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Three-way on the MPC

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Stephanie Flanders | 13:26 UK time, Wednesday, 18 November 2009

The nine men and women who set British monetary policy agree that the next few years for the economy are not going to be much fun. But they don't all agree on what to do.

As the minutes of the November meeting reveal, seven members of the Monetary Policy Committee voted to buy another £25bn-worth of assets over the next three months. But two voted against.

David Miles wanted an expansion of £40bn, to keep the asset sales running at the same pace as before. (It would be £50bn, but quantitative easing was always going to take a breather over Christmas. Presumably the Bank thinks that injections of good cheer from Father Christmas will be more than enough to fill the gap.)

The second "no" vote is the more interesting, since it came from the Bank's chief economist, Spencer Dale, who preferred to leave policy unchanged.

Judging from unattributed comments in the minutes, this was partly because he was worried about the sheer uncertainty about the amount of spare capacity in the economy, and the implications of that for inflation.

But he also thought there was a risk that further injections of cash would result in "unwarranted increases in some asset prices that could prove costly to rectify, complicating the task of meeting the inflation target in future."

This has been a growing concern among policy-makers around the world in recent weeks. I raised it directly with the Governor, Mervyn King, at last week's press conference. He gave a robust response - some might say, surprisingly so. (You'll see he makes a scathing comment about people seeing "bubbles" in every asset price rise, when I had chosen my words rather carefully. Not that I took it personally, or anything...)

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Now, perhaps, we have one reason for his giving such a lengthy and forceful reply. He's been having the same debate with his Chief Economist.

Should we be worried about a new asset price bubble? The current answer - at the Federal Reserve and at the Bank - is "no". In fact, I doubt that Spencer Dale thinks it's something that needs to be addressed next week or next month.

The agreed wisdom, elucidated by Mervyn King in his answer to me, is that there are two types of bubble: those driven by sheer investor exuberance, and those driven by exuberance plus shedloads of new credit.

In theory, it's only the credit-fuelled binges you have to worry about, because they bring excess levels of leverage - debt - into the equation. Frederic Mishkin also provided a clear statement of this argument in the FT at the start of last week.

When you or I lose money in the stock market (assuming that most of you aren't hedge fund managers), it's usually going to be through our pension fund or ISA. All that happens is the value of the assets in the fund go down, and we are a bit cross. When you have an asset boom, without a heavy expansion of credit, most investors in the market are like that.

But with a credit boom, more of those assets are going to be held by people or institutions who borrowed to buy them. And if the price goes down, they may have to sell them to service that debt (or pay it back). That will lower the price again, causing another round of sales, and so on.

Leverage makes the returns that much tastier when asset prices are on the way up - which in turn takes prices up even further. But it also makes the collapse in prices that much more costly for everyone involved.

Of course, I'm grossly simplifying. In the past year or two, great tomes have been written on the precise dynamics of this latest boom and bust. But credit - and the leverage it created - was the core of the problem.

We know that small businesses and households are not seeing big a expansion of credit coming their way. But is loose credit driving a "risky" run-up in world asset markets? The conclusion of a report produced yesterday by Paul Ashworth, the Chief US Economist for Capital Economics, is "no".

Mr Ashworth went through the numbers looking for evidence to back up the view that the world was "awash with dollars", driving up asset markets in the US but also world-wide, via a revived version of the "carry trade". He didn't find find any. Yes, the monetary base - the narrowest measure of money supply - is expanding. It would be amazing it it weren't, given the Fed's asset purchases. But debt - or leverage - is not expanding. In fact, the evidence is that institutions are still trying to reduce the debt on their balance sheets.

He produces loads of charts to make the point. Let me just give you two here: the first shows how bank balance sheets are still shrinking. The second shows that the expansion of dollar liquidity (the amount of dollars in circulation) has been slowing down recently - though it's interesting to me that is still well above the rates of growth seen after the end of the dotcom boom in 2001.

Commercial bank credit

Global dollar liquidity

I don't think this disposes of the question entirely. There's plenty of cash flowing into emerging market economies that wouldn't be captured in Mr Ashworth's charts. It may not be a "credit-type boom", but you could forgive those developing-country governments for failing to spot the difference.

More fundamentally, it is quite reasonable to worry - as Spencer Dale apparently does - about the long-term effect on asset markets of a prolonged period of extraordinarily loose monetary policy. It is just not very healthy to have the risk-free rate of interest (that is, the yield on government debt) set, in effect, not by investors but by the central bank.

Then again, there's a lot about the past few years that's been pretty unhealthy from an economic standpoint. We are where we are.

In the minutes of this latest MPC meeting, several are said to have pointed out that expanding the programme by £25bn would also "bring forward the point at which the extraordinary degree of stimulus could begin to be withdrawn, if the projected impact was realised."

They would rather not be here. And now here, they would rather get out sooner than later. They just need the broader economy to co-operate.


Page 1 of 5

  • Comment number 1.

    'But they don't all agree on what to do'

    So how can they regulate when they don't know what to do? We are in trouble.

  • Comment number 2.

    Hmmm..not sure what the point is in all that?

    All you seem to be saying is.

    - The emerging stock market bubble (stock values now running way in excess of usual multipliers on annual profits)is not a bad bubble like the assett bubble before because it is funded by ''real' (printed) money not debt with the associated leverage 'amplification' that comes with it...ok I get that.

    - On the other hand this seems to be too good to be true and all the highly paid expert economists are worrying about some undefined and presumably 'unknown' effect QE funded asset bubbles may have in future. Cheap fast money got us into this mess and is also the answer seems too good to be true, therefore better put the brakes on in case something horrible happens!

    Its good to know these highly paid experts really know what they are doing with the future prosperity and happiness of billions of people ( some people may recognise that last comment as sarchasm)!

    Perhaps they really have stumbled accross 'utopia by accident'.

    I like Merv, I am with him on this one, keep the preses rolling and buying gilts boys, just make sure, no matter what, those prats in the City of London dont make an iresponsible fortune out of it again please.

  • Comment number 3.

    The current FTSE is not necessarily a bubble, given that likely dividends are running at about 5% to 6% of current share prices. This may not be true of all sectors, as the current fashion for mining stocks sees them trading at lower yields. It comes down to how well corporate profitability and cash flow will enable the payment of future dividends.

    As for the carry trade, it all depends on interest rate differentials (of course). If you can borrow cheaply in USD then lend it at a higher rate to Australia, there's money to be made.

  • Comment number 4.

    At last! The Bank's monetary policy committee has seen the point. If you print money, then inflation breaks out. (Discovered by John Law in Paris in 1720 or so). Giving it a polite name like Quantative Easing does not disguise what is going on. Someone on the committee is looking at the abyss.

    I will go on record and say that I think the RPI will go positive when the November figures are released next month and probably will be around 2% when the December figures are released in January. Blame Quantative Easing.

    But this does not address the fundamental structural problem in our economy where the Government is spending far more than it can collect in taxes. If taxation rose to cover the deficit, we would be plunged into a Depression - not recession. There is nothing in the Queens Speech to suggest that this over riding issue is recognnised - let alone addressed. We need the size of Government cut by about a third.

  • Comment number 5.


    Gordo's plan is coming good, no?

  • Comment number 6.

    If asset prices are being unusually enhanced by accomodating loose monetary policy/ QE and fiscal boosting and public liquidity support operations in key markets on a global scale which have no real-economy foundation, you have a problem not just in terms of dislocation with fundamental drivers but adverse consequences when the world is necessarily weaned off the public sector largesse.

    Credit-fuelled booms are bad, but are artificially induced monetary and fiscal-fuelled booms of the size we are witnessing any better? We'll see if the central banks are right in their view that they can manage this process back to what they believe would be equilibrium without downside shocks.

  • Comment number 7.

    The nine men and women who set British monetary policy agree that the next few years for the economy are not going to be much fun. Rather suggests that the past few have been.

