Is quantitative easing really just printing money?
And the sound you heard was the sound of a printing press being warmed up.
The release of the minutes from the February meeting of the MPC confirms that the committee which sets UK monetary policy wants their power to go beyond interest rate cuts, with direct purchases of assets by the central bank, also known as quantitative easing (QE).
The big questions are: what happens next? Is it really printing money? And, finally, will it work? The first two are easier than the last.
What happens next (if it hasn't happened already) is that Mervyn King will write a nice letter to the Chancellor asking "please can we use the Asset Purchase Facility (APF) to buy a range of securities on the Bank's own account, using money we've created for ourselves?" We can be fairly confident that Alistair Darling will say yes.
At the MPC's next meeting, there may then be two votes - one on the level of Bank rate (base rates), and one on the level of any Bank-financed purchases through the APF. If it doesn't happen in March it will surely happen soon.
If they decide to go ahead with QE, that will be a change of policy, and we can expect a statement recording that fact. But unlike a change of Bank rate, QE is an ongoing process not an event. So the MPC may vote to authorise purchases over an extended period rather than month to month.
Traditional "QE" involves buying just government securities, or gilts. However, the minutes indicate that the MPC will be looking to buy high quality corporate securities as well, just as the Bank bought commercial paper on the government's behalf last Friday (the first official use of the APF).
If and when we go to QE (and it surely is now a matter of when), I think we can expect significant purchases of both gilts and commercial securities.
Large scale central bank purchases of government debt make people nervous, for reasons I'll get to in a minute.
But purchases on the £50bn-plus scale we're probably talking about would quite simply swamp the corporate debt market. There isn't enough to go around.
You'd also be taking a lot of higher risk assets on to the public balance sheet (via the Bank), which could raise the risk premium on government debt and send long-term interest rates in precisely the wrong direction.
So, we can expect the Bank to buy a lot of gilts as part of this policy. Is that "printing money"? The politicians will say no. But any economist would say yes.
A few weeks ago I discussed one definition of printing money, which was a deliberate expansion of the central bank's balance sheet and the monetary base (the narrowest measure of the money supply). Ben Bernanke, among others, has associated himself with this definition.
But the most popular definition of printing money - the one the politicians are terrified of - is simply central bank financing of government deficits. Also known as "monetizing the government debt".
Since the Bank will be purchasing gilts on the secondary market, not from the government directly, the government will almost certainly say that this is not monetizing the debt. To say otherwise conjures up vision of Weimar and Zimbabwe.
To preserve this distinction, the Bank of Japan was legally forbidden to buy debt directly from the Ministry of Finance when they undertook QE in the 1990s.
Funnily enough, the Bank of England faces the same legal constraint: Article 101 of the Maastricht Treaty (of all things) forbids direct central bank financing of deficits.
But it is a distinction without a difference. When the Bank of England buys up gilts, one arm of the government is buying up debt owed by another arm of the government in exchange for money created by the central bank. Whether the gilt is brand new, or issued the day before, is quite simply irrelevant.
That said, there are big practical differences between this policy and Zimbabwe-style money financing. The most important is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go.
Also - and crucially - the Bank has every intention of unmonetising the debt when the storm is past. In other words, it's going to sell it all back.
So in that sense, QE will not directly affect the stock of government debt one way or another. (Certainly there won't be any direct change to the amount of debt on the Treasury's books.)
It may even make the debt management office's job harder, by putting a lot of extra gilts back into the market, at a time when issuance of new debt is still running high.
But if QE works, the government will clearly benefit from a faster upturn in the economy - and so will all of us. I will tackle that thorny question in a later post.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~41~RS~)
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Welcome to the banana republic of formerly Great Britain!
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When the words 'high quality' and 'if' appear I worry.
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"The most important is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go. "
Are you sure about that.
It looks ot most of us out here in the real world that short of going to the IMF the government has nowhere else to go
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You have to do better than this to explain these issues. I know what each word means but when I read this artivle, even as a native speaker of English educated to post-grad level, I have no idea what you are talking about. It is written in jargon and incomprehensible to those not in the know.
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Sadly, you just know in your heart of hearts the BOE and the government will make an almighty mess of this and we'll end up with a really bad inflation problem.
Also, if you run the risk of no one wanting to buy UK gilts except the BOE - then we really will have a banana republic.
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"It is not being forced to buy them because the government has nowhere else to go. "
Could you list what options the Government does have because it appears we are in a hole and its all hands to the shovels digging us deeper.
We really need an election not only to promote confidence that the perpetrators are out of office if in fact they are removed but also to replace the so called expert "jobs for the boys" regulators who have by accident or design been proved to be not fit for purpose.
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I suppose I am something of a pessimist these days before commenting.
"It is not being forced to buy them because the government has nowhere else to go."
When will the government know that QE is/has worked?
I am assuming its months or years and then we may well be more like Zimbabwe or 30's Germany - unless the rest of the "global economy" has picked up (better balanced economies & less expsoure) and is prepared to bail us out Marshall style.
Hopefully if Mandelson reads this he won't react as he did with the Starbucks chairperson.
Things can only get better!
We never had it so good!
Hmm...
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I still struggle to understand the stigma of printing money in these circumstances. OK, printing just to fund excess government spending will lead to trouble, but printing specifically to counter deflation is surely the right thing to do.
The problem occured when the banks (and shadow banking system) grew their leverage in recent years to excessive levels. They are now finally bringing that back down, which is a good thing. But to ensure there is going to be enough money in the system at the end of the deleveraging process then printing is necessary.
We do need to think what the balance should be in the longer term, and surely that would involve the banks degree of leverage being nearer 1:20 rather than the more recent 1:40. If so then the extra money printed will be part of the long term model, not just a short term fix - ie move to a system with more M0 money and less leverage by the banks.
Am I missing something here?
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Will all this printed money end up in the hand of banks?
Will banks be encouraged to start lending enthusiasticly again?
How long is the cycle of easing supposed to take before the banks pay back this cash, will this leave banks in the doo doo again?
Is this really just a goverment's way of handing out huge loans with no repayment plan and no real security?
Wouldn't it be a little more secure to just bite the biscuit and nationalise the banks, offer UK citizens good products, give them a good service, do away with bank charges, pay no bonus greather than 10% to any member of staff or the board, and eventually make continued, sutainable and ethical profit from sound and safe business practices. Profits that can then be invested and spent on our childrens future?
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Is this the best our esteemed government can come up with , print money and pretend it was the BOE's idea if it all goes skee wiff ? The BOE has hardly covered itself in glory in recent times, overseeing the collapse of banks, the failure of the economy and the devaluation of the currency. Somehow anything mooted by Mervyn King and his cavalry doesn't exactly fill anyone with confidence. Methinks its time for a clearing of minds, and a clearing out of personnel on the monetary committee because the present incumbents seem to be doing almost as well as Brown and Darling are. Hopefully the whole lot will suffer a like fate after the next election. There may be an answer to the present crisis , but none of the aforementioned gentlemen seem to have that answer, or anything approaching it.
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Does anyone know of any examples where "printing" money like this worked?
Weimar in the 30's? No
Serbia in the 90's? No
Zimbabwe now? Errm, 230 million percent inflation and billion (trillion?) denomination notes probably means no!
We're in for a whole heap of pain ...
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The BoE buys gilts on the secondary market.
The government issues new gilts to the open market, to finance a stimulus plan.
The secondary market then sells these gilts to the BoE.
And so on.
Therefore, indirectly, the BoE is buying gilts from the government, using the secondary market as an intermediary.
The one saving grace is that gilts are sold through bond auctions. If the open market does not like the BoE's involvement, it won't buy any new issues of gilts offered for sale by the government at the bond auctions.
Also the minutes of the MPC's meeting admit they have no idea what the affects of this QE will be - "The Committee recognised that the impact of such operations was both uncertain and subject to time lags".
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Stephainie, you didn't say what you think the best alternative would be. Or is it just too easy to criticise.
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The tiny fall in CPI this month shows the future. All concerns about deflation will be shown not to be justified and inflation will remain persistently and "surprisingly" high for the rest of the year before taking off next year.
How can a nation that imports as much as us trash their currency and not import inflation? The fall in demand may have deferred the inflationary consequences but they will feed through eventually. Already petrol prices are creeping up again even although the world price (in dollars) has fallen very sharply.
My fear is that a bizarre and unjustified fear of deflation will encourage this incompetent Government into even greater policy errors, QE being one of them.
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If the Credit Crunch teaches us anything it should be that financial smoke and mirrors trickery is a very bad thing.
To that end, why not just do something simpler and more transparent? Such as admit that they are printing money, and then put that money straight into the treasury so that they can give tax cuts to help profitable businesses.
Why is everything always done through the banks? The government will say they are helping the national economy, but previous strategies that operated via the banks just helped the banks and no one else. E.g. the bailout of Lloyds+HBOS and RBS did not kick start lending to businesses as they said it would - it just enabled them to give bonuses where they would otherwise have gone bankrupt!
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Goffdrop - I'm very sorry you feel that way. You might find my post on 4 Feb, on the same subject, a little clearer. It covers the basic mechanics in greater detail.
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Several points -
if this is such a great solution the new economic theory should be that we simply have a massive debt driven boom followed by a bit of printing money er sorry QE, then go for another debt driven boom - fantastic! lets all become buy to let landlords and property developers!
someone has to pay - when the printing press is turned on, it is the saver who should be nervous, how ironic it is that the sensible punters pay for the leverage monkeys!
and here is the big one - in your blog you are putting huge faith in proposition that Gordon Brown - the spending junky can stop himself from going back again and again for another hit from the QA drug. oh yes thats right he says he will stop and this time he means it!
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Will we benefit?
You Ms Flanders tell us "I will tackle that thorny question in a later post". Fine.
But about that.
Tact and diplomacy can be seen from one point of view as inaction. And when tact and diplomacy goes on for years - failing to tackle thorny issues or questions at all - criminally careless.
"Let us call an enquiry into the matter" are words I dread now - normally uttered by people who already told us "We will learn the lessons" but who seemingly do not.
Learn the lessons from almost the same thing happening over and over again.
I started counting visits to my barbers now. Quantitive "Teasy Weasying" I could call it, were I considered a grand National and allowed to win just once.
But I suspect I am not allowed either.
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They're' still pumping money into the system Stephanie. My worry is they'll be indiscriminate and start to buy-up any old rubbish, then we'll be done for.
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Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back.
LOL.
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It all depends on what eventually happens when the bank sells the gilts. If at that point the money disappears, then it is a zero sum game. The temporary money which it printed has been taken back and ripped up, no longer needed.
But if, when it sells these gilts, it uses the proceeds to buy more, then the money has been permanently created. Eventually the result will be inflation and devaluation.
If QE were to be on a large scale: say, the bank printed another 10% compared to the existing money supply, then we would expect Sterling to devalue by 10% against the rest of the world. In practice we've already devalued by far more than this because the fall in asset value of GB plc has been more than other countries.
Notwithstanding, I would expect any announcement of a move to QE to be accompanied by further devaluation.
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Ah this reminds me of first year Macro. Under the IS-LM model setting interest rates and setting the money supply are equivalent. So basically they're lowering interest rates under a different name...but interest rates are already extremely low! Of course, we all know the real world is more complicated than a model (that's why we use models).
I think there is a huge difference between the economist's understanding of 'printing money' and the layperson's. What the BoE are considering is not firing up the presses and letting rip, but a considered increase in the monetary base. Whether or not it'll work, I've no idea - monetary policy never interested me much.
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What it will actually do is stick a plaster on the balloon half way through it deflating and blow it up again even bigger this time.
Result is a big bang and nothing left.
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No.6 What we don't need now is an election.
If you think that, then you don't understand the depth of the problem. The wholesale funding market has been removed, period. Credit is off a cliff, no bank is lending money to anyone. We're being distracted by the public's rightful anger at bank bonuses. The problems are deep seated, serious and long term and need concerted planning and expertise to resolve. The economy needs to be unskewed from financial services and retail, to activities that the world of the next 100 years wants to buy. QE is just the start. Perhaps chuck the money at energy technology projects, coastal defence, become a world centre for climate change industries.
This crisis is beyond the Labour/Tory ding dong - far too many been caught reading the Telegraph/Mail. Didn't save your pensions or house prices did they? Where were their "voices of reason" moderating the bubble?
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The best solution is simply creating a differentiated currency pegged to Sterling and guaranteed by the BoE (tax payer). 100 billion should do the trick.
This paper would then be handed pro-rata to every person in the UK and would be spent 12 times before going out of circulation within 24 months time.
The 12th person banks it for it's sterling value at the BoE.
This is an QE theory which would work, If anyone cares to discredit this theory please respond.......
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The calls for an election from non Labour are sometimes a little boring but on this occasion I’m in agreement.
It is going to take some time and some considerable effort to get us out of this mess and I’d like the same Gov to take us through it.
It’s fallen just right for the US, BO has a good run and doesn’t necessarily have to look for short term gains to boost his approval rating.
I fear, rather like with the Finance Industry and bonuses, that this Gov have half an eye on the next election and I wonder if their primary objective is short term gain. If so, should all this spending be set against their election budget?
As for the wonders of QE, just as we are heading towards a realignment of the value of real money they come up with a solution to devalue it..... great!
I do wonder what percentage of the money we are pumping into the economy will go straight out of the back door to pay for goods produced in China. Our economy is not one conducive to money CIRCULATING
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Time to start hoarding. Buy now, so you don't pay later.
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Mervyn King is a first rate buffoon - no country ever became rich by debasing its currency.
Why follow the Japanese model when it didn't work? Japan has been a zombie economy for years and years. Quantative easing didn't work for Japan and neither did zero interest rates.
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goffdrop
Government gilts are government IOUs.
The government needs money so gets it from the markets/banks an in return the government gives the banks the IOUs (with a bit extra added to cover 'interest').
So then the banks have IOUs and the Government have cash to spend now.
QE means that the government will buy the IOUs back from the banks. So the banks will have have cash (to lend/spend etc) and the government will have its IOUs back.
However the Government don't actually have the cash to pay for these IOUs because they already spent the money they got for them...
So they will print some new pound notes and use those...
What is the difference between this and just printing the money to cover government spending in the first place? nothing...
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Why is printing money bad?
Because each pound represents a share in the total wealth of the country.
If you increase the number of pounds in circulation without increasing the real wealth of the country, then every single pound represents a smaller share of that national wealth - the pound in your pocket shrinks.
i.e. double the number of pounds in circulation and each will be worth half of what they were before - all prices double - but your savings wont... they are just worth half of what they were before.
QE is stealing/taxing us all, without going to the bother of asking/collecting it from us.
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"17. At 2:27pm on 18 Feb 2009, cantgettheborrow wrote:
someone has to pay - when the printing press is turned on, it is the saver who should be nervous, how ironic it is that the sensible punters pay for the leverage monkeys!"
Workers and savers are just grist for the mill.
You don't think the financial and governmental systems are set up for the benefit of the "sensible punter" do you? Take a look at the world around you.
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If QE works? Like all medicine it is important to ensure that the treatment is appropriate for the patient. Thus QE would work if the problem was an overly tight money supply. It would reduce the value of the currency and increase demand the result could boost the economy whilst moderating imports.
Whilst this may sound like a no brainer for the UK we need to ask a question is the problem an overly tight money supply? Gordon would have us believe that the economy was all but perfect and the only real issue is the credit crunch that has resulted in a contraction in the money supply. If this is correct then QE will work.
