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What RBS's results say about QE

Robert Peston | 09:52 UK time, Friday, 7 August 2009

If you want to know why quantitative easing may not be working - in the sense that it hasn't led to a conspicuous increase in lending - this morning's financial results from Royal Bank of Scotland give a pretty good clue.

I'll explain.
In simplified terms, quantitative easing is the process of buying gilts from investors - to date some £122bn of them.
Let's assume, which isn't necessarily the case, that when the Bank of England buys gilts from investors the cash ends up in the British banking system.
Well, if the cash is classified by the banks as a customer deposit, which it might be if the investor that has sold gilts to the Bank of England happens to be a relatively small and unsophisticated institution, then the banks say "yippee".
Because that deposit increases the ratio of supposedly stable customer deposits to loans and advances: it reduces the banks' dangerous dependence on flighty, unreliable wholesale funds.
Which genuinely matters, because - as you'll recall - one of the reasons our banking system came so close to collapse last autumn is that our banks had become too dependent on wholesale sources of funds, which dried up after the collapse of Lehman Brothers when investors took fright and took flight.

Take Royal Bank of Scotland. Today, its chief executive has set a target to reduce its ratio of loans to deposits from 156% to around 100% by 2013.

That will require it to reduce its dependence on wholesale sources of funds by not far off £200bn over the same time period.

So when cash deposits come in, the instinct of Royal Bank of Scotland - and of other banks - is to say "thank you very much" and just sit on the cash, rather than lend it out.

And there's a similar story for Lloyds. In the six months from 31 December to 30 June, its ratio of loans to customer deposits has fallen from 166% to 152%, as it has simultaneously increased deposits by £20bn and reduced loans and advances by £25bn. 
To reiterate, that reduction in these banks' respective ratios of loans to customer deposits is a deliberate policy.
Why? Well, when Lloyds and RBS increase their customer deposits and don't lend out the cash, they becomes a much safer place for their other depositors.
So a benign effect of QE may have been to increase the security of our banks for savers - even if that's not what the policy was intended to achieve.
But actually much of the cash raised by institutions from selling gilts almost certainly isn't converted into customer deposits at banks.
More likely is that institutions have lent it to banks and other financial companies in the form of wholesale market loans - the kind which the banks are supposed to be weaning themselves off.
If that is the case, then there is absolutely no chance that banks - already too dependent on wholesale funding - will lend the money out.
What's more, some of this money raised by institutions from gilt sales may have been lent to the banks in the form of short-term debt securities underwritten by the Treasury via the credit guarantee scheme.
In effect, there will have been a double public-sector subsidy for fund-raising by the banks, with little apparent consequential benefit in the form of lending into the real economy.
There is a final paradox in this tale of where all the Bank of England's money has leaked.
The banks may have used the additional cash deposits to purchase gilts, as they've been instructed to do by the regulator, the Financial Services Authority, which wants to see them holding much greater reserves of genuinely liquid, high-quality assets.

Let's look at Royal Bank of Scotland again. It has a new target to increase its "liquidity reserve" from £90bn to around £150bn. And that means it may well buy an additional £60bn or so of gilts.

So one lot of gilt purchases, by the Bank of England, is simply spurring a separate lot of gilt purchases by the commercial banks - for which the government should be profoundly grateful, because it helps finance the humongous public-sector deficit, but prevents any of the cash being lent to businesses and households that may need it.
Does that mean QE has been a waste of time?
Probably not.
Without it, there might have been even less lending into the real economy.
But unless and until the banks' ratios of customer deposits to loans and advances have returned significantly nearer to parity, QE is almost certainly not going to spark much in the way of incremental lending to non-financial companies and personal customers. 


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  • Comment number 1.

    Back to banking then...nevermind.

    How RBS got itself into this sorry mess is a national embarassment. The only event which may eclipse the same will be if QE and gilt sales in particular collapse leaving the government red faced and running to the IMF, unable to service the astronomical national debt.

    Watch those gilt sales when QE ends.

  • Comment number 2.

    So to summarise your 779 word article:

    We have substantially increased public / national debt (i.e. gilts) with little or no actual trickle down effect on the REAL economy.


  • Comment number 3.