    Graphs, charts and statistics, to prove that Quantitative Easing is about helping the economy, when even the poorly informed must now be realising it clearly isn’t.

    So far this year all the usual large net buyers of gilts (Insurance companies, pension funds, overseas investors etc.) were all net sellers of gilts, (source DMO) and the only large net buyer was the Bank of England (source DMO).

    The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks, and the Bank of England has so far spent 99% on pre-issued gilts and only 1% commercial debt. (source BOE)

    It is now crystal clear that Quantitative Easing is a method of funding Government without officially breaking the rules.

    Robert Stheeman (The head Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early this month and confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

    If you pump £200 Billion into the economy, that by the way is £2,000,000,000.00 how come credit is so tight? Why are companies still complaining about the lack of credit?

    If an economics editor can’t figure out what is truly going on, then I despair.

    Can a conspiracy of silence hide the truth? Perhaps it can.

  • Comment number 8.

    @#1 - If they all always agreed, why have a panel? Could just have one person dictate policy. Personally, I am against QE.

  • Comment number 9.

    The language of the MPC seems a bit like something out of the IT crowd. They are sitting in their bunker waiting for the call (have you tried turning it off and on again?) and when it comes are faced with clearing up the mess created by their unruly users (of their money).

    Their uncertainty is increased by the fact that they seem to have very little accurate and up to date data about what is really going on in terms of borrowing in the real economy. The housing market seems to be having a mini bubble on the back of a significant shortage of sellers (perhaps put off by their own inability to access credit to buy elsewhere). I think it is fair to say that most consumer confidence and business confidence is necessarily brittle whilst faced with the uncertainty of the up coming election and the enforced limbo that will bring to public services and public sector debt/spending.

    Perhaps it is not the amount of the QE that is the issue but effect of the withdrawal of their drip, drip of capital on the patient - UK plc?

  • Comment number 10.


    I think the chinese invented inflation with one of the worlds first ever money systems?

    They discovered this phenomenon when they went to press (so to speak)

  • Comment number 11.

    Are the moderators on a 4 day week?

  • Comment number 12.

    I’ve ranted on about The Maastricht Treaty Article 104(1) and that Quantitative Easing is a method of funding Government without officially breaking the rules.

    But so far all the evidence points to the above being true.

    And you know what, I’m starting to believe that there is no market for UK fixed interest government debt anymore.

    I suspect that the financial instability of this country, along with the BOE printing money, has all but finished the fixed interest gilt market.

    The Government can’t easily reduce its spending, therefore Q.E. will likely commence next year or all gilts issued will have to be inflation linked.

    In short I reckon you can only get away with devaluing fixed interest gilt holder’s investment once by printing money.

    I struggle to believe they’ll let it be done to them again.

    So Ms Flanders, what do you think?

  • Comment number 13.

    Interesting Stephanie.

    If we want to look at any unintended consequences of QE perhaps we should take a look at the unintended consequences of the cash for bangers scheme here.

    I read yesterday that second hand car values have rocketed by some 13.2% (YES THIRTEEN POINT TWO PERCENT) since the scheme was introduced. This scheme is worth around £400 million plus.

    Without the money being pumped in one would expect second hand car values to fall in recessionary times (never mind the issue of future care sales artificially brought forward). This has been fairly easy to monitor.

    By the same token, what we are saying is that UK has pumped in £200 BILLION (PLUS A TRILLION OR TWO GLOBALLY) and we don't expect any asset inflation anywhere?!!!! Everybody is seeking a return whilst still leveraged aren't they?

    That's a brave call. Or foolhardy. Or even stubborn. Reminds me of King Canute.........we'll see I guess...

  • Comment number 14.


    Forgive me as my post was not clear.

    What I’m getting at is this,

    Over the last decade we have had ‘experts’ tell us, this stock will do 5%, while other ‘experts’ have said this stock will do 6%.

    Now we have ‘experts’ tell us, the market will TANK and other ‘experts’ tell us the market will rise exponentially.

    My point is that where in the past the disagreement all had tendencies where as now, they are utterly disparate – therefore we are in serious trouble.

  • Comment number 15.

    Ms Flanders

    You want to know why his reply was so forceful?
    Because he's not telling the truth about QE.

    But then I have a feeling that you already know this, and if you don’t, you should do.

    Think it through £200 billion pumped into gilts, but business still struggles for finance and people in the private sector are still losing their jobs, it’s not exactly rocket science.

    Where is Bob Rocket when you need him?

  • Comment number 16.


    Two things struck me about your article. Firstly "Should we be worried about a new asset price bubble? The current answer - at the Federal Reserve and at the Bank - is no."

    Is this the same Fed that won't let anyone audit what they are ACTUALLY holding in terms of assets and liabilities?

    And secondly, you quite correctly state that "In theory, it's only the credit-fuelled binges you have to worry about". But what makes you think that there hasn't been a credit-fuelled binge in the West for the last 20 years?

    At best you are fixated with the wrong economic models (another victim of the pandemic of Stockholm Syndrome among mainstream economists), and at worst you are in complete denial of our underlying economic woes.

  • Comment number 17.


    My entire life, wherewithal, prosperity and hope and those of my family are trapped in an academic experiment.

    I am a human being: get me out of here!

  • Comment number 18.

    Stephanie, re your contratemps with Mervyn, and to (mis) quote the immortal bard, "The lady (governor) does protest too much, methinks".

    There is absolutely no question about it. QE lies firmly on the path to economic ruin, but by a thousand cuts. Of course it will promote a rise in asset prices - choose if you wish not to call it a bubble, but thats just symantics. The effect is the same - over-priced assets simply because there is too much cash in the system.

    And then another (blunt) monetary policy tool is employed to try and reign back the steep and potentially uncontollable inflationary response - interest rates.

    Some have commented on the rise in stock markets; notably the FTSE in recent months. Yes, its interesting because it certainly isn't due to any real growth in underlying productivity, or measurable profitability.

    Next time you get a robust response from Mervyn, give as good (or better!) than you get.

  • Comment number 19.


    That is an unauthorised thought process, you will be assimilated / punished (via lack of financial support for food etc)

  • Comment number 20.

    I know Zimbabwe and Weimar Republic printed money and it ended up a disaster.

    But does any one know of any Government that started printing money and it didn’t end in financial ruin?

    And if you do, how did they manage it?

    I think the answer might be needed, and needed quickly.

  • Comment number 21.

    What has happened is difficult to grasp for ordinary people and in some ways it is reassuring that experts also seem unable to grasp what is going on - in many many other ways it is terrifying!

    The banking system got into crisis because they had massively over lent to people who had nothing to borrow against and nothing to repay - somebody let the cat out of the bag, confidence disappeared and the whole leveraging system was about to collapse.

    Govts round the world stepped in with huge (previously unthinkable) amounts of money to prop up the banking system of which QE seems to be part in a circular way.

    This has restored some general public confidence that things are not as bad as they feared and therefore they have continued to spend. Their spending unaffected by tax cuts etc because these have not occurred for fear of creating further recessionary pressures.

    So the book of balance is unbalanced and we slip further and further into debt and await a time (if ever) when the country can raise sufficient funds from taxes to balance the books (if ever).

    At the same time over the last 20 years (I guesstimate - suspect a lot longer)the productive part of our economy has shrunk and we have become more and more reliant on the service and financial (the ultimate service industry)sectors to make ends meet. At the same time the public sector has grown and grown.

    Now we can't allow finance to fail but we can't afford to keep bailing it out, we need someone making something for the service sector to have something to service but this is shrinking and we need private industry to be able to raise income from taxes to pay for the public sector.


    (Apologies for mixing Scotty (original Star Trek) and Private Frazer (Dads Army)

    However across the Atlantic the US economy seems in a very similar position.

    Meanwhile the Chinese look on and wait......................

  • Comment number 22.

    I think weve just all driven onto some economic black ice and many of us didnt put our ice tyres on!