Having worked for five years in the debt advice industry I don’t accept this story. The UK’s problem is that we have an economy that consumes more than it generates. Significant parts of the economy are spending wealth they have not earned. Houshold debt £1.5 Trillion; government debt £0.5 Trillion and rising very fast; State pension £0.9 Trillion PFI £0.4 Trillion. The attempt to get the economy to run faster is merely to force it to consume ever more than it can afford.
The lessons of the Great depression in Germany and the US both inform us that the real solution is to create more wealth than we consume. Far from boosting reckless consumption the solution is to ensure that demand for wealth creation is maintained. The whole area of wealth creation has been ignored for decades. For those that have forgotten wealth is primarily created by extraction, growing or manufacture other value can be created by providing beneficial service such as providing education or care.
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#25
Hmmmmmm
So after the 24 months is up we do it again.....again...again
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GBP still seems to be overvalued at the moment compared with the USD, judging by the relative prices of goods in the UK and USA, so even if quantitative easing (or directly printing money) results in a further fall in GBP it will only be moving GBP towards its true market value.
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Stephanie , I do hope ALL governments are doing this in co-ordination with each other. As GB has said we need to all act together
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"8. At 2:04pm on 18 Feb 2009, random_thought wrote:
I still struggle to understand the stigma of printing money in these circumstances. OK, printing just to fund excess government spending will lead to trouble, but printing specifically to counter deflation is surely the right thing to do."
Most people have no clue what money is. They have a simple concept of print money inflation. They have no idea that banks are "printing money" all day every day.
I'd argue that in this case the right thing to do is simply bypass the banks. Which is partly what the BOE is going to do by purchasing corporate bonds directly (time to sell). Provide credit directly to businesses and individuals through a national commercial bank. Then let all the banks which are loaded up with bad debts simply fail.
The idea that the commercial banks will provide a stable monetary system has been completely discredited. They just add unnecessary complexity and instability.
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"29. At 3:04pm on 18 Feb 2009, the-real-truth wrote:
QE is stealing/taxing us all, without going to the bother of asking/collecting it from us."
Pretty much agree but for one thing... The high street banks have been creating pounds out of thin air every single day of the week.
Right now they're in the business of destroying them, at a fair old clip too.
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"You'd also be taking a lot of higher risk assets on to the public balance sheet (via the Bank), which could raise the risk premium on government debt and send long-term interest rates in precisely the wrong direction".
This raises several questions. First, of course, savers - who outnumber borrowers by 7 to 1 and have seen their incomes fall by more than 80% in just a few months - might argue that higher rates might be desirable. This includes many elderly people who depend on income from their savings.
Then there is the question of the asset bubble, which has to be completely drained before recovery can happen. It is at least arguable that low interest rates simply drag out the agony by putting off the inevitable.
The question of the future rates of interest payable on government debt will ultimately be decided by international markets, and will reflect perceptions of risk. In my opinion, the UK economy is so structurally weak that risk perceptions (and hence interest rates) are very likely to rise.
Ultimately, as I have said before, we need to get away from the "credit assumption" - the widespread but fundamentally mistaken belief that the only way to start a business, or even to buy a car, is to borrow. This is out-of-date thinking; we need to re-learn the art of saving, and of living within our means.
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30 true lib
They have already made it plain they are desperate for credit junkies to pump up the volume. Sadly the safest place to be looks to have nothing which is difficult. If you aint got noting you got nuthin to lose. Or - Some men rob you with a six gun, Some with a fountain pen. Woody Gurthie.
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35 true lib
At times listening to the arguments coming out of the banking sector I have the feeling we are dealing with a sect.
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"Traditional "QE" involves buying just government securities, or gilts. However, the minutes indicate that the MPC will be looking to buy high quality corporate securities as well, just as the Bank bought commercial paper on the government's behalf last Friday (the first official use of the APF)."
Stephanie, who is going to decide exactly what constitues high quality corporate securities? there's the rub.
Are the BoE going to rely on the rating agencies who failed so spectacularly to spot the weakness of 'assets'? Can we really rely on AAA ratings any more?
Who are they going to buy them from? If they go directly to the firms then the biggest names (not necessarily the safest) will get the money. If they buy via the banks, then what assurances do we have that the money will not just be retained to support the banks balance sheets?
If our commercial banks are finding it hard to define commercial risk what chance do a bunch of central bankers have?
My gut feeling is that the train will crash and somebody has nicked the buffers.
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I think we will get deflation AND inflation. The prices for UK services sold to the UK market will fall - banking, lawyering, accountancy, government. The price of UK assets such as housing will also fall. The prices of things made abroad and traded in the world market - food, energy, electronics will rise. The inflation/deflation statistics show the combined effect of these two trends which may be overall inflation or deflation - but for many people working in the UK both effects are negative. The deflation cuts your wages and the inflation increases your costs.
We need to rebuild our technology industry and start exporting to balance our imports. Unfortunately the last 10 years of overpriced currency and property boom have run down that sector of our economy. The government needs to ensure that what money is available is directed to building up exporters: we need to get venture capital flowing into high tech and lending for larger firms to finance production.
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I am not an economist so should be grateful if someone could explain the following in laymanny terms so I can get a grasp of quantitative easing.
If the banks have lent many billions to businesses or properties which have gone bust or seen assets devalued with consequent defaulting on the loans, then surely this money has disappeared from the system, never to be recovered ?
IE Bank lends company X £100M. Company X spends £100M on properties/trading. repays say £20M and defaults on £80M, never to be repaid.
Surely this £80M has been removed from the system altogether ?
If the Bank of England prints/quantitatively eases a replacement £80M, then how can this cause medium or long term inflation if the original £80M was forever lost ?
Help !
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I wish the government would just go.
We are now getting further and further into very dodgy territory. I have no confidence in the competence of Mr. Brown and his team.
They have no mandate for this and I would suggest that a mandate is essential for such a major change in our fiscal behaviour.
I would be happier if this was all set out in a formal proposition. I have no trust in decisions made by self-styled experts behind closed doors.
Remember: this is how we got into this mess in the first place. The Man in Whitehall does not know best and the Old Lady in Threadneedle Street has become not much more than his battered wife.
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yes QE is QED for lets just print some more money...but let's give it a swinging 21st century label.
What ever...welcome back S.F. newsnight has been very exciting with R.P. but sometimes too..Jennings of the upper 5th gush about the delivery.
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When the Thrifts in the USA (equivalent to our building societies) had solvency problems in the 1990s, this could have led to a big shortfall in mortgage lending.
This was averted by the USA government rigging things so that the Thrifts made good profits which repaired their balance sheets and allowed lending to continue (albeit at the expense of customers).
In the UK, the B of E (for moral hazzard reasons) seems to want to punish the banks with penalty charges, high interest rates on the preference shares and big haircuts on security.
Why doesn't the government overrule the B of E, reverse the penalty rates and try to boost bank profitability so that lending can remain strong and share prices of government owned RBS and Lloyds rise for trhe ultimate benefit of taxpayers.
(Thanks Stephanie for another excellent blog)
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24: tonyparksrun wrote:
"What we don't need now is an election."
I think we do. As #26.thinkb4 said, there is a real danger that the government will take a reckless short-term position. Brown is was not elected as PM by the people, and will not want that to be his record so I think he is just trying to re-inflate the credit bubble to bring back the good times just before a General Election. He will claim to have saved the world, but then things will go even more wrong because of all the government debt he built up re-inflating the bubble. This is evident when Brown tells the banks to lend at 2007 level - this is exactly what created the illusion of good times, but then got us in this problem.
Furthermore, if a company performed badly, the shareholders would remove the board of directors because they were seen as incompetent. If poor judgement of management causes a problem, then that same management's poor judgement is unlikely to be able to solve it. What ever happened to UK plc.? We should be able to call an Extraordinary General Meeting and sack the board!
Finally, Brown's strategy is likely to saddle the country with enormous debt for a generation. It is criminal that one man can do this without a democratic mandate. A general election would allow the people to evaluate the solutions and vote for the party they backed. They would therefore carry some responsibility for any debt the government they elected created. (Note that any arguments based on the fact that the common man would not understand the solutions are actually arguments against democracy itself.)
I do agree with one thing though - the Tories do not seem to be much better really. However, Vince Cable does actually have PhD in economics and talks more sense than most other politicians so the opposition is not totally hopeless.
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Post 16
You READ the stuff on your blog, Stephanie, and respond, personally, when you believe it to be appropriate.
My faith in human nature is restored.
I'm glad I've been polite on your site. And I think that you're smashing on the telly.
So there, critics.
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# 42
I'm not an economist either - but I'd guess it's something to do with the fact its not backed by any assets whereas the initial 80M was backed up (theoretically) by assets (albeit they were grossly overinflated). Possibly/probably I'm wrong - in which case sorry!
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Sorry goffdrop - I referred you to the blog of 4 Feb. I meant 6 Feb.
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Somebody else has already raised the question.
How do we know when any of the measures being taken by the government/BOE are working?
Any management training will that show that what you put into action should be measurable.
Unemployment levels?
Value of Pound?
Inflation/Deflation level?
Government borrowing?
etc.?
The government keep saying that one of their main responsibilities is that of maintaining financial stability. Do we now have a stable financial system?
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No. 42 Upthebarns
"Bank lends company X GBP100M. Company X spends GBP100M on properties/trading. repays say GBP20M and defaults on GPB80M, never to be repaid.
Surely this GPB80M has been removed from the system altogether?"
The bank would repossess the property which company X originally bought for GBP100m.
The bank would sell that property in today's market for GBP70m.
Company X already repaid GBP20m
Therefore, the bank loses GBP10m as a bad debt. It already made a 10% bad debt provision against the asset class in its balance sheet, paid for from this year's and last year's profit.
The problem we face today is that banks failed to make enough bad debt provisions in the boom years. Their reported profits were overstated, and were paid out as dividends to their shareholders. This means the banks have not enough reserves to cover the bad debts as they blew up in 2008. Further bad debts will blow up in 2009 and 2010. The banks need to provide say 40% against their assets as a general bad debt provision, but this would blow a huge hole in their balance sheets. They are already insolvent, before they even try to increase the bad debt reserve.
The problem occured because banks lent money to borrowers who bought assets whose prices were overstated by say 40% or 50%.
The original sellers of these over-valued assets pocketed the money, and then spent it on cruises and cars, and have little to show in the way of savings. The banks earned huge interest and profits from their lending, but paid this out to senior staff as bonuses, and also to shareholders by way of dividends. Those bankers and investors who got rich by this practice have moved the money to safe havens abroad.
The government cannot replace the lost money, as it cannot hope to cover the huge value of all the bad debts and falling asset prices combined. The government is limited to spending only what it can raise in taxes, which is no-where near enough. Hence, the government will fail in its attempt to reflate the economy. It will throw good money after bad, and make the situation worse.
The idea of QE is to create money through the government selling gilts (government bonds) to the BoE. This is equivalent to the State lending money to itself - ie printing money. The government cannot just create money from thin air. The result will be sterling falling further in value as foreign governments and investors pull their money out from the UK. No foreign investor will want to lend money to Britain, as they will worry there are just too many unpaid debts in the British economy.
Some households and businesses are correctly trying to pay off their debts. QE is an attempt to counter this reduction in debt, by creating more debt to replace that which is being repaid. The BoE will attempt to buy gilts and corporate bonds to more than replace any borrowings being paid off by households and companies. If QE succeeds, it will increase the risk of further bad debts, which in turn will cause UK companies to struggle to make any profits, meaning the government struggles to raise enough tax revenue to redeem all the gilts in existence (the government runs the risk of defaulting on its borrowing). QE is just teeming and lading on a major scale.
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#29
..apart from the feckless who are heavily in debt.
QE risks further penalising those with savings to benefit those in debt.
I can't figure out what's worse - having the economy collapse (and therefore my savings through loss of job etc) through lack of lending or my savings collapse through QE.
Problem is I don't think the government (or anyone else) can figure it out either.
Whatever happens I blame Brown/Blair for getting us to this state in the first place.
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"Is quantitative easing really just printing money?"
No, it is just ridiculous....
If it is not accompanied by steps towards sound money again. We are just becoming a laughing stock! These failed men of the Bank of England the the MPC haven't a clue.
The banks don't want customers' money, because they can't lend what they have got. The problem is the collapse in demand - not the nebulous 'liquidity'. There has been a catastrophic collapse in demand - 'free' containers ates from Asia to Europe - a massive drop in air freight.
The 'wise men' (if there was ever an oxymoron that it it) are out of touch with the real economy as usual. QE is too late and irrelevant.
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This is really the last throw of the dice though, it relies on all the other nations, not being protectionist, which the US is blatantly going to be,
As I understand it, unless we sell more than we buy, we are done for.
So who chooses who are going to be the beneficiaries of this extra printed money, friends of the ministers ? good companies on hard times ?
lucky dip ?
There is a lot of hit and hope about this, I dont suppose they can do anything else, apart from let the bad banks go to the wall, long live the UK mutual bank.
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Why not just print £10000.00 for every person.
Gordon could roam around chucking wads of it out of his car window and children could fight to pick it up.
That would get people spending again.
We all know that lots of spending and borrowing is the correct thing to do. Thats exactly what we should teach our children.
Does anybody know just what the price of bananas is these days?
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I vote the government employ this man to sort out the wheat from the chaff
http://www.youtube.com/watch?v=Ys83oEAlvkM
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#16 Stephanie's reply to Goffdrop.
(This is not a criticism of SF)
I imagine few people understand much of what is happening.
How many people understand "money"? How many people understand that high street banks can create it at will? (pretty much).
How many people have any idea of "securitisation", "slicing and dicing" "capital"?
My guess is very few (as %). Not because they are dumb, just because under normal circumstances most people have no need to know. The biggest problem is in many cases the technical meanings of terms is different from common usage. Would the BBC consider a programme to explain things in simple terms? Perhaps SF or one of the other sensible ones could do it. I daren't say which ones I would not wish to see presenting it...but there are a few real winners!
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Thank you Number 51, MrTweedy.
I think I'm getting more of a grasp.
The money has not disappeared - it has gone into the hands of the sellers of the overinflated assets and into the hands of bankers who ripped out the gargantuan and false profits.
So if we print or quantitatively ease more money into the system, it could lead to inflation with more money chasing the same assets.
Although these assets' values were grossly overstated so that may counter the inflationary force of printing money.
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Stephanie
Ben Bernanke takes the trouble to call what he is doing as credit easing, and targeted as such. He says its not the Japan model.
Charlie Bean says that the APF is being funded by a 50billion loan from the Treasury. Public debt is being affected. Beyond that, the BoE will use IOUs, he says.
You mention that 50billion would swamp the corporate bonds market. I am intrigued with what is going to happen. The Credit Guarantee Scheme permitted the BoE to underwrite debt issue by the banks last October. How much has been underwritten?Will the APF be used by the BoE to purchase those bank bonds which might not have sold into the market? Also, the FSA have instructed the banks to hold more gilts to improve liquidity / Tier One ratios. Will the BoE be buying those?
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Some very dubious manouvring going on here.
RPI is nicely placed 0.1% so everyone is told there is now no inflation so noone will get a wage increase.
Well we all know there is still plenty of inflation in our cost of living. Essentials like food continue to go up as will council taxes and water rates etc.
Everything we buy from abroad will increase in price because of the devaluation of the pound so what will actually be dropping in price.
We are being told prices will keep on going down.. Only if the retailer is going bust and needs to shift stock.