    A good post Robert which again highlights the contradiction in the Government's stance in berating the banks for not lending at the levels they like.

    The boom was largely built on unsustainable levels of debt and unfortunately the necessary measures to wean us off this culture will result in viable companies not getting the capital they need. However this is a price worth paying (although terrible for the companies/employees concerned) if it puts us in a better long term position.

  • Comment number 4.

    Quite simply, quantitative easing will not work because it is a communist plot.

  • Comment number 5.

    I'm amazed that everyone expects this global recession to be over in a few months. Whatever has gone on up to now, has been about stabilising the boat - not even patching the holes - and certainly not about getting it up above the waterline. The economy is all phoney just now, and you can't understand it by applying traditional rules. Think how long and hard we worked to create this mess, acknowledge the fact that we can't go back to our old ways, and consider just how much longer it will take to reach a stable position.

    If all that sounds negative, I'm sorry but that's how I see it. Personally, I quite enjoy it, since it gets us out of the old ruts and provides loads of opportunities for those who can still think for themselves.

  • Comment number 6.

    At last a banking story. I was getting bored with news stories.

  • Comment number 7.

    and all I can think of is: vast wodges of money have been fond to baiil out the bankers and try to get us out of the hiole they've dug for us; small sums necessary to keep our society running as a civilised place are queried in detail, trimmed, or dropped, often for political reasons or whims.

    I know we have to do this, but it's amazing how the money can be found for this but not to give our old people a pension good enough to live on decently, or the NHS enough to fund properly necessary treatment....

  • Comment number 8.

    Surely the answer is simple: negative interest rates, which is what the Riksbank have done in Sweden. Charge the banks to hold reserves at the Bank and they'll have to lend it out.

  • Comment number 9.

    Yeah typical. This government says one thing and does something else. Maybe I should give them the benefit of the doubt? - They haven't got a clue?

    But in the real world Robert a relative, new graduate, went to RBS to ask for a mortgage. The family have banked with RBS for over 60 years. They are relatively well off. Frankly, if I had the cash I would loan them the mortgage. So they had the 25% deposit. Did they get the mortgage? No. Why? Because the contract of employment has a one year 'probationary' period. Mortgage requires a guarantor. Parent is old. So guarantor mortgage period 11 years. Guess what happens to repayments?

    So they went to building society. Absolutely no problem with 'probationary' period. Why? Cos 'failure rate' is no different than any other job. Catch? Yes interest rate is 0.75% more than RBS. But given the fact that there are no RBS mortgages at that rate, does the quoted rate mean anything?

    You can fool most of the people most of the time, but not all of the people all of the time.

    Well done Hester. Reduced RBS to a banking equivalent of 1970s British telecom in less than a year. Quite an achievement.

    This Labour government has not got a clue. It is out of touch with reality & on holiday.

    The banks are trying to hide reality. How about some real disclosure like MPs expenses? If loans are happening. Publish the data. I for one no longer believe the rubbish being turned out.

    Robert where is your investigative journalism? Or do you not mix with real people?

  • Comment number 10.

    So in other will get worse before it gets better?

    If the banks have to withdraw forms of lending because of the restrictions placed upon them by the government, why are the government turning around to the banks and saying that they must lend more?

    Sometimes I do wonder which issues you try to tackle Robert.

  • Comment number 11.

    The change in accountancy rules means the banks can survive. The underlying problems remain and nothing but time will solve this. The Labour government have pushed the problem to the next government. Poor conservatives.

  • Comment number 12.

    #4 MichaelFowke:

    It has nothing to do with communist ideals. You may want to hop over to Ireland and see how they are coping. At least we have 2 weapons to fight recession the Irish don’t have. The first is a floating currency. Ireland is locked into the Euro, but we have sterling. The second tool the UK Government has to drive growth is increased short term spending and temporary tax cuts to boost consumption. Ireland could badly do with both quantitative easing and some fiscal stimulus on domestic demand. Actually, it is nice now that some in opposition broadly accept the need for fiscal stimulus now, alongside increased spending on education, health and defence with repayment in the future. Though of course, they want less of it.

  • Comment number 13.