    I have been asking my business contacts what they think about next year.
    100% gloom and doom outlook. Not one person had an optimistic outlook for 2010 and in some cases well into 2011. Any body who trades in the manufacturing sector or who trades with Government organisations is looking over their shoulders. When I hear stories of wholesale job cuts in the civil service, i shudder and i think the Electees for next years elections will be outdoing each other trying to cut as much "waste" (as they see it)as possible.

    Happy Christmas everyone!

  • Comment number 23.

    If higher interest rates are an effective counter to inflation, then we don't have to worry about inflation, because the base rate is an irrelevance when it comes to what banks are actually charging for credit. These greedy institutions are ripping everyone off with criminal arrangement fees and interest charges way above the base rate, under the guise of "repairing balance sheets" (a.k.a. profiteering). The de facto interest rate is therefor nearer 6% rather than 0.5% and this, coupled with public spending cuts and tax increases next year, is more likely to lead to deflation rather than inflation. Caledonian Comment

  • Comment number 24.

    Can someone please help me out here?

    I undersatnd the bubble that popped a year ago was inflated by borrowed money and any bubble caused by this is a bad thing. Surely now though this mini bubble we are experiencing is again being inflated by borrowed money in the form of QE (BOE borrowing Brown and his cronies more money to fritter away!)

    Now i am no economist, but it seems pretty much like the same thing to me.

  • Comment number 25.


    I see you are not taking up my suggestion on writing what is the real question and instead are merely pointing out what we already know.

    The experts are clearly in disarray - because the public are realising how inadequate their decision making is. This is what crisis brings - confusion and panic - and no less in the highest financial authority in the land.

    So back to my point, the experts are saying we should cut public services to pay for all this - but the experts clearly cannot agree - and if we remember those same experts got us in this mess in the first place.

    So really - who give a monkey's what the BoE think, believe or guess as their next move. You could have Homer Simpson making the decisions and we would be no worse off.

    Surely your journalistic instincts must make you yearn to blow the lid on this pack of lies?

    What about this?
    "They just need the broader economy to co-operate."

    Oh, so now the broader Economy has had it's main artery severed (lending) it must now co-operate in the rebuilding of the Economy?

    How long before the broader Economy collapses from blood loss? Why should the SME's throw themselves on the sacraficial pire in order to save the corporations?

    Want to make public sector cuts? - well I can think of 9 that could go straight away and be replaced with a roulette wheel.

    Madness - backed by the media is simply 'popular madness' - but it's still madness all the same...

  • Comment number 26.

    Readers might like to know that the members of the MPC are EACH paid £126,100 per annum for this part time task. Perhaps it would be better if they were paid by results.

  • Comment number 27.

    1. The rules haven't changed so the banks are free to do what they like and continue to do so. The same "securing" of loans schemes are still in place.
    2. At some point in time it might be good to tell the banks that the government (taxpayers) will no longer allow the transfer of bad debt from the banks to the public.
    3. The money-changers are passing money amounst themselves and charging fees and taking bonuses as if something real was happening. Look at production, look at imports, look at exports, look at unemployment, those are the economy, not a bunch of puppet show economist and politically appointed bankers looking out for their own interest.
    Is the glass half empty or half full? It really doesn't matter, it is what it is.

  • Comment number 28.

    The Government and the financial institutions have never really been honest have they.

    And there’s no reason to suppose that will change.

    So I think we should read between the lines (lies).

    The Gilt Edge Market Makers will have been asked what the demand is likely to be for UK gilts after QE finishes.

    The response is likely to have been ‘very little’.

    Therefore either substantially more QE and a likely sterling collapse, or slash expenditure and up taxes.

    They’ve decided to slash expenditure and up taxes, and we are simply being conditioned to accept it, so we won’t react violently when it comes.


  • Comment number 29.

    # 21 grimupnorth77

    you have prompted me into some research. Manufacturing as a percentage of GDP in the UK for the following years were: 1971 31.7% 1981 26% 1991 21.% 1998 15.4% 2003 12.7%, ie an almost straight line decline. I doubt things have improved since 2003 and i suspect the US would look fairly similar.

    imo opinion this supports my views that a) the underlying foundations of the UK have been eroded for far longer than GB has been in Government and B) we are now in need of some very serious correction of how the economy is structured

  • Comment number 30.

    Dempster - right on, nail on the head, etc etc

    Just one point of issue though. Isn't the fact that the BoE has to buy pre-issued gilts from other investors, not newly issued ones direct from the DMO (if I understand the Maastricht restriction right) pretty significant? Or do you think it amounts to the same thing?

    V interesting stat you mentioned about DMO source for net buyers and sellers of gilts - can you advise where in DMO website I can find that?

    Clearly I get the fact that direct purchases of gilts by the BoE at auction would be naked printing of money - simply pumping newly printed money into the economy via the public sector spending that these purchases would have financed.

    But to the extent the BoE isn't doing it this way /can't do it this way (as you point out), and have to buy Gilts in the secondary market, obviously the impact of QE on the Govt's ability to finance itself is indirect - unless you think it boils down to exactly the same thing? As I see it, from the perspective of the Govt's finances, this kind of "permitted" QE doesn't put newly printed money direct in the Govt's pockets. But it inflates gilt prices in the secondary market by creating artificial demand and therefore artificially depresses yields (so ironically perhaps even frightening off real buyers of Govt debt who know that prices of secondary market gilts used as reference points for new issues by the Govt are being propped up artificially). Remove the QE, and yields required to sell Govt debt must rise - and we taxpayers all foot the higher interest bills for generations. So what you get is interest rate rises crushing the economy well before we see any real recovery, purely driven by the Govt funding imperative, not inflation management. Totally with you on this. So when the DMO guy says they will have a problem selling gilts post QE, I assume he means he will not be able to sell gilts on the same attractive terms (for the Govt) at which he sold them before - not that a major buyer has left the auctions (because the BoE was never alowed in the auctions). Right? (Of course the other ruse is that the Govt creates new demand for gilts by introducing regulation which forces real buyers like pension funds to hold more gilts in their portfolios under the guise of trying to match long term pension liabilities with 'safe' assets like fixed interest Govt debt. Neat trick)

    As for the impact of QE on the corporate credit market, as you say it isn't working. There's nothing in QE which says that the liquidity that QE creates in banks (by replacing their gilt positions with cash positions) has to translate into more lending by those banks. If the commercial banks are more focused on battening down the hatches than in growing their lending books, QE doesn't work. And that's exactly where we are. I noticed that the BoE is going to further incentivise the banks by cutting the rate they earn on their deposits at the BoE, but that won't work either - I guess it's all immaterial to their P&L

  • Comment number 31.

    ''quantitative easing was always going to take a breather over Christmas'' BoE out busy as Santa presumably. Gotta keep on giving. Bless 'em. Shame I have no chimney.

  • Comment number 32.

    # 30. At 6:05pm on 18 Nov 2009, ddelanom

    On the DMO web site go to publications and quarterly reviews.

    The gilts being purchased by the BOE are pre-issued and the new gilts are being bought are by those who have just sold the old ones to the BOE. Although overall they are off-loading gilts, which will make sense of course.

    Not much point holding a ten year 4.25% gilt when the value of sterling is in such a steep decline and the BOE undertaking QE.

    The transaction flows via a set number of Gilt Edge Market Makers called GEMM’s (RBS Barclays Deutsche Bank etc.).

    In any event the main holders of gilts have during the course of this year gradually being reducing their holding, the only substantial new holder being the BOE.

    There are small players that have increased their gilt portfolio, but my guess is these will be indexed link as opposed to fixed interest.

  • Comment number 33.

    29. Kudospeter

    Straight line decline in manufacturing. You got it. with a support infrastructure larger also following the same decline line.

    Actually it is worse than that as things like sticky plastic film lettering cut on using a PC and cutter - film, PC and cutter all imported from the East are classed as 'manufacturing' now. Its really little short of basic word processing with a specialised printer. The growth of this sort of stuff - which in application terms about as low tech applied as you can get - hides the real problem.