And now they are introducing more money into the system. Literally printing money.
Cheaper mortgages encouraging buyers into a still overinflated housing market.
Easy credit. Buy more stuff you don't need
Everthing will seem wonderful until........INFLATION
You have just negotiated your O% increases in wages pensions benefits etc when prices start to rise at an incredible pace just like they did in 2008.
To stem this inflation interest rates have to rise quickly.
Bang goes your cheap mortgage payments. Up goes the cost of debt.
Been there before?
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Dear Govevnor,
I have a synthetic loan default instrument will you exchange it for cash please say 10 million GBP.
No - you say my synthetic loan default instrument is worthless - I never claimed it was worth anything did I - Isn't it the point that you will buy worthless rubbish and turn it into hard cash!
Why not do it fro the small investor? Oh you are only interested in doing it fro members of your club! Just in case you want a job with them when you leave your present job (just like the many sacked bankers being recruited by HM Treasury!)
Fat cats scratching the backs of other fat cats - a sick joke on the British people!
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So we use theoretical debt to buy up real debt?
Hopefully in time we will be able to sell back the real debt into the market and erase the theoretical?
So in the mean time where does this appear on the countries profit and loss statement?
At the same time we have rampant inflation which will reduce the impact of interest and hopefully eat into the capital repayable?
So really it's just a punt and hope that all these assumptions actually come off?
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Is QE necessarily inflationary?
Could the treasury/bank (later) introduce (temporary?) mandatory reserve requirements to prevent that?
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As someone else pointed out- does anyone actually know of a time where QE worked?
All it is doing is devaluing peoles savings. I have been waiting for the housing market to correct itself, so I could get onto the ladder, for a while. Now the money I will have saved for a deposit will lose its value, and I'll be worse off than before. People with debt will just see the interest increase with the inflation, so they won't gain either!
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9 wrote
Will all this printed money end up in the hand of banks?
In a word yes, why dont the print the money into folks bank accounts?
Money as debt, thats why!
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I think the whole thing is back to front
Corporate bonds being issued by high quality organisations are being snapped up. They are offering high yields.
It seems to me, that no one wants to lend to organisations lower down the food chain and that there is not going to be enough demand for all the government debt at the low prices on offer.
The way to create a market for this debt would be to increase interest rates a little. Without having to 'create' or 'print' money, money would find its way back to 'products' that would provide a reasonable return. This money is there, its just sitting in safe havens called government bills and notes.
The bank of england's approach will just devalue the overseas lending already in the system and makes it a) more likely it will be withdrawn and b) less likely that overseas investors will choose to buy debt on the basis that it might devalue further with devaluing exchange rates.
This is almost what has happened with banking shares - fear that all value will be stripped out through nationalisation has minimised any demand for these stocks.
Its very easy to devalue a 'brand'. Just look at what happened to YSL when it started producing and selling in bulk at lower prices back in the nineties. Pretty soon no-one wanted the products, they just weren't desirable anymore.
Finally, I'd have more confidence in all this nonsense if I heard a few words about cutting ones coat according to ones cloth. At some point, government will either have to raise taxes or cut expenditure.
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Because I am a simple woman can someone explain to me why no-one considers issuing vast amounts of government debt any different from short term printing of money????????
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Is QE necessarily inflationary?
Could the treasury/bank (later) introduce (temporary?) mandatory reserve requirements to prevent that?
What like post dated money?
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#64 Arnie_99
"I have been waiting for the housing market to correct itself, so I could get onto the ladder"
If you get on the ladder, doesn't that mean someone else will have to get off? Are you waiting for someone to become homeless or to die?
I'm not sure prices are (were) the problem; it is (was) shortage of properties.
(Or perhaps to sell their second home. Probably only a small part of the problem in most parts of the country)
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#6 aqualungcumbria and everyone else calling for an election:
How would an election promote confidence that the perpetrators are out of office?
As I understand it none of the major parties has put forward a plan that is significantly different to that being perpetrated. The Conservatives have said they see Q.E. as a last resort, not that they wont do it. At base the same incompetent civil servants and BoE experts will still be in place.
We are experiencing systemic failure. Perpetuating the belief that government can fix the problem, if only they would choose your (or my) priorities for spending, is to perpetuate the problem. Government manipulation of the free market and its perpetuation of an artificial monopoly in (paper) money creation is at the root of the problem.
#8 random-thought asks: Am I missing something here?
Yes. Who gets the seniorage? And who pays it?
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No 60, who cares what the RPI is? Mervyn King didn't care when it was way above the CPI and nor did the government. The CPI is the government's preferred measure of inflation. Or, now that RPI is indictating what the government wishes to use, is there going to be a change in the "preferred" measure.
That's just insane.
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Whatever the Government/BoE tries, until the fundamental structural imbalance in the economy towards imports is addressed, it's just more sticking plasters.
This version of QE is akin to asking the bank for a loan, oh, and by the way, can I have a credit card aswell so I can pay the interest on the loan (and don't even think about asking for the capital back).
UK has to reverse the current account deficit, and whilst I accept that doing that as a precursor to economic salvation looks well nigh impossible, there is no possibility of a sustainable future without it. Government has to demonstrate that it understands this fundamental problem (something I have yet to see from the current, or potential, incumbants) before I will have any confidence that the catastrophic problems inherent in our economy can be succesfully addressed.
In the meantime, negative real interest rates for borrowers and, potentially lenders, suggest a seriously dysfunctional banking sector. Pumping more liquidity into a leaking system doesn't seem to me to be the best way forward.
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13th man
So on that basis, everyone hoping for a job is hoping someone dies or gets sacked or retires?
There are plenty of houses available at the moment, the problem is the prices are too high (in comparison with peoples wages). You forget in include the fact that plenty of people buy to let (including my current landlord) hence if I could afford to buy one of the houses on the market, it theoretically wouldn't affect the balance, as I was already occupying a house originally, except I now own it, rather than paying off someone elses mortgage.
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"42. At 4:12pm on 18 Feb 2009, Upthebarns wrote:
IE Bank lends company X ?100M. Company X spends ?100M on properties/trading. repays say ?20M and defaults on ?80M, never to be repaid.
Surely this ?80M has been removed from the system altogether ?"
Nope. The company spent the 100 million. It is there, in the economy. It is the 20 million which they repaid which is destroyed and removed from the system. If they go belly up and default on 80 million. The DEBT is written off leaving the 80 million defaulted upon still in the economy. Bankruptcies are inflationary. Which is why the best thing we can do is let the banks go bankrupt.
Think of debt as anti-money. What you're not getting is that the 100 million never existed in the first place. It was magic'd into existence when Company X borrowed it. That's the big secret of banking. The money is created purely for the purpose of the loan. The banks don't actually have the money beforehand.
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Quantative easing ? It's called making something out of nothing and it's a fraudulent way of redistributing wealth from those that earn it to those that acquire it by trickery.
We all know who really benefits from this , don't we ?
Increasing the supply of money by this means always results in inflation so any suggestion
that it is paid back (which is doubtful) is a devious argument they would like us to believe.
What we are never told is that by that time the original assets (whatever they may have been) will have devalued to the point of a very unfair exchange. Those on the recieving end do not give back the value they receive. They are the winners of the great 2009 fraud of the century.
Ever wondered why our pathetic leaders are calling for a global new world order ?
It is related to this very point. If they don't all participate in this scam, then it doesn't work. If only one country did this in isolation then inflation relative to other countries would make the gain of the few impossible by way of the total loss of value for the majority and the inevitable revolt.
The people that really lose in this situation, as it seems many of us are allready finding out,
are those that have worked hard and saved. I am really angry with this "idea" and I am also angry with the BBC for not standing up and shouting out what is really going on.
I will not forget this injustice and I'm pretty certain from what I'm hearing and reading, that neither will millions of others.
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There seems to be a little confusion as to who's blog we are on since a number of posts are suggesting an election. I can think of a dozen reasons for calling an election and getting rid of this administration. Managing the credit crunch is not one of them.
Does anybody have any plausible evidence that the Tories could do it better? I think not.
The danger is that linking the management of the economic crisis with party politics will simply let the government off the hook for the myriad other iniquities which are passing more of less unnoticed.
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Game over. Bye bye Britain. If you live there, leave.
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13thMan (#69)
"I'm not sure prices are (were) the problem; it is (was) shortage of properties."
You ar not sure? Or you are sure?
We have a TFR of 1.88 or so. It would be lower (like E Europe's 1.1-1.3 where the population halves in 30-60 years) if we hadn't been so busy importing so many people from abroad (and some of those who are non-indigenous did not have a higher than replacement level >3 TFR) on the ground that they would be 'good-for-the-economy' (buying cars on tick, cash-back). We have an indigenous ageing population - so, if we'd put a brake on immigration we would have had a surfeit of housing given population growth would have turned negative. It would have done years ago but for mass immigration. Might it be that there was lots of money to be made from a) the property development bubble b) importing not-very-bright-people-who-were-equals as they comprised more consumers/debtors for those who wanted to make money out of them?
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#74 "Nope. The company spent the 100 million. It is there, in the economy. It is the 20 million which they repaid which is destroyed and removed from the system. If they go belly up and default on 80 million. The DEBT is written off leaving the 80 million defaulted upon still in the economy."
Hmm. But if the 80 million is written off, then the bank has lost 80 million of its capital and will probably have to claw back something like 2 billion (25 x 80million) of its loans in order to get its ratios back in shape. Banks can be tamed if their loan/capital ratios are strictly controlled - we just haven't bothered doing that properly for the past 20 years.
On the other hand another way of looking at this is that banks are just intermediaries. Net savers lend money to the banks and the banks lend money to net borrowers. Net borrowers are going belly up. If everyone in the chain were to write off the debt (say if the banks had been allowed to go under) then the debt and money would go away, but we're trying to protect the net savers. Is this sustainable?
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76 threnodio
Thats the problem there is no fundimental policy difference. It is Worzel Gummidge, which head today.
73 arnie 99
There is much ado about a property crash. Prices may have declined but property still remains unsold and for many unaffordable. That is not a crash.
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I am frankly amazed that after 100+ years of economic theory being developed this is the best the BOE can come up with.
I have no dgeree in economics, yet to me it's patently obvious that creating money by pressing a key on a computer cannot possibly change the fundamentals of our economic woes.
Just get back to basics: Weatlh is created by making stuff, growing/mining stuff or delivering services. If we don't do any of those things then we are going to get poorer. Allowing debt to mushroom has simply pushed the burden of actually generating wealth to the future.
Assets have to deflate, and wages have to drop, along with all the imaginary wealth created by debt. There is no way around it.
Credit easing is just a pathetic attempt to make things look better in the short term than they actually are. It will do no good whatsoever in the long term.
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Glanafon-
Which is exactly what I said- I'm still waiting for further 'corrections' in the property market. Unfortunately I feel the governement may still try and prop the market up to stop the housing bubble contracting further.
All the same- its a bit off the point from the topic of the blog. My original point is that those of us saving up our deposits (which now have to be bigger due to the lack of available credit) are now worried that this fiscal easing will devalue that which we have saved, putting us back at square 1 (especially as the money is earning next to nothing while it is being accumulated at the moment!)
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#80 - glanafon
#82 - arnie_99
Again, we do not have an either/or situation here. It continues to be the case that there is a dire shortage of affordable housing. The fact that prices are falling is entirely due to the fact that money is hard to come by even for people who can afford it. It would take a fall of catastrophic proportions to bring homes within the price range of people who would really benefit. Ironic is it not?
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Romeplebian, message 56...that is SO good! You just know it wouldn't work in the UK but there are several table loads of FSA/banker/ etc that should be dragged over the coals. Ackermann could do it, he may even be worth hiring to interview Gordon Brown as nobody in the UK seems even remotely capable.
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Re post 4 Goffdrop..I'll have to get a post dated grad degree because I haven't got one but I understood it....that's the end of the good news.
re 29 the real truth..I agree absolutely...putting tax up from 40 to 45 and (especially) NI is just gratuitous; as you say they don't need to do it just let the effects of QE flow through.
finally re 43 Stanilic... That worries me very much .. so much of the stuff now just looks not competent. The 'debate' about Northern Rock last week that it had done very well paying back so much debt...so quickly....
The good debt, yes.... but it's the last part that won't get paid back so easily ( a) it's bad and non-one wants it...and b) there isn't anyone left to buy it -
QE will only penalise the savers, those people still deluded into thnking that there are 'rules'... they may not have borrowed like maniacs to buy 3 buy-to-lets, but they're going to pay for those boarded up repo flats anyway now.
Those carefully built up savings will be effectively massively and inevitably, reduced in value...
' If you didn't do the crime...you still do the time!"
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I've been saying it for months; hyper-inflation is definitely going to happen if labour remain in charge; printing money is their only weapon left because they still refuse to admit that they've made mistakes on fundamental economics over the last 10 years.
Zimbabwe is a perfect example of how this happens; refusal of the government to admit/fix their fundamental problems always leads to total economic collapse if the leadership is allowed to continue.
If they won't fix the fundamentals, then printing money is now their only option left.
Brown/Labour are still lying (or deluded), thinking that 100% of all our problems are "global" in nature and that nothing is wrong with our own national economic policies/situation.
The global aspect has simply exacerbated/speeded-up problems which would have arisen anyway in time given how our economy's been run.
How can you run an economy properly when the man in charge doesn't believe in natural economic cycles, thinks that doubling the lowest tax rate won't effect the poor, and thinks that he's personally saved the entire world?
We're finished until/unless labour get kicked out. The latest polls show labour on 28%; I've got no idea who that 28% are, but I hope they're not in charge of anything important.
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Stephanie Flanders wrote:
"the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back"
ROTFL
Shouldn't you put some kind of smiley next to that remark? You were kidding right?
If you're serious...
Will the money it pays back still be worth the same as the money it borrowed?
Will it sell it back when Gordon is no longer PM - and if so isn't this one government borrowing from the purse of the next?
Will the next government have any influence over who is Governor of BOE when it comes to power, and will the new Governor want to sell it back to cause problems for his/her masters?
My questions were of course rhetorical.
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Stephanie, you're keeping us all in suspense on the key question - will it work?
I have my doubts. Yes, this is another way of pouring money into the banks (presumably the holders of the bought-back gilts are either banks, or will put the money into sterling accounts in UK banks). But we have already tried giving the banks money by recapitalisation. How much money do we have to give the banks before they start lending? One major problem is, we don't know how much is 'enough' - we don't know at what point the banks will decide they have enough liquidity to start being a bit less risk averse. The other major problem is, do we even want banks to be less risk averse?
Looked at another way, people and banks are behaving rationally, and we are trying to change that rational behaviour. It's rational for banks to hoard liquidity, reduce their lending, and if they must lend, lend only to those who are the best risks - those who need the money least. For the public, it's also rational not to incur any more debt, to reduce the debt they have, and conserve cash in case of trouble ahead. The only people wanting to incur debt are the people at the margins who are recycling debt to meet interest payments - the last people any sensible institution would lend to.
It's a different matter with companies. There are companies who want to borrow for investment with a reasonable expectation of return. But there are also companies in difficult. With a risk that demand in general collapsing, can any bank even lend to a profitable company without risk? No.
In my opinion this is why lowering interest rates has not worked to restart lending. The government thought it had a lever, but the lever relies on the rational actions of consumers, banks, borrowers, lenders - and that lever has been disconnected. I don't see why putting more money into the hands of the banks will work any better. Do we think there is a point at which the banks will have so much liquidity that they won't care about losing money by lending it at risk? I'm not sure there necessarily is such a point.