    This is a good blog and something we should all be looking at, still I think it looks like the QE won't work.

    Oh well, never mind. I remember being happy with pieces and jam as a kid.....................Little did I know how this practice would serve me well in years to come.

  • Comment number 14.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 15.

    In reporting on the results of the Banks Robert seems to blame only them for the financial mess we are in. In their thrust for market share there is no doubt that, in hindsight, some, HSBC and Barclays apart, have been reckless. However we must not forget that Brown was the father of the mess the country is in. He created an economic climate which led to a downturn in demand resulting in job losses and thus inability of many to service debt levels which at the outset appeared sustainable. Result, foreclosures, negative equity, factory closures.

  • Comment number 16.

    The people who borrowed unsustainably (and who continue to do so) have helped to get us into this mess (and the more they borrow the worse the coming second crash will be). Newsnight last night was very interesting because Trichet was questioned as to why the Eurozone is not going for more quantitative easing, whereas we are. As usual, he was the perfect gentleman - deeming it 'inappropriate' to rubbish his 'sister institution' (the BOE). However, one British economist managed to hit the nail on the head when he said that it was possible for the Eurozone to allow some degree of deflation because there has not been such a dreadful culture of household borrowing in the Eurozone. Yes, unemployment is high in the Eurozone, but they are clearing out the system and the ECB repeatedly says that it is proceeding with 'prudence and caution'. The ECB still considers 'price stability' to be their raison d'etre, whereas the BOE has thrown all caution to the wind - reluctantly maybe - because Mervyn King seems to be very much of the same ilk as Trichet, but his hand is forced by the politicians.

  • Comment number 17.

    With interest rates for savers at near-zero, this is the perfect time for banks to "sit on" vast piles of BOE costs them virtually nothing to hold it....a gift from the public.
    Add that to the bail outs.....another gift from the public.
    And why should we take any notice of published bank results....they have been shown to be a nonsense?
    Two years ago they were reporting "a loss of a couple of billion", when in fact they were broke.
    And why should we rejoice when they make big profits, when they have every intention of putting so much of it in their pockets?....another gift from the public.
    I dont really believe in re-incarnation, but if it happens, I WANT TO COME BACK AS A like a king, and have my bottom wiped by the public for life.

  • Comment number 18.


    At last you have exposed the truth about our government 'Ponzi' debt creating money pyramid scheme which is scary as per the true analysis below.

    You have confirmed that bank 'reserves' are nothing other than bank loans (gilts) to an overspending bankrupt government, and that this is debt created bank money 'out of thin air'. So we now have government bailed out bankrupt banks creating money via fractional reserve banking to lend back an even greater amount back to a bankrupt overspending government. In effect via the as good as nationalised banks the bank is borrowing from itself whilst creating inflationary money in the process.

    In addition, the banks have been given by the Bank of England more 'printed' Quantitative Easing debt created money via old gilt purchases so that the banks can buy more gilts to fund the excesses of an overspending government with Gordon Brown being the winner by not being kicked out by voters who have not yet felt the effect of their national bankrupcy by him.

    With deposit interest rates being so low, saver deposits are now non existant and it is only the government bailout money that the banks have to lend at a fractional reserve multiple.

    The reason why the banks are seen not to be lending is mainly because people cannot afford to borrow more to pay the interest from their earnings irrespective of how low their house price assets have fallen.

    This government Ponzi money creating pyramid scheme relies on people taking our greater debt, and now that people and companies are maxed out in debt it is collapsing.

    Quantitative Easing is making it worse because any attempt to stop it will result in rising gilt yealds and increased borrowing rates that will now be terminal to the economy. Hyper-inflation Zimbabwe style will soon be upon us.

    It would have been far better to let the banks go bust, to protect retail depositors at far less cost to the taxpayer than the black hole bank bailouts, and to increase interest rates to encourage saving instead of making the situation worse by encouraging greater borrowing with reduced rates.

  • Comment number 19.

    #9. At 10:40am on 07 Aug 2009, Blogpolice wrote:
    Yeah typical. This government says one thing and does something else. Maybe I should give them the benefit of the doubt? - They haven't got a clue?