    The decline is a great deal worse if you look at anything which involves UK sourced high tech or high capital cost equipment. Added to that is the very clever German trick of developing DIN Standards which then are adopted as BS codes. This often means that to quote for some work in Germany a UK company has to consider importing German sourced materials value add and the ship back. This is a financial disadvantage.

    How can this happen you ask. Well I would do the same if I was drafting a code, and I have been involved in code drafting, but HMG are less keen to support code writing than elsewhere. Meanwhile every wheelie bin in the UK is made in Germany and the company there cannot keep up with the UK order book. I am quite sure the UK still has the technology to produce wheelie bins but the LGAs are enthusiastic in ensuring all EU procurement rules are followed in a way I doubt the German LGAs do.

    Not that I have anything against Germany, they are just playing the game better because their government probably has had fewer property developers in in over the years. It is the relentless obsession with housing speculation which has screwed things here, easy money, smoke and mirrors.

    The problem is the infrastructure has been damaged here and you do not just throw a switch and recover it. You do not even recover the machinery which has been sold for scrap metal or shipped overseas.

    There are ways around the whole issue but there is very little understanding of the problem at HMG so as far as I am concern no support. Symptomatic of the problem is the relentless HMG pledge - usually never actually honoured - to assist youth unemployment. The focus is on employment, not on business development which then creates employment. So policy failure follows sure as night follows day. About as much use as a chocolate teapot.

  • Comment number 34.

    Yes the UK is busy creating another bubble, before the old one has even collapsed. This madness is beyond words. You talk of two types of asset bubbles and say it's not the bad one. I say this is a third, new, unprecedented asset bubble, directly created by the government itself, using tax and QE money. It is madness squared and it is a case of identifying petrol as the agent to stop a fire. That fire was allowed to get out of control by the same people that now pour the petrol on top of it all. Apparently it is hoped that it will not be the bulk of indebted voters who are the first to burn. It is hoped that it will be the prudent minority.

  • Comment number 35.

    If the central banks have decided to hold up asset prices by whatever ammount of fiat creation that is required, in order to make banks , insurance companies and pension funds appear stable and solvent THEN IT IS NOT AN ASSET BUBBLE, it is an embalmed mummy with its braaains removed .


    Kaaarl Maaarx[the failed capitalist] told them that they would get the rope to hang the capitalists from the capitalists themselves....looks as though they have hung themselves out to dry first .
    Its an amazing thing that communists atheists are trusting in God we trust dollars .

    As they say you couldnt make it up.

  • Comment number 36.

    The main discussion is on whether or not asset price rises (primarily stock market) are a result of QE. In a roundabout way, they almost certainly are:- gold is rising due to its 'safe haven' status but why are stocks rising - the bad news will be arriving after all the artificial stimulus has ended and there is no appetite for UK bonds. The only way I can square this circle is that without the banking bail outs, QE etc, institutions would be holding onto cash UNLESS they realise inflation is coming and want to not hold cash (or hold other currencies - Euro anyone?)so are investing in stocks and thereby driving asset prices up. Dont want to be a complete gloom merchant but I think short selling stocks would be a good idea for next year since they will be declining (or popping) after the next election when the austerity measures kick in and everybody realises how deep the hole is.

  • Comment number 37.

    I think regarding asset prices there are two main reasons why prices rise:
    1) that buyers expect some future cashflow increase. For example, share dividends are expected to cover the cost of the shares over time.

    2) that buyers expect to be able to sell at a higher price in the near future for no other reason than there is a rising trend in the asset price whether cashflow is expected to rise or not.

    The second of the two is unhealthy because in all probability the asset price is being driven up for no justifiable reason, other than that there is a rising trend.

    This is what I would term "bubble"

    The occurrence of these bubbles is more likely when money is more available. Although debt may be decreasing, money is concentrating into the hands of insitutional investors, and thus 'bubbles' remain just as likely.

    The real evil, as Prof Steve Keen clearly elaborates, is the burden of debt placed on society, the real economy. In other words, the health of the economy can be measured to some extent by the 'debt to GDP' ratio (given apt definitions of GDP that avoid inclusion of debt creation).

    If leveraged asset speculation serves no purpose than to increase levels of debt, without contributing to society (the real economy), then the health of the economy has been decreased. For similar reasons, conversion of private to public debt via QE does nothing for the overall health of the economy.As others have pointed out, this is a short term stop-gap to help fund the government and primarily the banks.

    What really needs to be achieved is deleveraging. The government is not doing enough to help that. The response from Mervyn King again demonstrates an unwillingness to talk about the real mechanics of the economy, and he just bluffed his way out of answering Ms Flanders's question by alluding to some vague and erroneous distinction between bubbles and price rises.

  • Comment number 38.


    The main reason is that fund managers would lose their jobs if they did NOT invest in apparent runs and bubbles.

    Everyone must be quite nervous.

  • Comment number 39.

    So just what would be the consequence of just cancelling all debt, government, corporate and personal?

  • Comment number 40.


    Well the first thing that springs to mind is what they call 'moral hazard'. The conditioning of society to engage in more risky behaviour, having been spared any consequences.

    The second thing that springs to mind is that suddenly there would be rapid inflation, probably hyperinflation.

    The next thing is that a government default on foreign debt by decree, as per Argentina, would render the country untrustworthy and business with the UK would become impossible.

    However, these are unrealistic, extreme scenarios. What makes real sense to me is the following:

    a) Banks are essentially nationalised. They should be acting in the shareholders' interests. That means us.
    b) The interest on existing debt (and new debt) for at least the individuals should be cut, by decree.
    c) Monthly repayments on debt with cut interest rates should remain high, but the repayments would be going to cut down debt principal
    d) Some reduction in monthly repayments would be permitted, but not to the full amount gained by the interest rate cut
    e) Of the new disposable income, higher income tax can be charged, helping to cut government debt

    This policy would rapidly decrease private debt and help to get public debt down.

    What about moral hazard? What about businesses/individuals getting access to cheap credit all over again? Simple:

    Debt, although with lower interest rates, will not be so accessible. New and better regulations and assessments will be put in place to make sure that sufficient deposits/proof of earnings potential etc are made available before any credit is extended.

  • Comment number 41.


    Oh and I forgot.

    The burden of debt can be alleviated by reduced operating costs over time.

    If the long term trend is deflationary, then let it be offset by a reduction in real costs.

    This means development of cheap renewable energy I think.

  • Comment number 42.

    I think the BoE has got to recognise that there are two sides of the economy.

    1. People borrowing money
    2. People investing it

    Over the last 12 months the BoE has crippled savers. they need to rectify that by putting interest rates back up again, to a reasonable level (lets say 5%), so that both sides of the economy start functioning normally again. If savers are getting a decent return on the cash they've got invested, they're more likely to go out and buy a new car naturally instead of relying on a £2k handout from the taxpayer...

    The economy is distorted at the moment, in favour of those with debts. It needs to brought back into a more healthy balance, even if those people and businesses with debts start bleating about it. If you can't afford to repay the loan you shouldn't be borrowing the money...

  • Comment number 43.

    This sums it all up perfectly .

  • Comment number 44.

    FrankSz #41 reply to my #39

    I asked this because I do not remember seeing anyone ask this most basic of questions before. There does indeed seem to be good advice to reduce debt by repaying as much as possible in these low interest debt times (for those not on fixed rate in the past mortgages)but the current interest rate situation does not encourage saving, it is still spend spend spend to rescue the economy (and I am not talking QE, or should I).

    The wierd buoyancy of the share market is surely in part a product of the need for the people whose livelihoods are dependent on volume of share trade to persuade us that there really is a need to give them our % of comission. There is after all no real value to be had when everything is about to collapse again.

  • Comment number 45.