QE, printing money, is stealing from everyone with a positive (credit) bank balance and giving to everyone with debts. Apparently there are 7 times as many of us who are creditors as debtors. On top of giving near-zero interest rates to savers, we are now eroding the spending power of the reduced interest and worse, eroding the value of savers' capital. That doesn't seem very fair. Especially if there is no guarantee it will even work.
There is a much simpler and more effective solution to the problem, which no one has the courage to take. This is to let all the insolvent businesses and consumers go bankrupt. Anything crucial to financial infrastructure should be nationalised so that the country gets any upside as well as subsidising the downside. With that sole exception, everything else should be allowed - forced in fact - to go the wall. Once the good risks have been sorted out from the bad risks, assets can be correctly priced, risk can be correctly priced, and on that basis we can return to stable, secured lending - on a prudent basis and without stealing the capital of the country's savers.
Personally I am immediately liquidating all my sterling denominated assets - ISAs, savings accounts, everything - and buying tangible assets asap before deflation hits. I will probably buy gold, since any UK asset or sterling asset is questionable while this QE is going on. Maybe Euros will be a safe haven for my savings, since the Euro zone can't print money and it can't even issue debt very effectively.
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Can i have my money back please?
Failing that.... could you recommend which foodstuffs may pove the best to stockpile..my own choice is evaporated milk.... but I don't have an economics degree so I'm no expert...
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Arnie_99
"So on that basis, everyone hoping for a job is hoping someone dies or gets sacked or retires?"
I don't recall talking of jobs.(But economic growth creates new jobs, so it is very different).
Buy to let must have an effect, as you say. Especially with tax breaks and Gordon's cynical special stamp duty relief added (it just meant FTB's could afford to pay more and so pushed up prices even higher, just in time for the crash!). There has always been a rental sector. BTL couldn't push prices up if there were shed loads; there must be a restricted supply.
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I seem to recall that the pricing of assets and their expected future values was one of the major contributing factors to the credit crunch, which we know has since induced the recession.
I was keen to know how the BoE will be able to protect its and our (the taxpayers) interests when purchasing gilts and securities on the market.
I seem to recall that certain market players took positions "short-selling" financial institution stocks, which led to nationalisations and a temporary ban on short-selling.
How will the BoE be able to prevent such practices undermining its market stabilisation strategy in the national economic interest, with the purchases of these assets?
Is a further temporary ban on short-selling called for and justified?
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#78 jadedjean. There is no doubt that the rulers of the world have been engaged in a process to commoditize people.
Given that premis then your identified correlation as between "commodities" is broadly accurate.
However I do not understand on what basis you are able to conclude that the UK has specialized in the importation of "not very bright people."
A lot of these people hail from countries where the UK (and its commodity centric friends) have been busily undermining the basic fabric of the societies from which these people hail. This ranges from covert "counter terrorist" techniques to the installation of "death squad" type regimes through to the full scale bombing of entire countries. Anyone able to extricate themselves from such situations would on the balance of probabilities most be likely be extremely bright and tenacious.
They are also more likely to be concerned about collapsing houses as opposed to collapsing house prices - which would suggest that they are not likely to be overly interested in the debt/consumption paradigm.
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#74 True Liberal Said:
"Think of debt as anti-money. What you're not getting is that the 100 million never existed in the first place. It was magic'd into existence when Company X borrowed it. That's the big secret of banking. The money is created purely for the purpose of the loan. The banks don't actually have the money beforehand."
At the same time money is(bank) debt (it says so on the paper versions "I promise etc.).
The idea that money is created concomitantly with loans is hard to swallow (though true). That is why I think the BBC (someone sensible like Stephanie Flanders) could usefully explain how financial systems work and what the words mean (since the everyday meanings of words like "money" and "capital" are different from their technical meanings).
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Goffdrop
I am sure that Stephanie's additional explanation of 6th February probably answered your questions, but some alternative suggestions might be:
Have you tried accessing the book written by Stephanie's Colleague Evan Davis' and Bannock and Baxter, "Dictionary of Economics". It succinctly explains most economic vocabulary in layman's terms.
For the more financial market related terminology, have you tried "How to read the financial pages". by Michael Brett.
These are as useful as a Shakepeare's Complete Works or the Oxford English Dictionary, on your shelves at home, especially at the moment.
These suggestions are meant in the spirit of the BBC's mission to educate, not as commercial plugs.
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"Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back. "
In recent times when has our government shown the strength to do the right thing? For this the Bank will need government approval and I wish I had your confidence in them
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So is this incompetence, irresponsibility, or the financial equivalent of a "hail Mary pass" in American Football?
There are many posters on this site who have been calling it like it really is for a long time now.
So why in the name of perversity, do we have yet another measure taking us away from stability instead of towards it?
Ah yes, we're economists, we're clever because we know things that you wouldn't begin to understand (even if we never saw the train coming).
The ultimate stealth tax. Our currency, and with it our individual wealth devalued (going the same way as our savings, pensions). We are fast becoming financial hostages to the state, or superstate.
The same state that presses on with ID cards, says we can't photograph policemen any more, wants to put CCTV cameras in pubs.
Where am I?
In the village.
What do you want?
Information.
You won't get it!
By hook, or by crook, we will.
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Stephanie wrote:
"But if QE works, the government will clearly benefit from a faster upturn in the economy - and so will all of us. I will tackle that thorny question in a later post."
Firstly Stephanie "which thorny question?"
Secondly, why should you be so confident that if QE works there will be a faster upturn?" Remember that Ben Bernanke and King both thought that if they dropped interest rates significantly, then consumers would respond in the way they are meant to in economic theory, i.e. stimulate investment and consumer demand. Problem. They didn't, hence the belief for a need for QE. (A short revision in social psychology might have made them slightly more aware of this outcome - but hey nobody's perfect).
My point is that we are no longer operating in a world where the conventional economic wisdom operates. Setting aside the variations in macroeconomic policy put forward by monetarists, neo-classicals and neo-Keynsians and other schools of thought, the truth appears to be that most policy efforts are currently more of an "experiment" rather than the execution of robust and proven relationships.
I do not wish to suggest QE cannot work, rather I should like to respectively caution that it is not a foregone conclusion.
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I really don't see why there are fears about deflation. The likelihood is that there will be a significant increase in inflation.
The Govt are running huge and growing deficits which need to be financed by "QE". This will happen and it will cause increased inflation. In some respects QE is absolutley essential in order to reduce the real cost of the debt the Govt is accumulating on future generations.
The growing Govt deficit and deficit on the balance of payments will surely cause futher falls in sterling. Already inflation is building up a head of steam because of the 30% fall in sterling in the last year, which is the major reason inflation hardly fell this month despite the growing severity of the depression. Buy now before prices go up!
Our savings rates are neglible anyway and the damaging falls in interest rates will reduce savings as investors look for alternative savings such as gold or collectables.
Why should I keep my savings on deposit if the interest payable is neglible? Many others will be forced to spend their savings on day to day living, so making the country poorer as this reduces savings and will put more pensioners on benefit, thereby increasing the Govt's budget black hole.
Hardly anybody, except the very rich, can now afford to save enough towards their own retirement. This is very damaging to the economy and yet it has been totally ignored.
Every commentator points out that the problem is the drying up of the wholesale credit market. But this was the cause of the credit crunch in the first place! Northern Rock lent like it was going out of fashion because they were able to borrow on the wholesale credit market, and this led to the unsustainable housing price bubble.
Surely the last thing the Govt should be doing is recreating the system that led to the credit crunch in the first place.
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The banks have been printing money for years, it is called Fractional reserve banking - they can easily make £100 into £400 (c.f. http://en.wikipedia.org/wiki/Fractional_reserve_banking#A_Simple_Example_-_A_Single_Bank)
It's just that the banks have stopped doing it. Great if the Government takes over provided they make sure the money ends up with the people who will spend it i.e. the poor. Its the only way out of a depression short of a war.
Stephanie - error or miswording in your article "It may even make the debt management office's job harder, by putting a lot of extra gilts back into the market". I think you must be referring to what happens after QE when they sell them back. QE itself will reduce the supply of gilts, increasing their price and decreasing their yield.
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No 88, you talk a lot of sense.
The insanity of policy makers in this downturn has bordered on absurd. Let's take the case of two banks.
Northern Rock, run by a bunch of incompetents was nationalised. It is now backed by the government and has seen huge in-flows of capital, allowing it to pay back circa £15 billion of it's loans from the BoE, but, just as surely, taking money out of the economy and competing unfairly with other banks.
Lloyds TSB was a well run bank, so well run in fact that the government decided to lumber it with the toxic HBoS. That's a hefty chunk of punishment for the prudent and successful Lloyds TSB. I sold my holdings in Lloyds TSB the minute I read that the Golem was involved in the takeover.
The good bits of Northern Rock and HBoS should've been hived off to competent people and the remainder left to go to the wall.
But, one of the great failings of democracy is that governments view electoral success above national success.
We'll be like Japan soon, a zombie economy. In fact, we'll be worse off.
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#88 Canary
"QE, printing money, is stealing from everyone with a positive (credit) bank balance and giving to everyone with debts. "
That is true when the Bank prints money to fund governement spending (e.g. Zimbabwe). It is a form of taxation that also inevitably leads to inflation...the theft. But when the money is used to purchase existing assets, as is planned, that is not necessarily the case. IF it leads to inflation, it will erode the value of savings. But if it (helps) prevents a slide into a deep recession and deflation, most of us will be better off (just those with savings will benefit less than the rest).
But must it cause inflation? Conventional reasoning seems to say yes, but that reasoning applies to stable times where more money can only chase a fixed(ish) supply of goods. It isn't like that now. There is spare capacity and likely to be more. Deflation looms [forget the silly BBC reports of low inflation, prices (based on both CPI and RPI) have moved down for 3 consecutive months; that sounds like deflation to me]. Deflation is more problematic than inflation, for most people.
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No 101, that's a decline in the rate of inflation, not deflation. And inflation, as measured by the government's preferred CPI index is at 3%, the upper limit set by the government. If it was 3.1% the buffoon King would've had to write a letter to the Golem's streetwalker Darling explaining how he was going to return it to the government's target of 2%.
That would be a letter to see. In order to return inflation to the target I'm going to print money.
I don't believe we'll see deflation. For one thing, in spite of the price of oil falling, the price at the pumps is rising. What happens if the price of oil moves up again? Businesses in primary industries across the globe are culling investment programmes, so when the economies turn around there'll be shortages of primary materials, which will lead to prices rises. The only thing coming out of this downturn unimpaired are commodities. Sure, they're taking a hit at the minute, due to forced liquidations; cash is king. But they'll bounce back.
Stop worrying about deflation; inflation is the real threat. As soon as the global tide turns, interest rates will have to soar to get a grip on inflation. And the Golem will have wrecked the economy all in a desperate bid to save his own political skin.
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Morning Stephanie,
good, thought provoking blog, as usual.
Did you see the address given by Obama yesterday (Wed 18/2)? What a superb orator that man is. Seemed like a good plan to me.
USA has already tried what the BOE is proposing and it didn't work!
The new plans from Obama to finance households seemed well thought out and well received by the audience who thought Obama was talking to them personally (not about some nebulous global crisis).
What do we have in UK-nothing but a bunch of failed dullards who don't have a clue.
I think the stimulus given in the USA will have a tremendous effect on confidence for their stock market- watch the bears get singed now. If I'm correct then we will see a huge rally across the world markets as people sitting on the sidelines with masses of cash will buy back in so that they don't miss out on the bounce.
Please include a reference in your next article about the last time HMG printed money under Thatcher and what then happened two years later (clue inflation 16% which was predicted but overruled for political expediency). I had a mortgage during those times and for businesses it was a disaster with nobody able or willing to quote a fixed-price contract. What a mess that was (imagine the effect of that on the public-private partnerships).
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I've read all of the above posts and have come to the conclusion that nobody really knows what the effects of QE are going to be - let's leave aside the question of if it will work. Therefore, we are playing with theoretical constructs in a real life environment. That I believe is very dangerous.
I accept that there is a very real chance of deflation in our present situation. However, there must be other tried means to address this problem.
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It seems fairly clear that the banks blind comfort with bricks and mortar as security for their loans has resulted in a debt bubble arising from the house price bubble.
Today's choice is fairly simple, either:-
Allow this side of the economy to crash, as it deserves, taking the government, the banks and the heavy borrowers with it.
or,
"Rescue" the situation by inflating all prices until the security is re-established, thereby saving the aforementioned through the sharing of their debt amongst the "haves".
For this "easing" strategy to work, it requires a substantial devaluation of the currency. For a country with a large deficit in real goods this will result in a crisis, a visit to the IMF, high interest rates and will in the longer term be no help to anyone.
When will these jokers learn that you can fool the electorate, but you can't con physical laws?
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The debate is interesting but somewhat like doctors wondering what medicine is required and whether it will work.
Thought needs to given as to just why the patient is ill.
Why do we have an economic system that periodically causes so much human distress?
Millions of people out of work, huge numers of people losing their house, massive debts - think what this stress does to the family. How many additional suicides?
And this is just from a western perspective. Many in the developing world will just die of starvation or disease brought on by malnutrition.
Economies going into recession are not natural events that we have to learn to live with. A system that only produces for profit, not need, is a human-made system.
For humanity to be collectively free we must have democratic control of the means of production.
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86. getridofgordonnow:
"The latest polls show labour on 28%; I've got no idea who that 28% are, but I hope they're not in charge of anything important"
Easy one. The 28% are employed by the government and/or receiving welfare. 24% of the UK workforce is employed directly by the state. QED.
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subedeithemomgol (#102) wrote:
Hyperinflation, coupled with soaring interest rates, will kill off those householders not currently affected by the subprime crisis. We'll then see even more repossesions.
Businesses, too, will suffer as their custom will drop, and they'll be hit with a double whammy when the high interest rates cripple their cash flow. So we can expect more bankruptcies here also.
Doesn't seem like the current strategy will solve the crisis, only engender a much greater one in the long term.
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In the past doesn't printing money just lead to hyper inflation? South America, Germany come to mind
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The latest data on the public finances should make interesting reading when released this morning - FT's headline today.
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Friendlycard,
Rather than making facile comments, show me a VIABLE political alternative
WELL?
GO ON THEN?
THOUGHT SO!!!
If you look at my posts you will find that I'm no supporter of Brown's 'global' startegy but until we've got an alternative then we are stuck with what we've got. The CONservatives are not promting any real strategy and the Lib-Dems are a one man band.
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The government's vast new debt has to be paid back somehow, either by quantitatively easing (inflating) it away, devaluing our savings in the process, or it has to come from future taxation, i.e. our children and grandchildren get to pay it off. Not much fun either way.
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No. 106. duvinrouge
The world you wish to live in needs everyone to give up self interest. I have some sympathy with this point of view.
However, we seem to live in a world where humans celebrate competition.
"Competition" is perhaps a polite way of saying "selfish".
It could be argued that competition has given us technological advance, and a better standard of living than 100 years ago. Unfortunately, some of the technological advance is partly due to two world wars.
Given the above we seem to have only two choices available today:
(i) Capitalism providing boom and bust on a regular basis; or
(ii) Socialism providing a continuous bust, where everyone is equal because we are all poor all of the time.