    The real problem is that they don't understand that the reactions to the actions they are taking are not what their simplistic logic would have them believe and so your last 5 word are probably the sad sad truth.

    I love analogies and in this case I think one has to think about obesity, no one becomes obese over night it takes many years of ignoring what is happening. Once you have identified the problem it would be stupid to think that the cure could be to eat loads and loads more food really quickly and hope that this somehow naturally triggers your body to become thin.

  • Comment number 20.

    the engineers of old built pyramids with the points of the buildings upwards, the great engineers of today built the pyramids with the point down the way.

    All this money that is getting printed is getting sucked out of the system by people scrabbling around to get a monetary value for their useless worthless bits of paper, As we the public and funding this I demand a full and public audit of ALL the books the financial organisations hold and lets see who is telling the truth.

  • Comment number 21.

    We should have a site dedicated to QE, say ?

  • Comment number 22.

    Can we have a story about how the pension funds have been asleep at the wheel? They own the banks on our (current and future pensioners) behalf. They take their annual fees (e.g. 1% of my pension pot every year) without any regard to how well the investments perform. They don't seem to get involved enough in managing the companies that they invest in. Is it any surprise that I and many other punters have put money into our home property rather than put more money into the money pit that our pension companies represent. I resent the way that the banks are earning commissions from churning my investments from one company to another - I get poorer and the bankers get richer while the pension companies grease the wheels.

  • Comment number 23.

    First installment leading to blasting out of the water the government's strategy in dealing with the recession and managing the economy generally. Stupid bank rate, PFI's, privatisations to follow.

    We have a Labour Government following an out of date extreme capitalist route because they have ceased to be able to understand any other way including the modest social democratic line of the LD's. New Labour is another bankrupt in the recession and the sooner it goes and is purged from the real labour party the better.

  • Comment number 24.

    #2 Hawkeye_Pierce

    Brilliant post!

    When do the IMF get called in?...what are the economic conditions/circumstances that trigger their involvement?

  • Comment number 25.

    A very simple suggested answer why Quantitative Easing (QE) hasn't worked and that another GBP 50,000,000,000 is required, according to the Bank of England (BoE).

    I imagine much of the money has gone abroad. Humour me for a moment.

    QE is where the BoE buys up outstanding government debt with "new cash". If the sellers take the cash and deposit or invest it in the UK then the virtuous circle Robert proposes of it going into banks who can lend it takes place.

    However in my big bad world I believe the following has happened.

    When UK interest rates were higher than either US, Euro or Japanese rates foreigners bought UK gilts for the increased return. Now UK rates are down and our economy is going to the wall. There is a huge loss of confidence on the behalf of said foreign investors in the ability of the current UK government to be able to "find their A*s with two hands and a mirror" let alone run a G8 size economy.

    The foreign investors see a mug punter (the self same BoE mentioned earlier) offering them a get out of jail free card on Gordon's road trip to oblivion and surprise surprise they have taken it.

    It might be interesting to see the cash outflows from the UK since QE began.

  • Comment number 26.

    .. are we talking long or short scale £ billions here?

    If long scale why not just give everyone a million? More chance of economic recovery than anything this useless Guvt are ever likely to do..


  • Comment number 27.

    This piece has a fundamental flaw in logic at its very heart! As you point out, banks have decided to reduce their loans-to-deposits ratios to a level that increases their stability and security. If we agree that this new ratio is a fairly fixed point (in the minds of the banks' boards at least), then clearly they are going to contract their lending and increase their deposit-taking until that ratio is reached.

    In the absence of any cash injection from the BoE, this would mean that the process of arriving at the desired ratio would in fact take a fair deal longer, and would be more detrimental to those who want to borrow from the banks. In other words, the cash that the banks have gained via quantatative easing acts as an accelerator to get to the desired loans-to-deposits ratio. The fact that some further lending contraction may be desired by the banks over and above the effects of QE is in itself not a sign that the QE has not been beneficial.

    I'm astonshed that you have made this absurd logical leap, and that you have not sat down for five minutes to consider your opinion. All I can say is, I'm glad we're not having to pay for this "insight" yet :-)

  • Comment number 28.