    1 - judging from the fecundity of Steph's place, there are umpteen different models that might work so whoever gets elected gets to choose which one to try next.


    Things could be worse?

    not bedtime reading

  • Comment number 46.


    The share market is not as buoyant as people might like to think:

    Just select 5 years to see the markets are about the same as what they were in 2004.

    The market will drop like a stone as soon as QE is stopped, and even worse, the markets will start to dip as soon as people begin to think that QE has been going on for too long. Then the government will have a double problem of falling bond prices and falling markets. Currency will start to take a nose dive too.

    The future is simply...bleak. Life is going to get really hard for a lot of people. What needs to happen in order to avoid this is deleveraging and government control of private banks. A whole load of other things need to happen on a global level too.

    The leadership are delaying and procrastinating. There needs to be a shift to a completely new world financial system.

  • Comment number 47.

    Of course, we also have to consider that BoE & Government want to see inflation since it will reduce real value of debt it is loaded with. Once the genie is out of the box it will take a long time to bring under control and that debt is deflated in real terms. But they cant admit this since it will immediately degrade our debt rating and make future debt that much more difficult to service so It might just be a little bit of gamesmanship until its all too apparent.

    Better get the wheelbarrows ready to take money for a weekly shop!

  • Comment number 48.

    An interesting article that I urge you all to read (that's if you haven't already)

    Fear of City turmoil if election delivers hung parliament

  • Comment number 49.

    47 - This is my great fear. I have already posted that there is a risk that we could see Tesco sutting every hour to put their prices up. So much inflation is being stoked up by this fatuous program of QE.

    If it is being done deliberately and for public consumption we are being told what they want us to hear, we are back to the bad days of the 70s.

    Someone posted earlier about the IMF. I am sure that if we had the brokers men come in, the first thins they would do would be to stop QE and slash government expenditure by amounts we would find unthinkable.

  • Comment number 50.

    Breaking News - Bank of England to monetise monopoly money - I'm off to Toys R Us.

  • Comment number 51.

    44 Kit G

    Cancelling all debt is not possible. That is called bankruptcy. all trade is based on trust, no trust no trade. If you do not honour your debt nobody trusts you. So all trade would stop effectively. Even paper money has I promise to pay printed on it.

    Paying the debt is entirely possible but key to it is convincing those who loan money that they will get paid. Consider if you lend somebody a fiver and they say they will as a way of thanks give you fifty pence. If they are heard to be in trouble you will become worried about getting your fiver back, you will not be bothered about the fifity pence. Thats why borrowing is both expensive and difficult for some at the moment and why my phone never seems to stop ringing with somebody trying to shove a loan my way when I dont want it. They have more money to loan than they can find a home for. the problem is not getting hold of the money it is looking a sure bet.

    Frank, various

    I just can't get worked up about what the gamblers on the stock market do. Their whole thing is looking for movement, so they make it if it is not there. If currency falls then it will fall elsewhere, if everybody falls much the same then all remains as it was pretty much. The problem for me remains the severe cuts in public services which are still beyond what most people expect, the high levels of unemployment, particularly with the young, and the sheer length of time the debt repayment will take. If people do not as a whole expect to end up poorer then thats just tough luck, illusion over.

    There will not be any great intervention on retail bank interest, they will be left to the market. The parasite is bigger than the host, just RBS is bigger than the UK. The inhabitants of Lilliput only tied Gulliver down because he was asleep.

    45 Wappa

    Well me ol' mate I think you will find that all doors lead to the same exit, the same garden that is now a brownfield site, the debt is the debt and has to be sorted and sharpish. Taxes will rise, public services will reduce, and the gatewarden will be means testing to throttle access to almost everything. I very much doubt it makes much odds who is in really.

  • Comment number 52.

    Ignoring all the blurb over the years to date that has proved wrong. It is simplistic common sense that indicates the BRICS bubble will burst, the equity bubble will burst, the global property price bubbles will burst, the oil bubble will burst etc, etc.
    The only bubbles that may not burst are of a current celeb in that annual event in the jungle.
    When values of 1000 to 1 are encountered due to fraud by financials generating artificial wealth and the cash does not exist the value will be nearer 1, capital destruction will have to occur whatever and globally.
    Shifting debt and risk from financials to Goverments is not going to work, Goverments borrowing more is not going to work, printing money is not going to work, devaluing currency is not going to work, quantative easing is not going to work. The combination of all these policies is not going to work but it is all that could be done to try and fix the fundamental enormity of the deficit, banks assets and loans are not worth a fraction of their currently manipulated and fraudulent accounts and will degenerate further along the time line. For everyone this means our assets and wealth are in the same position as the banks who generated the money that caused the problem. Why else do RBS need another £29B recently when initially they got £25B, HSBC flooging its HQ's London, Paris, NY
    Depression like symtoms are going to prevail at some point its all in the mix for the future, I hope not but if anyone would like to educate me as to why not it would be appreciated. Hello economists where is all the money comming from to fix the global black hole?

  • Comment number 53.

    I think Merv and his team should be ashamed of their hopeless understanding of macro economics.

    The other weekend I went down Speedwell Cavern, in Castleton. This was a lead mine in the 1770s. At the end of the mine is the "bottomless pit", a lake with no bottom. Everything the old miners threw in it just vanished without trace, and it never filled up. Rumour had it that the Devil himself must have lived down there.

    Merv and Co are as ignorant and un-scientific as those poor guys from yesteryear. They have thrown hundreds of billions into the black hole of the banks, without barely any real understanding of what it will do. Ever since they started QE I have been following with interest, and they have NEVER been able to state criteria for its success.

    No one in other walks of life can follow the same methods. Lets build a bridge, using materials we hope and guess may be strong enough. Lets make cars that we hope will survive a crash. Hey, its made of metal... thats strong stuff, so it must be good enough.

    Lets throw hundreds of billions of pounds at the banks to stop them imploding. Oops, we just destroyed the economy for 20 years. Sorry.

  • Comment number 54.

    One immoral and socially useless function of investment banks. Computers have to be within the M25 or a certain area around the world financial centres.
    The computers are there because they cannot obtain advantage with longer distance time delay from the centres of financial deals.
    The same computers have software that can react in around 4 nanoseconds (4/1000000sec) having computed the info on buy/sells to gain a margin place buy/sells first and make a buck.
    This is exceptionally clever but in no way could buying and selling shares in nanoseconds be advocated as being an investment or a fair and equitable system where others are true investors.
    This computer trading steals money from the market and companies who need true investment and is in part one of the mechanisms that has led to our current Global plight.
    It is also worth noting that the leverage of these types of transactions is being carried out with your money that the banks have recieved backed by the G20 or whatever.
    The recent phenonmenal bonuses of banks when all others in the real world of wealth generation are being crucified is not real wealth generation only stealing from business/us by the masters of the universe aided and abetted by your local goverment.
    The larger institutions do buy and sell between themselves to avoid the interference of these sytems affecting their transactions.
    One outfits software ghuru jacked and they had the audacity to indite the guy and have him held in jail on stealing charges.
    Have a nice day its such a fair world.

  • Comment number 55.

    I think that the published figures in January will show slight growth in the economy, heralded as the end of the recession. Inflation in the form of the RPI/CPI will show a small rise and the MPC will suggest that just another 25bn over Feb/Mar/April will see us properly into recovery.

    QE is addictive.

    Then there will be an election campaign, the running of the economy will take a back seat and Merv will suggest another little tweak, just another 25bn to tide us over till the new government takes office, just in case.

    When the new goverment takes over they will then be tempted to do one last bit of QE to soften the cuts they will have to make...


    I think the next meeting of the MPC should be held in the Priory.

  • Comment number 56.

    #2 "Its good to know these highly paid experts really know what they are doing with the future prosperity and happiness of billions of people ( some people may recognise that last comment as sarchasm)!"

    At the last count, there's only 65 million people in Blighty !! What they decide to do or not do may or may not affect people in other countries and even if it does, the effects may or may not be significant !!