Socialism forgets that it depends on tax, and that tax depends on private sector profits. If the tax burden is too high in one country, a business will move to another where taxes are lower. The socialist country then faces competition from abroad, and finds its private sector struggling to make profits as a result. This means the socialist country has small tax receipts, and a limited public sector. The best public sector is one that is backed by a strong private sector.
A country like Norway has a good standard of living because it has oil and gas reserves. This means its oil and gas businesses are tied to the home country and cannot move abroad, because the oil and gas cannot be physically moved. Hence, such a country can impose a relatively high tax burden on the oil and gas based private sector, and enjoy a solid public sector as a result. When the price of oil or gas falls, a problem will ensue if the country in question has already spent most of the wealth generated in past years.
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Hi Stephanie
I have posted before about our inflation problems. This is highlighted by the news that water bills are going to go up by 4.1%. There is a steady stream of announcements like this from the public and what I call the pseudo-public sector. Also this pseudo public sector has mostly been sold off ( much of it on Labour's watch) abroad.
Two problems further ahead.
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Looks like we really are up to our necks in economic theory when printing money is all that remains to preserve our way of life.
Time to start hoarding stuff to barter.
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No. 32
Regarding my earlier post (25)
Your missing the point. You need stimulus - my stimulus package is expanding money supply without interest or using the fractional reserve - and trusting the people to kick start the economy rather than loaning tax payers monies to the banks to improve their solvency ratios.
Complimentary currency systems is the only answer to the present crisis, the reason it is not being debated is the banks would be out of the loop - and you would re-write the rules for modern monetary systems for 100 years to come.
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111. foredeckdave:
"Friendlycard,
Rather than making facile comments, show me a VIABLE political alternative"
I don't agree that it is facile to point out, in answer to an earlier poster, that 28% support for Labour may relate to the numbers who work for or depend on them.
Your point about a viable alternative is a good one. Like you, I have limited belief in what the Conservatives might accomplish. This said, I think the return of Kenneth Clarke is good news.
However, the way our system works, they are the only alternative on the table (apart from possibly a hung Parliament and a coalition).
In the end this all comes down to one's political beliefs. I dislike Brown and co not just for their economic policies but for broader reasons (which I would be happy to specify but would be off-topic). Even if the economy was all fine and dandy, I would still vote for any party which had a realistic chance of getting rid of Labour.
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armagediontimes (#92) "However I do not understand on what basis you are able to conclude that the UK has specialized in the importation of "not very bright people.""
You are not alone. I suspect therein lies the problem.
In fact, it shows up in our Key Stage 1,2,3 and 4 SATs data every year alas. For the USA picture see the 2007 ETS report (see the Newsroom media clips). For the fall out, see our violent crime rate, rising school indiscipline (feeders for our criminal justice system), and deteriorating morality/ethics and economy.
The general public on both sides of the Atlantic does not comprehend this because it has a misplaced, aspirational (but quite irrational given the evidnece) faith in an alchemical model of education. I truly wish there were some merit to this Lysenkoist/Lamarckist myth but there isn't.
Facts don't seem to make much difference to Liberal-Democratic people and their beliefs alas. Especially economists, who appear to be second only to sociologists/politicians in their uncritical faith in 'the environment' or 'market'.
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The principle of QE is alarming in itself. But when you consider the unenviable track record of this incompetent government, you just know that the gilts and corporate securities purchased will have a duff investment return or that the price paid will be well in excess of what passes for market value.
Examples abound such as selling the UK's gold reserves at rock bottom prices - the price fell in direct response to Brown as Chancellor of the Exhequer pre-announcing his intentions. Last week we had a GBP 7.5 bn deal for new trains from Hitachi in Japan. First there were 12,000 jobs in the UK, then 2,500 until Hitachi said it could be as little as 200! Jobs in Japan yes, in UK definetly not - the effects on the supply chain in the UK could well be devastating.
One other point. Your blog does not mention explicitly that the purchase of corporate securities would be constrained to the UK. The assumption is that it is implicit. Given this government's emphasis on language (see Nick Robinson's latest blog) I can well see securities being bought in China, India or USA. After all this would be consistent with the New World Order and the global bargain amongst other phrases that pepper the current Downing Street jargon.
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"79. At 8:25pm on 18 Feb 2009, random_thought wrote:
Hmm. But if the 80 million is written off, then the bank has lost 80 million of its capital and will probably have to claw back something like 2 billion (25 x 80million) of its loans in order to get its ratios back in shape. Banks can be tamed if their loan/capital ratios are strictly controlled - we just haven't bothered doing that properly for the past 20 years."
Well, yes, in theory. But what they do is foreclose on the company assets and pretend that the company was still worth 100 million. So they have 100 million worth of assets on their book instead of the 80 million pounds.
This is the real fallacy about money. The idea that it isn't variable. That it is some form of measuring stick.
e.g.
You take the world economy and everything in it. What's it worth? What is the whole world worth?
Well. It's worth all the money which exists. Say there is only 1 penny in existence. That is all the money, so the world can only be worth 1 penny. Double it. There are now 2 pennies. The world is worth 2 pennies, except the world hasn't changed, only the money has. The money has simply devalued by 50%.
Now come along some bankers who multiply the money 50 times. The world hasn't changed there is simply a lot of credit around inflating house prices. Now said bankers start destroying the credit. The world is the same, it's just the money which is changing value.
What exactly is the point of accountants if the value of money is allowed to be manipulated so wildly?
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#111. foredeckdave wrote:
"show me a VIABLE political alternative"
Hmmm... Isn't the point you are making that are no answers to the credit crunch - EXCEPT the unpalatable (and therefore un-politically electable) ones?
1. Pay cuts all round say 10% for starters - (as part of a national incomes strategy including a national maximum annual salary/pay and 100% tax after that)
2. Re-establish a proper value for money (i.e. stick up interest rates.)
3. Rescue those groups (of companies and people) who we as a society generally agree should be rescued (i.e. put fewer fat cats before the hungry and dispossessed / repossessed.)
The basis of my three point plan is that as the 'hurt' is shared as fairly as possible, with those that caused the problem bearing a real cost and that the people en mass have a real prospect of accepting, and perhaps even voting, for it.
However the easy answers that the Bank of England and the MPC are offering remain a barrier to doing the inevitable right thing. Far from not being like the Japanese at the start of their lost decade we are doing exactly the same thing - just claiming that we are not.
I have absolutely no confidence in the handling of the economy by the Bank of England and remain confident that they are a genuine hindrance in working the Nation through this catastrophe as their philosophy of economic management created (or substantially created) the problem in the first place. We need a change of people and a change of direction - the market is telling us that and so is the politics.
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Anyone else worried about there savings?
Printing money or QE the Government can call it what they like basically they are devalueing money. Now they have made everyone scared of deflation it is ok for them to print loads of money which will inevitably cause high inflation and savers who have worked hard and been responsible with their money will now see it all eroded away because of low interest rates.
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# 116 selvtak
Will never happen and you know it. There is no way out of the current situation without major pain. Unfortunately those in power will not feel it. There is a football chant that is most appropriate to those who are implementing these desperate measures............"You don't know what you're doing".
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"113. At 09:10am on 19 Feb 2009, MrTweedy wrote:
Given the above we seem to have only two choices available today:
(i) Capitalism providing boom and bust on a regular basis; or
(ii) Socialism providing a continuous bust, where everyone is equal because we are all poor all of the time."
I disagree. We can have capitalism with no boom or bust. We simply have to face up to the nature of the monetary system and reform it where necessary.
"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." - Lord Acton.
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"119. At 10:04am on 19 Feb 2009, excellentcatblogger wrote:
First there were 12,000 jobs in the UK, then 2,500 until Hitachi said it could be as little as 200! Jobs in Japan yes, in UK definetly not - the effects on the supply chain in the UK could well be devastating."
Do you believe for a second that our banks invest our money primarily in the UK?
If you want to ensure local investment then use cash and put your money into a Credit Union, not a bank.
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More evidece to support my theory, which is that we will nationalise the banks, restrict credit, write off debts, and use public money to develop new technology to get out of the current system/mess
From Nouriel Roubini:
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021201602_pf.html?source=cmailer
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If QE will work, then there is a clear implication that the government deficit is part of the credit crunch problem.
The government has been borrowing on a prodigious scale and funding it by selling gilts. Now it says that the BoE buying gilts out of the market will improve the situation. Ergo, the government caused the problem in the first place by selling all those gilts and soaking up available money in the economy.
We know from history that changes in the money supply (actually the quantity of money in the economy) do not affect output - they just affect prices. So QE might help avoid deflation but it WILL NOT ameliorate the recession. Especially if the government takes the opportunity to borrow even more, instead of leaving the additional money for the private sector.
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#122 AOK1982
Agreed. Prudent punished. Feckless rewarded.
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Another crop of poor statistics - this time the latest month of mortgage loans. It is truly extra-ordinary if anyone in a position of power (ie the useless Crash Gordon and his government) is in the least bit surprised. One of the roots of our current woes is the over-inflated values of housing, created by bubble economics.
Reducing mortgage interest rates does not tackle this root - it merely delays the pain and makes it more prolonged. No rational person, fearing unemployment and expecting interest rates to rise in the medium term, would buy a house today when the price is likely to fall 15% or more in the next year. The root problem can only be addressed in one of two ways:
1) values fall to their long-term equilibrium whilst other things remain the same or
2) values remain the same whilst other things rise (ie inflation)
From an equitable point of view (1) should happen but there will be a lot of expensive pain suffered by people who are likely to shout very loud. However, from a political point of view it seems an absolute certainty that we will adopt (2), not least because the suffering will be endured by the middle classes and elderly (ie those who have been responsible and who have savings) who are less likely to shout loudly and because, most importantly, the value of government debt will be reduced. It seems to me that our leaders know that (2) is the route but do not want to acknowledge it, and for this reason, want interest rates to be as close to nil as possible. More honesty and less spin would be welcome.
As someone with no mortgage and currently with a reasonable safety valve of savings I would personally like to see us in (1) but it will simply not happen.
Similar principles should apply in other asset markets such as cars with the added feature that supply capacity might be taken out by receiverships. It will be interesting to see how the over-capacity in the car market is addressed in the next few years. The correct answer is that one or more manufacturers should go to the wall and new, greener forms of personal transport should be developed. However, almost certainly, politics will intervene so all the manufacturers are supported by taxpayer subsidies, at huge public cost in many countries. This will merely delay the pain as the change in demand profile is quite likely to be permanent.
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The money pumping activities of the central bank and the artificial lowering of interest rates cannot replace real savings that do not exist. Absent real savings, it will not be possible to start new capital projects without undermining the existing structure of production.
Interest rates are just an indicator of the supply and demand for real savings. Misrepresenting this indicator will not enlarge the flow of real wealth. More money printing cannot generate more savings or economic growth.
QE, therefore, is bound to end in failure.
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121. John_from_Hendon:
"The basis of my three point plan is that as the 'hurt' is shared as fairly as possible, with those that caused the problem bearing a real cost and that the people en mass have a real prospect of accepting, and perhaps even voting, for it".
I think you are right, though I question whether 10% pay cuts would be enough in this context. In 2007, we generated GDP of GBP 1340bn, but topped this up with overseas borrowings of GBP 625bn, suggesting one pound in every three spent that year was borrowed rather than earned.
I think the downsizing process might happen in a more gradual way, as follows:
1. House prices stay below their previous peaks which makes us, on paper, poorer.
2. We are already poorer in global terms because of the sharp fall in the value of sterling.
3. Through a combination of exchange rates and QE, inflation will increase, reducing the purchasing power of our savings but also reducing the real value of outstanding debt.
4. Wages will fail to keep pace with inflation, making us poorer in real terms.
5. Low interest rates make savers poorer,
Prior to this crisis, we were living way beyond our means. I think that these 5 patterns will restore our spending to parity with the economic output that we generate. My main concern here is that the public/private allocation of resources might, through this process, tilt further towards the public sector, which could be detrimental to the private sector and the economy. There could be big conflicts ahead over public spending.
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122. AOK1982:
"Anyone else worried about there savings?"
I share your concerns. Savers - including a lot of retired people who depend on interest from their savings - have seen their income reduced by more than 80% in a few months. No other group would (or could) be expected to cope with such a huge cut in their income.
Contrary to what is sometimes said, most savers are not rich. They also outnumber borrowers by 7 to 1. I think savers are going to get very angry.
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# 122
Savings (as opposed to shares or investment) are always going to struggle to keep pace with inflation. At the moment you can get interest rates well above RPI (CPI is as useless on the way down as it was on the way up) if you shop around, so you can do OK for now. Gold is handy in times of hyperinflation, but storage costs/insurance mean you have to pay to keep it.
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For those who haven't seen it, your weekend reading
And the classic, which can be set out clearly....Suitable for a rugby-free weekend...
Happy reading
ed
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Adam_C_UK # 127
"So QE might help avoid deflation..."
But is there any conclusive evidence of deflation?
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Devnian,
Yeah, let me put you on to this guy I met in Palm Beach...Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
I think there's a subtle point being missed here. QE in any form you like increases the M0 supply which *can* devalue the currency (and God help us if investors run from Sterling). Economically, other than banks not lending, the key issue is how all assets are valued and the fact that such assets are proving low "worth" is an accounting fact which drives down the value of organisations and their assets (as is the case with the banks). By a simple change in accounting practices, the root problem disappears - Mark-to-market. Remove this from accounting and set an intrinsic value on assets and the core problem in the credit crunch evaporates. BofE tried interest rate cuts, now plans to print money as they're apparently all out of options. Deal with Mark-to-market IS AN OPTION.
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Oh for goodness sake there is not going to be hyperinflation.
Hyperinflation happens when the government prints some money which enters the economy.
Then the banks multiply that money (up to 30 times here in the UK) as credit.
Then the government prints some more money to "keep up" with the inflation caused by the credit expansion. This causes another round of credit expansion and inflation is off to the races.
http://www.cnn.com/2009/WORLD/africa/01/10/zimbawe.currency/
This is well understood. As soon as you realise that banks create money from thin air and multiply the existing currency, it's obvious what's happening, and how to stop it.
Take a look at the Bank of England M4 stats for the last decade. The amount of credit in existence has been increasing at about 15% per year. Not 4% or 2%. 15%
If you put money into a bank account 10 years ago, even at 5% interest it would now be worth about 40% of what it was originally.
This is the secret of investing. Your money ISN'T increasing. The currency is simply devaluing. Anything which is not money appears to increase in value. Those poor fools who keep their store of wealth as money are simply being robbed more and more every year.
When money and credit are increasing, you get out of them. When they are decreasing you get back in. The banks are even so kind to announce when they are going to increase and decrease lending, and therefore credit.
Money is NOT a safe store of wealth. Particularly when it is so easy to make more of it. It is THE most manipulated commodity in the world. Money is completely untrustworthy.
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Steph,
Unlike all her ancestors?;-)
ed
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We are often cautioned that we must live in the 'real world' by folk who mean 'money', a concept more abstract than theoretical physics......
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# 136
3.5% for a 1 year fixed rate bond. Nationwide, I think, but can't be sure. Could have been one of the other building societies. RPI 0.1%. 2.4% real return is reasonable on a savings account at any point in the economic cycle. You're right though, many people get greedy and want more from their idle money.
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Oops, typo there: meant 3.4% of course!
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#139 true-liberal
And to prove your point......... I'll take your money off your hands....after all it's "completely untrustworthy"
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@ #101
Yes, QE will only rob savers to pay debtors if it causes inflation, or averts deflation. What are the chances of deliberately manipulating the money supply and keeping the price of money absolutely neutral? It would be a miracle.