    If you're right - and I think you are - then QE will have little or no effect on the real economy. The MPC should have reduced interest rates to 0% , not bothered with QE and sat tight until the recession ran its course.
    Every day we have "experts" and commentators bleating on about inflation. I wonder how many of these people - not least the banks - have a vested interest in the base rate going up, so they can make an even bigger profit than they're making already? The differential between base rate and the average mortgage is about 5% at the moment. Does that mean if base rate goes back eventually to say 4%, that mortgages will be priced at about 9% ? I don't think so - therefore I'm forced to conclude that the current high differential is nothing to do with banks "repairing their balance sheets" and everything to do with blatant profiteering. And that goes for their current sharp practice in calling in overdrafts with little or no notice, charging rip-off arrangement fees and generally doing nothing to help their customers or the wider economy. Caledonian Comment

  • Comment number 29.

    A day or so ago I asked if anyone knew is bankers were to get bonuses for handling the QE cash from the BoE? (No response as yet.)

    However given that there seems to be a confirmed merry-go-round of QE cash being turned into gilt purchasing by banks my guess is that the bakers WILL be getting bonuses fro managing this enforced merry-go-round. This is unacceptable as there is no risk and it required no judgement by the bankers as they are being forced to take to money and then forced to buy the gilts!

    RBS on the other hand has slightly improved in my opinion after hearing Stephen Hester on Today (Radio 4). He did seem to understand that loans to business for productive purposes were more important to the recovery than those to inflate assets via home loans. (I bemoaned this problem that was within the whole page RBS advertisements last week when there was a definite desire expressed to re-inflate the housing bubble and I am glad that the bank seems now to have stepped back from this position.)

  • Comment number 30.

    I wish I were paid in Euros!

    When the pound starts to slide against the Euro even futher (as it surely must do), the brain drain will really start to kick in.

    There are quite a few French, Germans and Italians where I work and a significant number have already left this year to go back to Europe. It's in a high-tech environment and there just aren't the people in the UK, sufficiently qualified, to replace them.

    I wonder where all our clever/qualified people went?....surely it wasn't banking!

  • Comment number 31.

    QE will not work. The money is effectively just helping the banks, who can make a quick buck by selling gilts at a short term profit, at the tax-payers expense.

    The profits in the investment banking division which accrue as a result then get paid out in bonuses.

    The only long-term solution to our problems is for Britain to make stuff that can be sold for a profit. Anything else is just creating a short-term illusion of recovery, which will only last as long as the government can print money.

    As many of us have said ad nauseam, there is a massive fraud being committed against the general public here. Nobody in the BBC sees fit to even report it.

  • Comment number 32.

    I wonder why no-one in the media is highlighting the fact that nothing has really changed at the banks at all.

    Just look at the board and top management of RBS, there are 20 of them. Two are women - although one of these is based in the US, all the others are white middle aged men.

    17 of the 20m have worked for RBS for over two and half years so were part of the problem, but none of have faced losing salary, benefits or bonuses.

    None of them have ever run, set up or be involved with a small business, most have gone straight into banking.

    Yet these are the people the Government is trusting.

    Also as the Governement owes 75%, why do they not have anyone sitting on the board

  • Comment number 33.

    "In simplified terms, quantitative easing is the process of buying gilts from investors - to date some £122bn of them."

    But the banks are buying gilts.

    Does this mean the banks are making some easy, risk free profit on transaction of £122bn of guilts. These profits will then be used to justify and pay for huge bonues, at out expense ??

    Surely, it cannot be. I must be missing something. Very puzzled.

  • Comment number 34.

    One other reason that the banks are holding on to cash is that the FSA has set minimum capital ratios. Hence the banks have had to boost their holding of cash. So the government is saying they should lend and the FSA are saying they can't.

    Is this the 'joined up government' we were promised......

  • Comment number 35.

    #9 Blogpolice wrote:

    'Robert where is your investigative journalism? Or do you not mix with real people?'


    What!...the son of a Labour peer mix with real people AND do some real work! can-NOT be serious!

  • Comment number 36.

    Correction, 18 neospeakthetruth.

    It should read 'the government is borrowing money from itself'

  • Comment number 37.