  • Comment number 57.

    #3 "As for the carry trade, it all depends on interest rate differentials (of course). If you can borrow cheaply in USD then lend it at a higher rate to Australia, there's money to be made."

    Especially when what you borrow (in USD) becomes parity with the Aussie dollar when the time comes to repay your loan !! Very much a win-win situation !!

  • Comment number 58.

    #10 "I think the chinese invented inflation with one of the worlds first ever money systems?

    They discovered this phenomenon when they went to press (so to speak)"

    Yup !! They did that in the middle of the 13th century during the Song Dynasty !! When the Mongols conquered China, one of the first delights of "higher civilisation" that they learnt from the Chinese was "quantitative easing" and they bankrupted massive numbers of people !!

    Let's see what the current Horde of "Quantitative Easers" will do to us !! I'm not hopeful of good times ahead in the near future !!

  • Comment number 59.

    #21 "Meanwhile the Chinese look on and wait....."

    Nope, they are quietly but consistently *and* insistently pushing into new markets in Africa and Latin America !! When they've "conquered" and dominated those markets, the West will have a harder time trying to sell those markets anything that is not high tech (or perceived to be high tech) or fashionable !!

  • Comment number 60.

    So is the new money being put into the world economy by governments being put to productive use or not?

    Is the money finding its way into new production, realising new value and so productive profits?

    It would appear not.

    Hence the money is being put into the system to support (the banks') profit rates not real production.


  • Comment number 61.

    To No.39 Kitgreen

    The answer is that no one will lend you anything again.

    Which is fine providing that you never need to borrow again.

  • Comment number 62.

    #31 "Shame I have no chimney."

    Try hanging your sock over a huge blazing fire pit !! Might do some good when the QE bloke comes down straight into it !!

  • Comment number 63.

    #32 "The gilts being purchased by the BOE are pre-issued and the new gilts are being bought are by those who have just sold the old ones to the BOE. Although overall they are off-loading gilts, which will make sense of course."

    One way of extending the period of their loans, especially when their "old" Gilts are coming to term !! Also, the "new" Gilts may be discounted more than their "old" Gilts and, thus, gives them a profit on the purchase of those Gilts !!

  • Comment number 64.

    #33 "The focus is on employment, not on business development which then creates employment. So policy failure follows sure as night follows day. About as much use as a chocolate teapot."

    Hooray !! What I've been saying all along. It's all talk about helping youth employment but *NEVER* about developing the business to give them *that* employment !! And all those, so-called, training courses that the unemployed are sent to are just another means of disguising the true unemployment figures !! Most of those courses aren't worth the paper they are written on !!

    Meanwhile, manufacturing and other wealth-creating activities are doing a fair imitation of Icarus as he nears the sun !!

  • Comment number 65.

    #39 "So just what would be the consequence of just cancelling all debt, government, corporate and personal?"

    Britain becomes a Fourth World country, rather on par with Zimbabwe or DPRK or Myammar (Burma), i.e. a pariah country !!

    Would you like to buy some maize meal, sir. For you, cheap, cheap !! Only £100,000,000,000,000 per kilo !!

  • Comment number 66.

    #49 "So just what would be the consequence of just cancelling all debt, government, corporate and personal?"

    Wiemar Republic,here we come !!

    "Someone posted earlier about the IMF. I am sure that if we had the brokers men come in, the first thins they would do would be to stop QE and slash government expenditure by amounts we would find unthinkable."

    Ask the Thais, Indonesians, Filipinos and the South Koreans what happened to them in 1997 when the IMF stepped in !! Then ask the Hungarians what happened to them last year !! Latvia is going through the same process right now !!

  • Comment number 67.

    #50 "Breaking News - Bank of England to monetise monopoly money - I'm off to Toys R Us."

    Too late !! I've already bought 20 sets, all that's left on the shelf !! :-)

  • Comment number 68.

    #52 "The only bubbles that may not burst are of a current celeb in that annual event in the jungle."

    Even that had been known to burst and Dow Corning had been sued over their silicone products !! Quite unsightly really, when one suddenly deflates from 36E to 36A whilst the other remains the same !! :-)

  • Comment number 69.

    Ishkandar & Bob Rocket

    Predictions for the future:

    In 2010 The Bank of England will extend Quantitative Easing to keep the Government funded whilst it reduces its expenditure. Green shoots of economic spring are noted by whoever’s in office.

    In 2011 The Bank of England will extend Quantitative Easing to keep the Government funded whilst it reduces its expenditure. It also agrees to buy back any fixed interest gilt of any investor, due to the growing alarm over the devaluation of sterling. Green shoots of economic spring are noted by whoever’s in office.

    In 2012 The Bank of England will extend Quantitative Easing to keep the Government funded whilst it reduces its expenditure and holds the Olympic Games. Green shoots of economic spring are noted by whoever’s in office.

    In 2013 The Bank of England will terminate Quantitative Easing. There will be a general strike followed by a general election.

  • Comment number 70.

    #52 "HSBC flooging its HQ's London, Paris, NY "

    It's an old military strategy called "re-grouping" !! They are pulling back from or out of areas where there is little or no chance of winning and concentrating their forces (wealth) where they have a good chance of winning !!

    Their HQ is now in HK as it was before they bought Midlands and was forced to move to London as part of that agreement !! Now they'll leave a skeletal "HQ" operation in London while they move back to their much beloved HSBC Building in HK !!

    Meanwhile, they are also freeing up cash by flogging off unwanted assets !!

  • Comment number 71.

    Today you told John Humprhies that national debt was not high, presumably on an historic basis. Tell me! Am I looking at the wrong charts ?

    It always worries me when politicians ignore debt and talk about reducing the deficit as if permanent economic growth is assured.
    I get even more worried when economic analysts do the same

  • Comment number 72.

    I watched your broadcast with Mervyn King.....
    OK....didn't mean a thing to me...but....
    When it comes to having confidence in one person in the U.K. (whether you understand his arguments or not) it is Mervyn King.
    Personally I would rather see him and his colleagues at the Bank of England in charge of the U.K. economy, than all the faceless Civil Servants and government 'appointees' in Downing Street, Whitehall and the Treasury!
    At least he gives the impression of knowing what he is talking about.

  • Comment number 73.

    This morning's news:

    Retail sales up.
    Mortgage lending up.
    Borrowing(government) higher than expected.

    It's deja vu all over again.

  • Comment number 74.

    34. At 7:21pm on 18 Nov 2009, markus_uk wrote:

    "Yes the UK is busy creating another bubble, before the old one has even collapsed. "

    Ah yes.....but these bubbles already have holes in them - so if you stop pumping in air (i.e. Money) then they deflate immediately.

    The previous bubbles were self inflating, all these new bubbles rely on QE, or Cash for clunkers, or low interest rates or some other Government incentive. soon as the air stops pumping then the bubbles will go flat, this is why the BoE is going to keep QE going over the new year to combat the VAT and stamp duty rises and the end of the cash for trash schemes end.

    - and then the party is really over because the rating police will turn up and downgrade us (i.e. inform our parents!) - and we will be grounded for months!

  • Comment number 75.

    51. At 00:25am on 19 Nov 2009, glanafon wrote:

    "Cancelling all debt is not possible. That is called bankruptcy." - Oh yes it is, if the creditor calls off the debt then it's not bankruptcy. It is in fact a cancelled debt.

    "all trade is based on trust, no trust no trade." - This is true, but it's a selective trust as the money you are making the trade with is currently being printed without anything to value it by (i.e. Gold).

    There is a campaign to cancel all debt worldwide - it wouldn't end the world and it would give those countries who have been disadvantaged through colonialism a fighting chance. why do you think Governments wouldn't want to cancel debts? Maybe it's because they are so incapable they would find themselves 'third world' if they lost their advantage achieved through debt.

  • Comment number 76.

