock is like playing with matches, but after all it will be down to taxpayers to face consequences and bear the costs. Is it not better to create market conditions, which support businesses, rather than suffocate them? I believe it was recently reported than Brit Insurance, who are part of Lloyds are relocating to Holland as new tax rules, make it not economically viable to remain in the UK. How come? Many financial experts are raising their voice against such aggressive government interference, but it seems they don’t want to listen. We need to stabilise housing market, but mortgage lending is far from being healthy, it is hardly possible to choose a buy to let mortgage as there hardly any providers or to purchase a car as car financing has suffered too. How can we expect these businesses to recover? To buy shares in FTSE 100, I don’t think so.
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