@ #138
Mark to market. I appreciate this as a good suggestion to try and solve the problem. Unfortunately mark to market is just transparency and common sense. Suspending mark to market would simply be an official proclamation that the Emperor is Fully Clothed. It would not change the facts.
The real problem is not that we are marking to market, but that we can't mark to market accurately because the markets in everything are illiquid. What we actually need are more failures, more bankruptcies, more receiverships. This is the real "mark to market" and it will start to put a price floor on assets of all kinds - consumer and commercial assets. With a return of the ability to price assets, there will be a major boost to the willingness of lenders to lend, and investors (private and corporate) to invest.
That would not solve the whole problem because you still have the self-perpetuating problem of low revenue expectations in recession, making lenders and investors risk-averse. But it would be a start. At least we could see some bargain hunting, conservative lending, and investment for cost reduction. Better than nothing.
There is a strong and credible view that the Great Depression dragged on for years precisely because of the massive intervention preventing all sorts of companies from failing. In contrast, in previous depressions there was little or no government support, risky companies went to the wall, the good were thus distinguished from the bad, and investment resumed.
As stated in other posts, you can't violate the laws of economics by playing with the nominal quantity, nominal value, nor the price (interest rate) of government-issued money. You *can* use these monetary tricks to get the healthy parts of the economy to subsidise the unhealthy parts, resulting in stasis - a zombie economy - but why on Earth would we want to do that? Because like little kids, we're afraid to take our medicine, afraid to take the consequences of the risks we ran for short term profit?
Governments seem to be repeating the mistakes of the 1930s rather than avoiding them.
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116
Yes your right it will never happen. (Unless we bring solutions in to the public domain)
What sickens me is were trying to fix a system which is fundamentally badly-structured, if we don't change the course were following right now, things will get 10 times worse than they are today.
A good analogy would be:
Is a glass breaks, you don't try to glue the pieces back together again.
Credit is based on debt - you can only expand money supply through the creation of new debt, and fractional reserve - the credit/debt we create today just gets mixed with the old toxic debt so taxpayers lose and banks de-leverage. (Status quo - from a money supply perspective)
The money in your pocket is fractional money - the fractional reserve franchise held by the banks allows them to charge interest on the fractional amount - this premium being interest.
As long as you have interest and a monopoly on money creation you'll have boom and bust cycles. (Just that this bust cycle will eclipse the great depression of the 1930's you need to go back as far as the 1860's to get an idea of where were going).
So to go back to my original point on No. 25 - we can expand money supply by allowing the public to act as a form of fractional reserve without the need for interest (bank premium) - the problem being 99.9% of the population see money as intrinsic, rather than a means of trade.......and 100% of journalists understand only on how to report what's under their noses rather than facilitating a debate on alternative monetary models.
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Money explained
;-)
ed
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Quantitative Easing if unchecked will lead us down the road to ruin. Personally I dont trust the Government or politically controlled bureaucrats such as the Bank Of England to soundly manage the nation's currency. Throughout the whole of history fiat money has always eventually become worthless and this current episode will be the latest but most spectacular in a long line of failures of paper money created out of thin air with nothing but the good will of corrupt leaders backing it. The only guarantee of sound money in the long run is to promote the Gold standard as throughout the past 2000 years Gold has constrained leaders, only allowing them to spend what they can truly afford. It is no coincidence that in England the Gold standard during Victorian times was synonimous with the greatest period of growth and innovation this country has ever seen coupled with flat prices - making investment easier for companies looking to expand. I would recommend any readers have some Gold in their asset base to protect against the continued devaluation of paper money and recommend that Governments peg currencies to Gold to allow the Global economy to recover from the worst mess we have seen for a century, unfortunately to pay our way out of the collective debt hole we've dug that pegged price of Gold may have to be a lot higher than the current market price but thats a price we may have to pay to avoid a debt deflation trap.
All the best
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No 108, the Golem at No 10 doesn't care about the future of anyone other than himself. And the only future he cares about is retaining his miserable grip on power.
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The idea there will be a fair share of blame or cost for this is a joke. There are already people better off, however temporarily. There are businesse which should have failed given money. There are staff of effectively failed businesses being given businesses whilst other from manufatcuring sectors pick up JSA. There is no evident cut in the public sector which is paid for by the private sector which is in trouble. The idea credit will massively reduce long term is a joke. HMG have already made it plain they want credit back up as high as possible. The banks are not doing enough to satisfy HMG so now we have QE to replace the banks. It is simply a case of understanding whowever partially the environment and making haste if you have to to areas less hairy than others. There will always be people who believe all ground is terra firma when it is not, that is up to them. As for the unemployed or shortly to be unemployed. The painful fact is there are not going to be the jobs for at least 3 years. The majority will not really have a problem. It was obvious things where unsustainable a few years ago. It was not hard to project what was due to some extent or other. It is not hard to project some outcomes. It is not wealth which is important it is relative wealth and income. If some want to make themselves credit serfs that is up to them. If you try telling them they dont believe you.
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Canary (145),
And the more recent mistakes of the Japanese...Failure is a necessary condition of success - just ask Darwin.Peace and living within our means
Interesting times
ed
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#146 selvtak
"As long as you have interest and a monopoly on money creation you'll have boom and bust cycles. (Just that this bust cycle will eclipse the great depression of the 1930's you need to go back as far as the 1860's to get an idea of where were going)."
I agree with you in that it'll eclipse the 1930's. My analogy is that those in "power" know that there is a meteor about to hit but they won't let on to the size and devastation it is going to cause.
Any chance of that temporary currency of yours soI can go out on a last binge........Porsche......or am I only allowed to buy British?
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The Society for Plain Speaking English have suggested that the term
'Quantitative Easing'
is replaced by something a bit more meaningful and have suggested the alternative phrase to be used is
'a government sponsored scam designed to meet unknown ends with a minimal probability of success but with the effect of a guaranteed unleashing of rabid inflation on the country, together with bringing misery for the savers by destroying the savings they might have accumulated over their 40 year working lives '
A spokesperson from the Prime Ministers Office is quoted as saying
'We think that No 10 prefers obfuscation in this matter, however it is a global issue so we must stand shoulder to shoulder with other countries and have global obfuscation in all such matters to ensure a parity of hogwash'
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The article here discusses some of the spending packages the Japanese tried during the nineties. And while the story notes that the entire infrastructure spending ($6.3 trillion) failed to produce the desired result of reviving their economy, Western economists interviewed believed the Japanese just didn’t spend enough.
How much is not enough; very bad Sato-san you quite clearly should have spent more!
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#118 jadedjean The early links embedded in your post relate to educational attainment as measured by government authorities in the UK and the US.
Education is just one part of the giant scam being perpetrated against the population. Attainment measures are routinely rendered meaningless. I am not pesuaded of anything purely by reference to any UK/US sanctioned statistics.
The final link ultimately leads to a paper that suggests a racial explanation for differences in IQ test results.
This theory may or may not have merit I´ve no idea. It is however completely irrelevant to the point I was making as to the skills and determination required to escape from countries that are routinely undermined by the US/UK.
There are other ways of measuring intelligence than through IQ tests. Maybe aborigonals have low IQ test results (I´ve no idea), but I do know that they can survive and thrive in an envorinment that would kill the average European within a week.
I imagine that investment bankers probably score quite well on IQ tests - and yet still they have collectively destroyed $ trillions of wealth in a matter of months. What kind of skill is that? and who would want it?
Maybe you should take a more critical look at the various theories that various theoraticians expound. After all every snake oil salesman is selling snake oil.
All things that live are by definition required to have an uncritical faith in the environment since that is what gives them life.
The market is just a human creation - It exists and that fact is recognised. It is self evident that the ruling elite have no faith in the market otherwise they would not have sought to shore up markets to the tune of $ trillions. It´s quite easy really: follow the money - find the lie.
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"144. At 2:57pm on 19 Feb 2009, Brattbakkk wrote:
And to prove your point......... I'll take your money off your hands....after all it's "completely untrustworthy""
Oh I have no problems getting rid of it in the various market sectors.
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The MPC has no credibility left. They ducked any hard decisions in order to suck up to Brown when interest rates needed to be raised to keep asset prices under control.
QE is the last thrash of a failed bunch and the whole lot should resign. They are not alone in this respect.
http://mises.org/story/3281
It feels like a race to the bottom all around the world. Destroying the value of money may appear a short-term palliative, but just delays the inevitable and spans out the consequences
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"The most important [difference] is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go."
The government will have nowhere else to go in very short order if the Bank of England bids up gilts to prices the market is not willing to pay. Owners of gilts may even choose to take advantage of this operation to sell.
"Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past. In other words, it's going to sell it all back."
To whom, and at what price? How can it be sure that option will even be open after it has bought?
Steph, I watched you on TV, and I am sorry, you ask the wrong questions.
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#113 Mr Tweedy
Sorry for the delayed response.
You seem to equate socialism with social democracy (aka state capitalism).
You state "Socialism forgets that it depends on tax, and that tax depends on private sector profits".
Socialism/Communism is the collective ownership (through direct democracy) of the means of production - there is no private sector and no taxation or profit.
You also think that it is an idealistic blueprint on how we ought to live.
Engels explains clearly the difference between utopian and scientific socialism:
http://www.marxists.org/archive/marx/works/1880/soc-utop/index.htm
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armagediontimes (#155) "I am not pesuaded of anything purely by reference to any UK/US sanctioned statistics."
How about the OECD and PISA then? The UK's failure of compliance with sampling rules actually led to the exclusion of some of the UK's data from the 2000 and 2003 detailed results which bears out some of your concrns about the UK and statistics. So does an insufficiently remarked upon report into NI SATs which suggested that they may well have been dumbed down over the tears. Why?
"...completely irrelevant to the point I was making as to the skills and determination required to escape from countries that are routinely undermined by the US/UK."
Unfortunately, if the brighter people from Africa etc come to Europe, they denude their native populations of the very people that are needed there to build and sustain their infrastructure/economy/health-care systems. Have you seen the doctor-patient ratios in Afrcia, S Asia? YOu also have to bear in mind that i the mean IQ of those countries is one of two Standard Deviations (15 or 30 points) below the average of Europe in the first place, those brighter people will not be as bright as one might think and will just lower the mean of the population here.
"There are other ways of measuring intelligence than through IQ tests."
What's are those? As these tests were developed specifically for this purpose, and efffectively therefore operationally define intelligence, I thik you are going to be hard prssed to answer this question. The poplar notion of intelligence is just a derived and poorly undertood version which came from these tests I suggest
"Maybe aborigonals have low IQ test results (I've no idea), but I do know that they can survive and thrive in an envorinment that would kill the average European within a week."
They do. And many Africans can survive malaria infested areas for similar reasons of genetic adaptation, but you'll note they don't build skscrapers, aeroplanes, air-conditioners, trains, cars or have a viable economy. Many die of alcoholism, AIDS etc.
I suggest you give some serious thought to what I have said, as you may find that your thinking leads to collapse of civilizations through failure to act.
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No. 159. duvinrouge
Thanks for your reply. I'll take a look at the marxist theory when I have more time to take it in properly - thank you for sending me the link. I have not studied economics for decades, and I am not familiar with the theories of marxism, social democracy, libertarianism, or the Austrians; so please forgive my ignorance.
I guess that if a country was largely self sufficient, it could nationalise all means of production and live within itself. This would be akin to the Amish in America, I imagine.
An idealistic way of living is attractive, as I'm getting tired of all these booms and busts, the endless competition, and the somewhat empty liberal consumer society. It is possible to make money from the booms and busts, by timing investments to coincide with the rise and fall of markets, but personally I would like some moral restraint to all this. However, that said, my instincts tell me that capitalism with some State imposed limits is still a reasonable compromise. The limits would aim to protect humans from their own worst extremes. For example, the limits would have to include lending controls to restrict the level of credit and debt in the economy. A strong private sector supporting a strong public sector still looks attractive, if it can be achieved.
If a country nationalised its means of production, I feel it would need to retain at least some of the profit motive by paying the profits out to the employees. If the profit motive was removed altogether, any skilled workers who felt they could enjoy a better standard of living abroad, would leave the country to sell their skills to the highest bidder. I remember the brain drain was talked about a lot in the 1970s, when Britain still held many nationalised industries.
It is often said, rightly or wrongly, that profit and higher earnings are the carrot, and the lack of a welfare safety net is a stick. This is a motivational theory; but again I am lacking in knowledge in this area.
If all countries in the world nationalised their means of production, an equilibrium would be reached. If a large country, such as the USA, stayed with private ownership it perhaps would retain a competitive advantage over the rest of the world, and drag everyone back into competition. The nationalised countries would then lose out to the USA, unless they had products which were strategically important to the USA, and therefore used these for advantage and influence over America.
The average British citizen enjoys a better standard of living than 100 years ago, due mainly to technological advances. The continuous development of more efficient means of production seems to keep an economy growing. The question is, would a nationalised industry develop better and more efficient technologies as quickly as a privately owned enterprise? A command economy tends to take longer to react and adapt to changing demand for its products and services, as the decision makers tend to be more removed from the customer and the products.
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In general a command economy is better at innovation than a free market equivalent. According to what I have read.
Examples would be Nazi Germany, Soviet Russia, the US military, large multinational drug companies. China is hard to pin down because they do not need to innovate - Taiwan, foreign manufacturers established locally, and Japan have supplied enough technology for them , and what else they need they can buy from current account surpluses.
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#161
The wsws.org has a good article by Nick Beams that gives a fairly easy way into Marxist theory.
The article is entitled The World Economic Crisis: A Marxist Analysis.
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MrTweedy # 161
A better alternative would be to study this:
http://www.quebecoislibre.org/younkins5.html
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#160 jadedjean.
So it seems that we are in agreement as to the routine manipulation of statistics by the UK government.
It is not irrelevant to point out that the manipulators probably score quite highly on IQ tests.
You ask why they manipulate statistics. The answer is that the manipùlators perveive some advantage to themselves in doing so. Manipulating inflation statistics enables them to further impoverish the poor. Manipulating education statistics enables them to further impoverish large swathes of the population by persuading them to take on debt in return for largely useless qualifications. It also results in a population that is deluded as to their own empowerment. The manipulators well understand Goethe´s observation that "There are none so firmly enslaved as those who falsely believe themselves to be free."
I agree entirely that the, all but forced, emigration of the best and the brightest from the thirld world results in disastarous consequences for those that remain.
In general terms the ability to survive in the natural environment has little to do with genetic adaptation. My own Father was well able to live off the land, husband animals, and had knowledge of plants which had nutritional value and medicinal properties. Much of that knowledge has been lost to me. However I can operate computers, speak languages and do other things that my Father could not. I do not consider it sensible to seek to explain those differences in skills by reference to genetics.
It is true that indigenous peoples tend not to build skyscrapers, trains, planes and air conditioning units. Then again neither did anyone until the very recent past. Surely you are not suggesting some unexplained genetic leap forward contemporaneously with the advent of the industrial revolution?
Is the ability to build these things something that should be venerated? I guess that is in part a philospohical question. For my own part I have lived in some very hot places, and have always resisted recourse to air conditioning. If the air conditioning industry relied on me - then there would be no air conditioning industry. I do not explain this personal preference by reference to genetics.