    Cash for clunkers doesnt actually cost anything as the £1000 is more than covered by the vat take/VED etc on the sale of a new car (If its £7.5K +)even with vat at 15%.
    No car sale, no vat, i think this will actually show a profit.

  • Comment number 77.

    #76 - your logic is flawed although your overall point is correct.

    If there would have been no car sales then you are 100% correct.

    However there would have been some car sales with 'clunkers' p/xd so the full £1,000 is a cost on these to HMG.

    Anyway I don't think that was WOTW point - he was saying that the bubble will collapse once the air (money) stops being pumped in - its like putting a roof on a house and asking the inhabitants to hold the roof up - once they put their arms down the roof is going to come crashing down on their heads and its going to hurt!

  • Comment number 78.

    This is all very interesting -are we all agreed that the experts are seldom right and that they are the ones who cause more trouble than enough.QE - my oh my what will the level of disaster be when that stops.What I never see mentioned is that the 'economy' is more properly measured by 'consumer spending'.As the advert says -simples -no consumer spending is no economy.For proof see the scrappage scheme which produced more sales ie consumer spending.Now see how much capital has been repaid as mortgage costs went down which means lower consumer spending.Disposable income is not increasing ,therefor,there will be no savings and no gratuitous spending.Until consumers feel better-no recovery.

  • Comment number 79.

    #76 alanfrench

    'Cash for clunkers' is costing the UK population money, no matter which way you look at it. (it's not money for nothing)

    Only if (and it is a big if) all clunkers traded in were 'new to the market' customers would it produce extra profit but a large proportion of these cutomers would already have been in the market or have brought forward purchases to take advantage.

    Only some of these sales are genuinely new (like first time buyers) and will turn in a profit (although reduced) for the government.

    The existing customer base produces less vat due to the lower selling price.

    It has stimulated the economies of the UK auto-dealers and far-east car manufacturers.

    It has forced poorer people in the UK to pay more for an old but serviceable car.

    It has given the illusion that things are not as bad as they could be which is the object of the exercise.

  • Comment number 80.

    # 90 = Spot on !

    Light relief (or maybe too true...):

  • Comment number 81.

    *77 Fair point Grim, but the cash for clunkers actual cost will either be negligable or slighlty profitable. My contacts in the motor trade tell me that it has stopped many of them going to the wall and they are seeing NEW customers who have a few grand stashed away and think its a good time to buy. I dont think it can be included in the bubble arguement thought the rest of points seem true. Dont know about you fella but im bricking it thinking about next year

  • Comment number 82.

    1) My favourite Blog:

    Glad I got that off my chest. Dumbing down in all forms, annoys me :-(

    # 90 Right on! (thought it deserved reiteration)

  • Comment number 83.

    My Bad: I meant #90 from yesterday, #90

    Apologies for confusion, my Firefox has no comment box, so I am using 2 browsers, (posting via Chrome)

  • Comment number 84.

    80 - in a world of full employment, that might be true but even so, we are either a society or a collection of individuals living on the same territory. Or, if the individuals are prepared to help out family members, then we are a collection of private families. Or, if those families are prepared to help out acquaintances then we are a collection of discrete but overlapping social networks.

    All hard work? I think not. Ability, luck, deception, nepotism and health are part of many a CV in my experience.

  • Comment number 85.

    #81 'bricking it'

    Tactics for survival.

    1) Exports are all that are keeping our company going - we were lucky in that this was already an established part of our business. Our UK sales have been non existent for over 12 months now.
    2) Move abroad - not something I would consider personally but the UK is in dire straits (too much 'money for nothing'!)
    3) Commit a crime and go to prison where you are assured to be fed and watered.
    4) Put your head in your hands, cross your fingers and wait......

    We had a life plan and my wife was discussing how well it was going the other day - it is of course based on a level of net income which is based around the current tax regime - when explained to her that base rate could go up 5% and higher rate tax 20% she said that would set our plan back 10 years - I calmly explained that would still make us the lucky ones, many people have no plan and lots of debt.............civil war anyone??

  • Comment number 86.

    No.2 s looking attractive at the moment. I favour Belgium, they seem to have a nice life over there

  • Comment number 87.

    Asset prices (stocks, shares and bonds) are also strong and have recovered lost ground due to interest rates being very low in the UK and elsewhere. When inflation increases and the BoE raise interest rates at some stage in the near future asset price inflation will fall or disappear unless the £ GBP currency makes it advantageous for overseas traders to buy UK assets priced in GBP's.

    The effect can be exacerbated by other countries having recovered first - if investors generally buy early at relatively low asset prices, the UK stock market could yet rise further and produce a windfall before interest rate rises lift the exchange rate on the GB£.

    As for the split in opinion between the nine MPC members - that is always going to happen - that is why nine members are needed and not e.g. 3 or 5 or 7 members.

    However, I would be interested to know who the seven are and see if they advocate 'Shufflenomics' rather than 'Sustanomics' - Are the differences in opinion between those who have been planted there by the government and those who are just there on merit?

    The question is who is buying, from where with what as well as why?
    It cannot be QE having such a strong effect on UK asset prices - not on its own.

    My reading of the signs is that the main investor asset price gains have already been made and the asset prices will make only slow growth going forward. However, the best hedge against inflation is to buy property but if the BoE kill this off with interest rates rises, the property market will also find it difficult to make gains.

    The problem for the UK is that investment cash has a global market and there will be better short terms returns for overseas investors elsewhere in comparison to investing in UK assets and most investors have made their heavier purchases in UK assets for the time being.

    This is a major policy dilemma for the BoE - if inflation rates keep rising consistently with fuel and other imports becoming more expensive - interest rates will have to rise - this is the time to consider joining the Euro and I think that Labour have said both the behind the scenes and quite openly (Per Mandleson - UK will obviously join the Euro - July 09) that they will join the euro if they win the next general election.

    M King must know if the UK is signed up for the Euro behind the scenes - the question is what will be the entry rate price? The banks want to charge higher interest rates but borrow money cheaply themselves - all these issues unresolved as including having a special lending interest rate for property.

    M King has a difficult job because he does not know the outcome of the next general election - the answer is of course to have a UK general election now and not in 6 months time - that will enable the BoE to get the interest rate decisions and QE spending on a clearer 'Sustanomics' base.

    There is a good economic reason to have the general election ASAP - to eliminate 'uncertainty' over investing in the UK - this is a matter that a responsible government should consider so as not to delay any possibility of some improvement in demand/productivity, in the UK economy. The main two UK political parties hold off discussing this and joining the Euro as both vitally important matters because of their skeletons in the cupboard on Europe/Euro currency.

    The BoE's problem is not internal, I think (other than those members imposed on their independent thinking). Sorry Merv - you do have a difficult job at the moment (because of the 'Shufflenomic politicians'), I have to admit!

  • Comment number 88.

    76. At 11:27am on 19 Nov 2009, alanfrench

    With financial logic like that you could work for the Treasury

  • Comment number 89.

    One point on QE v inflation that I keep wondering about, is the effect of people (bankers, if you will) salting away vast amounts of money in the Cayman Islands (or wherever). If this money is taken out of the circulating money supply semi-permanently, isn't that the same for inflation as burning it? Then the QE merely becomes replacing the missing circulating money in the economy, and has much less impact on inflation than you would expect.

    If, as many think, lots of the QE money is going into bank's profit and banker's bonuses and ending up out of circulation as well, it would doubly not have the effect you expect.

    Of course, if all this is right, it becomes interesting when that money gets repatriated - a big hike in inflation could result. Maybe we should make sure that the money never comes home - perhaps a steep tax aligned to a tight money 'import' policy?

    Any comments from people who know more about economics that I do?

  • Comment number 90.

    81. At 12:10pm on 19 Nov 2009, alanfrench wrote:

    "Fair point Grim, but the cash for clunkers actual cost will either be negligable or slighlty profitable." - for who exactly? for the car companies? - because the Government will not be making money out of it. There's only a 15% V.A.T rate on cars so in order to get back the £2k subsidy the purchase must be of a car worth more than 13k (and that's just for the Government to break even).

    I lifted this from a Telegraph article:

    The scrappage scheme, which has now been extended to include another 100,000 vehicles, has particularly helped the sale of small cars, with the mini sector rising 200pc last month. Alternatively-fuelled vehicle registrations were nearly 43pc up in October 2009.

    These were the the top-selling models in October 2009:

    1. Ford Fiesta

    2. Vauxhall Astra

    3. Ford Focus

    4. Vauxhall Corsa

    5. Volkswagen Golf

    6. Peugeot 207

    7. Renault Clio

    8. Hyundai i10

    9. Mini

    10. Fiat 500

    I'm no car expert but I doubt many of these are (much) above the 13k barrier. Also new cars do not require MOT's for the first 3 years - so there isn't even a knock on for the mechanic trade (although there is a boost to car tax and insurance industries)

    "My contacts in the motor trade tell me that it has stopped many of them going to the wall"
    I'm afraid it hasn't - it has merely postponed them going to the wall. I would go so far as to say it will create a 'false dawn' for the inexperienced in the motor trade and if they do not take this opportunity to cut costs then they will be in far worse trouble once the Government stops the subsidy.

    "they are seeing NEW customers who have a few grand stashed away and think its a good time to buy" - this may be true, but I very much doubt that they make up many of the 'new' customers. Many are in fact customers who would have bought anyway but are being brought forward. People don't change their spending habits to buy more when there is a recession on. New customers only come with Economic confidence so people who did not own cars before buy one because they have a job they feel secure in (which isn't really the case for anyone at the moment)

    It's a similar picture in the housing market - driven by the stamp duty reduction. I know 3 people buying property at the moment - all trying to rush it in before the new year when the relief will be dropped - what will that do to the market?

    It's all bubbleconomics - you cannot intefere with the laws of supply and demand without creating bubbles.

  • Comment number 91.

    Telegraph. UK banks in worse trouble than others, Experian warns. Britain’s banks are in a worse state than those anywhere else in the developed world and show no signs of recovery, according to the world’s largest credit-checking company.

    I haven't read the article and don't really understand how Experian could have such a great insight into the state of UK banks but it doesn't sound great!

  • Comment number 92.

    87. At 1:14pm on 19 Nov 2009, nautonier wrote:

    "It cannot be QE having such a strong effect on UK asset prices - not on its own."

    7% of GDP added to the economy (virtually straight into asset prices) says it can - and that's based on a 2008 GDP, which was nearly a full year of 'boom' production - only in the last few months did it die off.
    The Government is ensuring rates on gilts stay low with QE and that makes equity markets more attractive.

    Also the 'historically low interest rates' which we have been on for a nearly a year now. This is driving savings from their low interest place to higher yielding investments (property and stocks).
    However as more and more people do this the yields will fall, with stocks they will not be paying dividends for some time as profit continue to fall in line with rising unemployment, and if they do pay out then it will be low.
    Corporations are already setting themselves up for a dilution of stock with the number of rights issues happening at the moment and many people who moved money from savings to the FTSE will get burnt as more and more rights issues occur.
    ...of course the number of rights issues can be traced back to the lack of lending by banks - which is why this is now th emost popular way of raising funds.

    I guess this is exactly why 'credit crunches' always cause the longest and deepest recessions (1929 was started from a credit crunch, much like the current one).

  • Comment number 93.

    The biggest 'hidden' story of the week was the £300m sale of the Glasgow shopping centre.

    Not the sale itself so much (although it was down from £350m - it's boom valuation) but the revelation that £220bn is currently outstanding (i.e. owed to banks) through default or arrears in the commercial property world.

    The banks are currently sitting on these properties to avoid collapsing the market, but they have no experience in managing commercial property so it won't be long before they start coming on to the market.

    It's hardly been mentioned, but this is a significant step in the commercial property market. Hammerson (the buyers) are waging their bets on the recession ending making the yield on the centre worthwhile. However if there is no end to the recession then the price they paid will seem like a very bad deal indeed. The current yield is estimated at 6% (£21m a year) which averages for the 100 units about 210k each (although they are of varied sizes).

    The big boys will stay (Tesco etc) but it's the little boutique shops who will disappear squeezing that margin very tightly. The Christmas period is going to be crucial - if it's a bad one for the shops (and it looks like it's going to be) then the knock on effect to the commerical property market will be huge.

  • Comment number 94.

    93, WOTW

    Got a link to this story? Scary stuff

  • Comment number 95.

    Definition of "Expert": ex spurt. Spurts no more. Where do these "ex spurts" come from? Put 2 or more together and what is the result? Disingenuous claptrap. If these ex spurts are so damned clever at banking,economics, climate change, da da da, why then is this world in such a confounded mess? Could it be that spurting rubbish all day long is the reason?
    A plague on all their houses.

  • Comment number 96.

    92. At 2:30pm on 19 Nov 2009, writingsonthewall
    87. At 1:14pm on 19 Nov 2009, nautonier wrote

    So far this year all the usual large net buyers of gilts (Insurance companies, pension funds, overseas investors etc.) were all net sellers of gilts, and the only large net buyer was the Bank of England.

    Having sold their gilts to the BOE they have then bought stocks.


    Because they fear more QE and more devaluation of sterling which will naturally follow.

    Robert Stheeman (The Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early this month and confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

    I’m starting to believe that there is no market for UK fixed interest government debt anymore.

    I suspect that the financial instability of this country, along with the BOE printing money, has all but finished the fixed interest gilt market.

    In short I reckon you can only get away with devaluing fixed interest gilt holder’s investment once by printing money.

    I struggle to believe they’ll let themselves be shafted twice.

    QE is about funding government not about increasing economic activity.

    The question still remains how do stop QE if the fixed interest gilt market no longer exists?

  • Comment number 97.

    *93 Cant agree. The auto industry sales have been saved for little or no cost to the taxpayer. If those companies had gone to the wall we could be seeing another million on the UB40. Just think the dealers themselves, parts makers, transportation firms etc etc all going out of buisness. It may be a postponment but comming back is always harder than staying in buisness.
    Sometimes you have to look at the bigger picture not just a seies of narrow points. For what it has saved the country in jobs, moral and tax take, it a bargain.
    As for commercial property any body who works in that sector will tell you that sales are doing very nicely at the moment as the big cash holders are picking up bargains such as the afforementioned shopping center and that there seems to be plenty of cash about.
    I actually get out and talk to business people rather than just reading it in the Torygraph. Its a bit different out there you know.

  • Comment number 98.

    If you don't have an explantion that you believe, shout your excuse! Well done, Merv.

    The danger is that almost the whole economy is a collection of bubbles. What we've seen is a few little ones burst. And the QE cure is pure bubblonomics: pump up the bigger bubbles to compensate. If one of those goes, there'll be no escape for anyone. If it doesn't explode, we still have a mass of inflation stored up in newly printed and newly devalued money. And still no escape.

    It's time for UK Gov to re-structure the economy. We need manufacturing. We need service industries that create genuine wealth: that means selling knowledge rather not spurious financial constructions.

  • Comment number 99.

    #93. writingsonthewall wrote:

    "The biggest 'hidden' story of the week was the £300m sale of the Glasgow shopping centre..."

    It is neither a big story nor a hidden story, and your summary of it is incorrect in several ways. Above all, your assertion that "£220bn is currently outstanding through default or arrears in the commercial property world" is not true. The FT makes it clear that £220bn is the total outstanding to the sector, of which "much is in breach of covenant or facing refinance over the next few years". You have to admit, that is a very different picture to the one you paint in your lazy summary of the story.

    If you're going to sow misery and gloom then at least get your facts right.

  • Comment number 100.

    #94. JavaMan1984 wrote:

    "93, WOTW

    Got a link to this story? Scary stuff"

    Scary stuff, but untrue.


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