What kind of person, or group of people, would invent nuclear weapons and then build and store enough of them to destroy the world many times over? What possible advantage can accrue to any life form by such an action? Despite the overwhelming inanity of such behaviour, this way of thinking is still implicitly supported by people like you who seemingly see value in IQ tests.
To answer your question, another way of measuring intelligence is to observe the actions of people and groups of people. If those people or groups of people routinely engage in acts of reckless stupidity then you can reasonably conclude them to be recklessly stupid.
I agree with you that it is likely that civilizations will collapse. However it is likely that the cause of the collapse will be directly traceable to the actions of the recklessly stupid.
Who would you rather trust - some guy that cannot spell his own name but will feed you when you are hungry, or some guy that can calculate the square root of any 15 digit number in 10 seconds but will kill you?
It´s quite easy to understand when you think about it. I´ve always found it easier to stick to the old maxim "Do not judge them by their words, judge them only by their actions."
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No. 162 and 163
Interestingly, Soviet Russia, Nazi Germany, the USA, Japan, and even the British Empire all possessed strong feelingings of pride for the achievements of one's country. Maybe a sense of pride, duty and unity could take the place of the profit motive.
However, we better mention at this point that extreme dictatorships do have a nasty habit of using force and fear to impose their will. I do not advocate this as a motivation. Even the lack of a welfare state is a form of control through fear.
Economists are starting to research the theories of happiness. It will be interesting to look into this further.
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#164
I have read your link by Dr. Edward Younkins, Professor of Accountancy and Business Administration at Wheeling Jesuit University in West Virginia.
I don't under estimate Locke's contribution to political philosophy but I would have thought Norzick's libertarian theory would have got a mention.
Do you subscribe to his entitlement theory of justice?
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armagediontimes (#165) "In general terms the ability to survive in the natural environment has little to do with genetic adaptation."
Not true.
"I do not consider it sensible to seek to explain those differences in skills by reference to genetics."
Only because you don't know very much about this perhaps?
"Surely you are not suggesting some unexplained genetic leap forward contemporaneously with the advent of the industrial revolution?"
No, the differences were clear long before that. Groups migrated out of Africa about 100,000 years ago and genetic divergence continued as a consequence of gene barriers.
You write about what you hold to be true (as we all do), but some of what you believe may be false may it not? I suggest you question some of what you believe to be true, as some of it is false and false premises often lead to false conclusions.
You should perhaps also think a little about the relation between the logical quantifiers:
Some(x)=not(all(x)) and
All(x)=not(some(x)).
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Dee dee dee la dee da....magic keyboards, click click click - 50 billion? Add another nought it's only another click. GO GO GO!!
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#168 - jadedjean: OK in the long term the ability to survive in any given natural environment has everything to do with genetic adaptation.
My point was trying to highlight the difference in the skill set as between Father and son. I accept that my chosen words were not clear.
However concentrating on this error serves (as you will know) to obscure the central point of there being no material genetic difference as between Father and Son, whilst there can be material differences in acquired skill sets.
Maybe you can trace genetic adaptation back for 100,000 years - but that is supremely irrelevant to original point, which I note you have taken care to ignore.
Of course somethings that I consider to be true may in fact be false. It is not something that would ordinarily require stating. (So, do you have a nefarious or mendacious purpose in stating it?).
You advise that some of the things I believe to be true are in fact false. Of itself this is nothing more than a truism. I could make the same comment in relation to either you or anyone else. Without expanding the point it would be merely gratuitious.
I suspect your reference to the logical quantifiers to be an oblique attempt to rebut my point about observing the actions of individuals and groups so as to form a view as to whether they consistently behave in a recklessly stupid manner.
You appear too persuaded of your own arguments. In the example I offered up "some" most definitely does equal "all" To be clear (because I like clarity) a small group of people (probably people with very high IQ´s) harness forces of unimaginable destruction, and in due course all people suffer the terminal consequences.
So, let´s just review the key premises in this argument:
1. A very small group of highly educated people develop something - let´s say nuclear bombs.
2. Nuclear bombs have no purpose whatsoever other than a destructive purpose.
3. Control of these nuclear bombs is handed to another, but related, small group of highly educated people. This small group of people by reference to no-one but other members of the group decide whether or not to detonate some or all of them.
4. If they decide to detonate them then everyone, irrespective of group membership, is exposed to the consequences.
And you would identify the false premis as...?
Absent one of the above being demonstrably false then it continues to be reasonable to conclude that if people or groups of people are observed to consistently behave in a recklessly stupid manner then they can be defined as recklessly stupid. This definition holds true irrespective of IQ, genetics or anything else.
Things are so much simpler than you appear to consider them to be.
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armagediontimes (#170) You are missing the point(s). Ditch what you think is important. Ask why people want to leave their home countries and why they wan to come here.
1) The mean IQ of Nigeria (as n example of Sub Saharan Africa); Bangladesh and Pakistan (as examples of S.Asia) is around 70 and 81 (for the latter two) respectively. Each of these three nations have tripled their populations from 50 to 150 million in the time that the UK has risen by no more than 20 million.
2) There is a high positive correlation between a nation's GDP and its mean IQ.
3) There is a high negative correlation between Total Fertility Rate and IQ.
4) European countries are not replacing themselves demographically but they are importing people of low genetic ability. With low ability comes lots of other problems, health problems, crime etc.
Can you see what is going to happen here? Can you see what is already happening here (and in the USA)?
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duvinrouge # 167
I'd be more interested to hear your theory of justice; Rawls perhaps?
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#171 jadedjean.
Why would a rational person ditch what is important to them on the basis of nothing more than a request?
Note that I address each question you raise, and note also that the same courtesy is not extended.
To continue a theme:
People want to leave their own countries and come "here" (which I assume to mean the west) because they are induced to do so. Sometimes, in the case of professional people with skills, they are induced with money. Sometimes, in the case of the general population, they are induced through starvation or bombs.
Take Senegal as an example (although you are free to provide your own preferred examples). Senagal used to have a viable fishing industry. This provided both occupation and food for the Senegalese. Over fishing principally by the Spanish under cover of EU authorised rights destroyed this industry. As a consequence the Senegalese find themselves bereft of both occupation and food. (In a rational society it would be a cause of some interest as to the basis on which the EU can grant rights to effectively destroy a country outwith the jurisdiction of that organisation).
The foregoing provides one example as to some of the reasons why people "want" to leave their own countries.
Why are IQ test results of any interest? They are one way of measuring a particular type of intelligence, an intelligence that is considered useful by ruling elites for the furtherance of their own interests.
All you are really saying is that the general population of your reference countries are of no interest to ruling elites. There is no rational basis to dispute this.
By careful selection of reference countries you are able to impute a correlation between low intelligence and high fertility. Botswana is in sub Saharan Africa - but you do not mention it. Could that be becasue it breaks the linkage you wish to establish?
There are many reasons for high population growth - most of them related to poverty. Something I suspect you know only to well. (Just in case you don´t look at the rate of population growth in the UK in the 18th and 19th centuries).
You seek to establish a relationship between GDP and IQ. Both measures are flawed (as I have previously sought to explain), and hence the argument is, by defintion, flawed.
Even if IQ is accepted as a proxy for anything, you appear to fear people with a low IQ, whereas I fear those with a high IQ. My fear is rational since I can objectively demonstrate that these people are recklessly stupid, and can endanger not only me but my entire species irrespective of any personal preventative measures available to me.
Your fear is irrational since you can point to no harm that can befall the species at the hands of those with a low IQ. Civilizations rise and civilizations fall - history demonstrates that. Species extinction is permanent - history also demonstrates that.
I can see vey clearly what is happening in both the UK and the US - It is frightening and it is likely to be terminal, although not in the way that you imply.
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arm and a leg times
You are in full flow.
I havent read every post but I am afraid I am not terribly convinced about the value of IQ tests. As we are all out of Africa - and I personally doubt whatever the stats say that we have genetically evolved significantly in a very short time - I start from the point that all mankind is equal potentially. Anything else is crypto victorian. And I dont trust the stats because the stats are skewed by the orientation of the person setting the question. I would like to see some of the people questioning the capability of primitive people put in their environment then they may have some respect. We need to rediscover some of these primitive values like not raping the earth.
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#174 glanafon. Did I not alert you only a few days ago to the risks that will be popping up as we sink deeper into the mire?
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175 arm and a leg
lol As your starting point is armagedon your position covers just about everything.
I do not see crypto victorianism as anything new, it is at least victorian and its roots are longer ago than that in many respects. The question is whether they are welcomed as mainstream. After all eugenics as a concept was popular in the US and UK in the 1930s a point often conveniently overlooked. These attitudes towards race or social groups come up frequently. Putting people who have lost their job in bright orange overalls is popular as a solution with some. Although a solution to what I do not know. Workers who lose their job via redundancy have lost their job thru no fault of their own by definition. And that is before you get to other ways of losing your job. Lets make losing your job a crime. Well on their way it would seem. Lets identify racial groups with a simple emblem they can stitch on their jacket. Oh thats been done. Lets measure randomly characteristics of racial groups. Oh thats been done. Lets make everybody carry ID and monitor every communication. That was in a work of fiction. Oh their well underway on that too. Lets use conman techniques to encourage the ill informed into being willing victims to corporate and government advantage.
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#172
Marxism claims to be the scientific analysis of human existence - Historical Materialism.
Marx famously said, "It is not the counciousness of men that determines their existence, but their social existence that determines their consciousness".
It is not a theory of what society ought to be - that's utopian.
Political theories reflect the economic realities.
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Glen (174), Seconded with enthusiasm!
An example of an imperfect "test"
and observations on possible bias
and some examination of interesting results
Ain't Pseudoscience fun?
Slainte!
ed
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armagediontimes (#173) "Why would a rational person ditch what is important to them on the basis of nothing more than a request?"
Because the request was to follow links to some of the empirical evidence in lieu of your false beliefs.
You evidently don't wish to do that. Instead, you appear to be much happier telling me (and everyone else) how much you erroneously hold true which is in fact false.
Others may well share your misconceptions, but you should be wary of that too.
It's a very common/normal human failing.
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How bad actors and good intentions are doing in the stock market. The hole in housing.
My favourite columnist on top form, as usual...If the link don't work, let me know, and I'll archive the article...We Ride the Slide!
Wheeeeee
ed
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#179 jadedjean.
Two main conclusions can be drawn from your writings: (i) The views and theories that you expound are, from a mainstream perspective, controversial and; (ii) the structure of your writings suggest that you are a person of some education.
From these two conclusions it can be deduced that you surely know your views and theories to be controversial.
In order for your perspective to be taken seriously it is, I suggest, incumbent upon you to ensure that your arguments are at all stages logically coherent. Even if you can establish that the theories that you expound are likely to be accurate it remains necessary to explain why, and to whom, they are relevant.
With the foregoing in mind let us examine your post #179.
The first 2 paragraphs implicity refer to your post #171 which you claim by implication contained a reference to follow links to some empirical evidence. A a matter of observable fact post #171 contained no such links, and neither did it refer to any other post where such links could be found.
Therefore the statement in paragraph 2 of #179 is objectively false.
In paragraph 3 you state "You evidently don´t want to do that" (i.e refer to empirical evidence). You have no idea what I may or may not read, and you have no idea whay knowledge I may or may not possess. Therefore you have no evidential or other reasonable basis to reach such a conclusion.
You go on to state that I "appear to be much happier telling me (and everyone else) how much you erroneously hold true which is in fact false."
It is with this statement you pass through the gates of the dissemblers paradise. If you read post #170 I overtly state that I am fully aware that some things that I hold to be true may in fact be false. The statement in #170 is absolute and no conditions attach to it. You thereore have no basis, other than a desire to engage in pejorative invective to make such a remark. Given that we are communicating via a public BBC forum the bracketed "and everyone else" statement is gratuitous and devoid of intelligent thought.
If, for the sake of argument your theories are accepted as accurate, then we must ask what difference does it make and to who?
I have previously sought to explain how a small cabal of high IQ individuals have through their own deliberate actions recklessly endangered my life and the lives of everyone else through their development of nuclear weapons. Similarly I could point out that top investment bankers are likely to also suffer from disproportionately above average IQ´s. These people are in the process of effectively bankrupting the entire western financial system.
Many systemic dangers and threats are presented to me personally and society in general by people with high IQ´s. I see no such systemic threats posed by people with low IQ´s.
If the conclusion outlined above is correct then the statistical distribution of "intelligence" be that by race, geopgraphy or any other factor is irrelevant to anything outside of arcane academic enquiry. If the conclusion is not true then you are free to point out the defects in my reasoning, and everyone will be able to reach their own conclusions, and I will amend mine to the extent that reason requires.
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#176 glanafon - Armagedon is my end point not my starting point!!!
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182 arm and a leg times
Armagedon - You seem to think, without wanting to put words in your mouth, we are nearly there whereas I consider we are still considerable distance away. It is just some cosy envirnoments are being threatened and those who have believed they are immune are watching with horror. Dear oh dear. There is outrage at the illusion being shattered. Okay while it is far away, not when getting closer. However - Julius Caeser "It is not, these well fed, long-haired men that I fear, but the pale and the hungry looking." (Plutarch - Antony). The trouble will be elsewhere.
I was waiting to see your response to crypto victorian concepts. Tell me do you think H G Wells did indeed invent a time machine it would explain a lot.
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duvinrouge # 177
"It is not the counciousness of men that determines their existence, but their social existence that determines their consciousness".
Delete "not" and insert it where "but" is.
Then you might be getting somewhere!
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"162. At 10:03am on 20 Feb 2009, FrankSz wrote:
In general a command economy is better at innovation than a free market equivalent. According to what I have read."
You mean like Scotland and England during the enlightenment?
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#183 glanafon. Sure we still have some distance to travel, but the tipping point has most likely been passed.
Who knows how far we are from the final end game, all we know is that it is a game that must be played.
I´m not hopeful as to the outcome.
Signs to watch for - more bank failures, and more bank nationalizations. This will lead to insolvency of entire governments. At the start they will be far away governments, but there will be a domino effect and it will get closer to home very quickly.
There will be a final attempt to inflate away debt. It won´t work, but that is when the "old school" types will be hit and hit hard.
How does the UK cope - It has a fully emasculated political class that is incapable of providing either leadership or guidance. It has politicized institutions as diverse as the NHS and the police. It has a media fully devoted to corporate interests. It has waged a long and succesful war on the institution of the family - leaving vast swathes of people bereft of meaningful support from this institution. It has destroyed its large scale industrial base and its service economy is destroying itself. Much of the population believes itself to be inalienably entitled to the good life.
It is a country entwined in internal contradictions. It has an obesity epidemic - its response to laud the jobs being created in the burger industry. It is obsessed with the dangers inherent in global warning - its response to subsidize large scale car manufacturers. It has no money - it´s response is to borrow more. (Note at no time has anyone suggested that wealth should be earned through devotion to tangible productive activities).
When I´m in the UK I´m amazed at the number of seriously drunk people rolling in the gutter in the provincial towns that I infrequently visit. A purely personal observation, but I don´t see the same thing on the same scale in other countries.
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armagediontimes (#181) Scientific research is all about not being 'mainstream'. I wouldn't be posting here unless I thought people needed to hear it - hence its controversiality. The work is solid. The evidence is well established at the population level. In brief, it is just unfamiliar to you and to all too many others - largely because you've been misled by political correctness (Cultural Marxism).
You say: "If the conclusion outlined above is correct then the statistical distribution of "intelligence" be that by race, geopgraphy or any other factor is irrelevant to anything outside of arcane academic enquiry."
My advice: You need to do a lot more observing and analysing. You appear to regard what you do not know as arcane academic enqury - this is a common, narcissistic error. In reality you have just not grasped what I have been saying (or ETS, or Leitch). I am not obliged to educate you.
see #118 Especially the last link.
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#187 jadedjean.
Thanks for the advice, it´s a pity you did not take mine.
If you wish to be taken seriously, which you clearly say that you do, then you are obligated to address peoples reasonable questions, and to write in a manner that does not leave you open to charges of sophistry and dissembling.
Take your comment with regard to the necessary deviation of scientific research from the mainstream. You know very well that if a research scientist is engaged in cancer research he will be viewed differently (most likely in a more positive light) than a scientist engaged in research of the type you propogate. It is irrelevant as to whether this is "fair", "just" or "reasonable" it is just the way it is, and reality must be accepted.
As it happens my overweening narcissism has not prevented me from having knowledge of the work of James Watson. I know for example that in the days when he was engaged in more "mainstream" research he was a Nobel Prize winner, and I know that his deviation from the "mainstream" has caused him some professional problems. Note how the facts are in conflict with your opening statement.
I am aware that the fact that he was awarded a Nobel Prize conferred upon him a degree of respect from the "mainstream." I am also aware that Henry Kissinger was awarded a Nobel Peace Price - oh how we celebrated in Hanoi and Ho Chi Minh City.
Your obligation to communicate in a clear, logical and coherent manner has absolutely nothing to do with any obligation, or lack thereof, to educate me. As you say my ignorance is of no concern to you, however your credibility should be of concern to you.
Why should I, or anyone else, be concerned by the presence of people with low IQ´s any more than I should be concerned by the presence of fat people, tall people, thin people, short people, old people or young people. So what if people with low IQ´s are concentrated in sub saharan Africa? Why is this of any more interest than knowledge that the Dutch are disproportionately tall?
You tell us that you think people need to hear your message but you don´t us why they need to hear it.
I have previously explained that people with disproportionately large IQ´s have engaged in activities that present systemic threats to the survival of the species. This being the case (as it is and as evidenced by facts) then maybe IQ is not a particular useful proxy for anything.
Put simply there are a lot of holes in your argument, and these are holes that you have repeatedly declined to address. A reasonable person may ask why that is.
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armagediontimes (#188) "If you wish to be taken seriously.."
Imagine a student in a seminar saying that to their lecturer. Read the references I have provided and try to grasp that a) you are misguided b) have something to learn and c) that that's something which you have to do, not me. You are currently telling me repeatedly what you do ot understand but can't see this. How might I know this?
Here are a few earlier ones. It is mainstream researchers who are saying this (and for all you know, I could be one of them). The field is the psychology of Individual Differences or Differential Psychology and it goe sback nearly a century to Darwin, Galton, Fisher, Spearman, Pearson, some of the fathers of biometrics.
Its relevance? Think sub-prime. Think immigration and dysgenic differential fertility swelling sub-prime lending, think below replacement level TFRs in European indigenous populations, and you may, once you've got past your narcissism being offended i.e realising that you have something radically important to learn, finally get the point now that this destructive bubble has burst in front of those who tried to exploit it whilst egregiously peddling a smokescreen of equality and human rights.
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This comment was removed because the moderators found it broke the House Rules.
And this is where we get to the crux of the argument:
JadedJean believes that the US government's CRA 1977 was an example of deregulation when, in fact it was a quintessential example of the opposite; that is to say regulation.
It was this piece of legislative regulation - peddled in the name of "equality" and "human rights" - that forced US banks to lower their lending standards and lend to uncreditworthy borrowers. In fact, the US government actively intervened in the banking sector by setting up two goverrnment sponsored agencies (GSA), Freddie Mac (FHLMC) and the Fannie Mae Foundation, which specialised in the securitisation of bundles of these high-risk loans so that they could be sold on to secondary markets.
In a speech given on 30th March 2007, entitled "The Community Reinvestment Act: Its Evolution and New Challenges, Federal Reserve Chairman, Ben Bernanke said:
"Securitization of affordable housing loans expanded, as did the secondary market for these loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a large percentage of their activities to meeting affordable housing goals."
The fundamental question is: Is Ben Bernanke the epitome of the "anarcho-capitalist" or is he what he seems to be; a bureaucratic, central banker willing to do his socialistic government's bidding.
Whichever you choose to believe, one cannot dispute the fact that the heavy regulatory hand of government was, is and always will be at the heart of every boom and subsequent bust.
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LibertarianKurt (#191) Is Ben Bernanke the epitome of the "anarcho-capitalist"
In a word, yes.
At least we are in the same ball-park, which means some good may come of these exchanges. A lot happened between the CRA in 1977 and 1999. Clinton and (and Blair) exacerbated the problems. The Education, Education, Education drive and NCLB (USA) and ECM (UK) legislation has compounded this, as has large scale low-skilled Hispanic immigration into the USA and from S Asia/Africa into the UK. This has nothing to do with skin colour etc, it is just to do with ability and birth rates. It's about balance and ultimately preserving infrastructure and the economy. Corruption of the CRA led to securitization and toxic dumping of bad assets on the global market. Deregulation did that. Caveat emptor did that. Caveat emptor only makes sense where there is a level playing field in terms of innate ability, i.e where 'choice' is real. Where it fails, it's just taking candy from babies. It's venal (but through Liberal-democratic deregulation and the high profile of Civil Liberties/Human Rights, all egregiously legal) exploitation. If ability was not normally distributed with gross differences in means (or skewing) across the globe, I'd be a libertarian too. In my experience, libertarians play this down, and when they do so having had the quantitative genetic data preneted to them, it's crooked.
They tend to be the censors/censures.
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JadedJean # 192
(I'm typing this laughing my head off!)
Ben Bernanke is not and never, ever will be an anarcho-capitalist. He is a central banker appointed by his government to CENTRALLY PLAN the US economy via monetary manipulation.
He is a socialist; a statist. He may not know it, but he is. He is the very antithesis of Austro-libertarian (not Liberal-Democratic) philosophy.
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#189 jadedjean.
In your post #187 you are clear in your view that scientific research is all about not being "mainstream."
In post #189 you claim the opposite.
You ask how might you know that I am telling you repeatedly what I do not underststand.
The answer is very simple and it is that I am telling you repeatedly things that I do not understand in relation to the arguments you advance, and you repeatedly choose not to address the issues that I raise.
Rather than answer the questions you prefer a 2 pronged defence - one is to retreat into detailed minutia which would take a lifetime to fully research and undrestand, and the second is to engage in personal invective, always being careful to be able to deny this by reliance upon the most technical definitions possible of the words you choose to use. As I told you previously many things are far simpler than you seem to think.
In relation to this discussion why would you possibly imagine me to be your student? Why would you choose such an analogy? A reasonable guess might be that you are seeking to subliminally suggest that I am in some way your intellectual inferior. Well I might be, I don´t know, but I do know that it would be far more honest and straightforward to put the proposition in simple, direct terms.
As is common to your writings the implied relationship between sub prime and immigration and dsygenic differential fertility is less than clear. This makes it difficult to offer any comments, as you have ensured retention of sufficient flexibility to claim a different interpretation to your words than any interpretation that may seem reasonable or likely to me.
Suffice it to say that net positive immigration leads to complex economic outcomes most of which are calculated as being beneficial to those with existing wealth and power.
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LibertarianKurt (#193) You appear to be fond of histrionics and far too easily seduced by naming. After the above link, did you read #30?
In the end, it's not about arguing, it's about describing functional/empirical relations accurately.
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armagediontimes (#194) "the implied relationship between sub prime and immigration and dsygenic differential fertility is less than clear"
Try to understand that science is not about argument, that's something Quine made very clear in 1951 in 'Two Dogmas of Empriciism'. It's about evidence, i.e measurements, their conjunctions, and how these functionally i.e lawfully relate to one another. I have set some of these out for you. You could have gone and looked into these via links I provided, instead you keep telling me what you can not understand, what you think, what you know etc. All of that is irrelevant. This is why I have said what I have to you. You have not picked up on the helpful cues, and rather than see that you think it is up to me to spell it all out. It isn't.
In a nutshell, cognitive ability now looks like it's largely genetic. That means that it can not be improved through education. Many people used to believe the contrary. That meant that mean group differences wouldn't matter as these might be addressed through state investment in education. It now looks like that is not the case. Now, there is sadly a high negative correlation between cognitive ability and birth rate, and there is between crime and low cognitive ability. There is also a good correlation betwen GDP and mean IQ. What this all means is that we have created a big problem.
In a nutshell. I hope this is of some value.
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JadedJean # 195
"You appear to be fond of histrionics and far too easily seduced by naming."
I think that statement is more applicable to you than anyone else. And no, I won't reference it by linking to other threads because YOU KNOW IT!
Furthermore, can you name me one Austrian economist that ever advised any government on economic policy in the last 100 years?
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Sub prime
The commision offered for sub prime sales was 1 percent as against half a percent for mainstream. Couldnt get enough of it.
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FACTS WE DON'T LIKE ARE STILL FACTS
erratum (#196): armagediontimes (#194) there is a correlation between crime and low cognitive ability (the mean for offenders is about 8 points below the population mean). We can't raise IQ - look across the world to Africa and S Asia and just ask yourself, what mustl happen here as the population slowly moves towards those of Africa/S. Asia?
Your point about net immigrattion making a positive contribution is misleading. It's equivalent to about 50p.
Fortunately, HMG is finally listening, a bit.
I've drawn attention to a couple of other important population issues - currently with the moderators alas. We have got to start facing some hard/harsh facts rather than what we would like to be true, however much awareness of these facts may 'offend' some people just because they don't like them.
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LibertarianKurt (#197) You need to look up the term Histrionic. If you look into what I've said on that issue, you'll find it's well grounded.
As to influence. Keith Joseph once considered himself a socialist...., but then Trotskyists and anarchists (and Thatcher was one of the best) often make out that they're socialists so it's best to go by the outcome of behaviour rather than people's stated intentions:-
[Unsuitable/Broken URL removed by Moderator]the road to hell 'an all.
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#196 jadedjean
Your understanding that science is not about argument, but about evidence, their conjunctions and how they functionaly relate to one another is correct.
I have never been under any other impression, and neither have I sought to suggest otherwise. So in this respect there is nothing for me to try to understand, since I undersatand already.
However the application of science is most definitely subject to argument. To return to nuclear weapons - these were devised by scientists working to the same basic definition of science that you describe. Once such weapons came into existence their application and ownership has been subject to little but argument.
It is self evidently not necessary to be capable of personally constructing a nuclear bomb in order to have a logical and reasonable view as to preferred ownership, control, and, if appropriate, use. Similarly it is not necessary for me to have a detailed understanding of your field of expertise in order to have a reasonable and informed view as to its usefulness.
It is also not necessary for me to have specialist knowledge in order to identify logical errors in your expressed reasoning.
Thus for example you have no reasonable basis to conclude anything with regard to correlations between crime and low cognitive ability. Crime is not science and evidentially does not meet your own defintion of science. Crime is what ruling elites say it is. In the US there used to be a law compelling farmers to grow hemp, today the growing of hemp is, for the most part, a criminal offence. Is it not obvious that criminals with low cognitive ability are much more likely to be apprehended than criminals with a high cognitive ability.
I continue to see no connection between sub prime and low genetic cognitive ability. It is a dangerously fallacious argument to impute anything from the racial origin or the cognitive ability or both of the holders of sub prime mortgages.
Sub prime mortgages were developed and marketed by the prevailing ruling elites - a combination of the government, regulators and investment bankers. This was done under cover of the "affordable housing" slogan.
Would not a reasonable person conclude that the optimal way of introducing affordable housing would be for house price levels to trade at a level that are affordable?
There was no popular demand for huge debt burdens. In the UK there was a time when university education was free to the student. I do not recall widespread student protests demanding an end to the grant system and its replacement by a loan system.
In short debt exists, because ruling elites want it to exist, not because the indebted demand the right to be indebted.
There can be no meaningful correlation between GDP and IQ. GDP is a function of many things. Asset bubbles and debt have served to inflate the GDP of many western countries. The prevalance of natural resources is relevant, as are extraneous factors, such as the likelihood of being bombed or embargoed by the rich. Consequently the GDP levels of Vietnam, Iraq, Iran, Nicaragua, and Cuba to name but a few are much lower than they would have been had they not been subject to unwanted (by them) western attention.
I did not say that immigration has a net positive contribution - you said that and immediately attributed the statement to me.
I said that immigration leads to complex economic outcomes, most of which are calculated as being beneficial to those with existing wealth and power.
For example a higher population is all but guaranteed to increase GDP - growing GDP seems to be an effective marketing technique for politicians. High levels of immigration drives down average wages. Lower wages are beneficial to the rich, but harmful to the wage earner.
Unlimited immigration is clearly not sustainable but that lack of sustainablity is not related to IQ or cognitive ability. Just suppose that the UK followed your theories to a logical conclusion. The UK could import the top 50% of the world population as measured by IQ. That would leave the UK with an unmatchable competitive advantage since it would possess the most intelligent half of the world population. It would also have a population of over 3 billion people - not likely to be the kind of place that an intelligent person would want to live.
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armagediontimes (#201) "Just suppose that the UK followed your theories to a logical conclusion."
Just imagine.
You are a sign of our times.
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jadedjean
Ok we´re about ready to draw some conclusions from our little discussion. So, what have we got for enterntainment?
1. You appear obsessed by the measurement of IQ or cognitive ability, and appear to think that high IQ or high cognitive ability is "good" in an absolute sense. You do not recognise that the human condition is complex and take no account of love, happiness, joy, contentment, beauty and so forth. You ignore completely the fact that substantial societal problems are directly traceable to those with high congnitive ability.
2. You are unable to intellectually seperate science from non science.
3. You are unable to present a consistent argument (cf: research is not mainstream and research is mainstream).
4. You make statements of your own and immediately attribute them to someone else.
5. Your argumentative style is characterised by sophistry and dissembling, and you are unable or unwilling to think geometrically.
6. All in all you would appear to an obsessive with low cognitive ability.
I have nothing against people with low cognitive ability, but let´s just hope for all our sales that no-one considers taking you seriously.
The consultation is now completed.
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armagediontimes (#203) Look up incorrigible.
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JadedJean # 200
Thatcher reading one of Hayek's books did not constitute him actively advising the Conservative government on economic policy during the 1980s. I would suggest to you that Friedman (monetarist) had much more influence on her (and Reagan) than Hayek ever did.
Again, you display this curious habit of putting two and two together and always arriving at five.
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LibertarianKurt (#205) You are a mistaken/misguided anarchist.
It could have been worse.
For that we had to wait for Clinton/New Labour.
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One thing I don't understand - why would banks want to sell gilts and "high-quality" corporate bonds to the BoE when there's a perfectly liquid market for those available already?
Surely it's the toxic assets that they would want to cash in?
H
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People may daydream that Europe/USA will lead the world out of the mess they created, but the truth is open market model has failed and its time they shut up and stop preaching to the developing world about pursuing open market policies.
They must prove they can put their house in order first for charity must begin at home!
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How on earth is QE supposed to "work" at providing a "faster upturn in the economy"? Does the end justify the means?
Surely there are downside risks for UK debt holders, savers and those on fixed incomes etc.
Frankly QE is unjust as it steals value from each and every pound in existance.
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