    #12 modest_mark wrote:

    'Ireland could badly do with both quantitative easing and some fiscal stimulus on domestic demand.'


    Fear not!...Ireland can expect some very generous help from EU-land very soon....for there is to be a very important 'Re-referendum' there...don't you know!

  • Comment number 38.

    And this whole City greed and favouritism thing is part of a greater scheme....the re-assertion of the "superiority of the establishment" over the masses.
    Thanks to the destruction of the unions in the 1980s, the "establishment" are in the process of "filling their boots" at the expense of the public.
    CEOs, top civil servants, bankers and City staff. Obscene inequality.
    But out of this the unions will return...and the establishment will only have themselves to blame.
    The country, including the banks, will be brought to its' a standstill....unless the establishment reverses its' program of self-reward.
    Regardless of whatever monstrous lash-ups they have made, they are still pocketing millions.
    Those unions who have supported New Labour with the doctrine of being "sympathetic to business", have been hoodwinked, tricked.
    New Labour is clearly part of the "enrichment of the establishment" 30-year scheme.
    I'm no fan of hard-nosed unions, but they are surely coming back.
    Thankyou bankers, and give my regards to the folks in the Cayman islands.

  • Comment number 39.

    An interesting discussion from your good self. As you may know from my blogs I am no economist. As I may have mentioned recently I continue to keep what little money I have in a biscuit-tin in the kitchen.
    One thought though did cross my mind:
    We have a large number of students graduating from various universities around the country having studied 'Economics'. Couldn't we round them all up, lock them away in a room with bread and water, and not let them out until they have found a solution to this mess.
    It appears to me that those highly paid economists in the government and the City of London.....don't have the faintess clue about what they are doing!

  • Comment number 40.

    It's really quite simple then. Banks, as commercial profit making enterprises, are protecting their interests. The banking system for normal depositors and lenders needs to somehow be separated from the rest of a banks interests. Keeping lending going is a fundamental part of the economy (and of national interest) that needs to be separated from banks more risky profit making ventures.

  • Comment number 41.

    A comment / question for Robert really: Through QE the government is in effect buying back it's own debt. That debt is therefore retired, since the Government then simply owes itself the debt obligation (gilts) it buys. SO, QE of GBP 200bn will reduce the public debt by GBP 200bn, or rather fund the largesse over the past year. Why has this aspect not been covered? QE has a very real benefit in that sense

  • Comment number 42.

    This credit dilemma is never going to end as long as QE is just a trick with money.

    The evolution of money is an interesting one and we seem to have reached a dead end now. How can money be money in one place ("if the cash is classified by the banks as a customer deposit") and debt in another ("money raised by gilt sales.... and lent to banks in the form of short-term debt securities") etc etc etc?

    I don't pretend to understand any of the above, in spite of your attempts to explain it all.

    We may have something useful in QE but probably only from a narrow viewpoint, a bit like the International Date Line.

    This line marks Greenwich as a starting point for the day and somewhere in the Pacific, halfway round the globe, as the end of a day. For the setting of clocks it's useful but for people travelling it's a nightmare. To quote from Wikipedia, just to give a flavour of the paradox created by this system:

    "For two hours every day, at UTC 10:00–11:59, there are actually three different days observed at the same time. At UTC time Thursday 10:15, for example, it is Wednesday 23:15 in Samoa, which is eleven hours behind UTC, and it is Friday 00:15 in Kiritimati (separated from Samoa by the IDL), which is fourteen hours ahead of UTC. For the first hour (UTC 10:00–10:59), this phenomenon affects inhabited territories, whereas during the second hour (UTC 11:00–11:59) it only affects an uninhabited maritime time zone twelve hours behind UTC."

    Perhaps we just need to stop pretending that the money system we currently have can be everything to everyone? The International Date Line can be ignored by looking at the sundial in your garden to find out what time it is, but we seem to be stuck with concepts in banking that are all about profit and not about real value, with no alternatives when the system fails.

  • Comment number 43.

    I'm no expert but it seems to me that a fundamental mistake that the BofE is making is treating the UK economy like a closed system.
    The same mistake was made in Iceland where the central bank assumed that putting up interest rates would slow down economic activity. What happened was the high interest rates sucked in more foreign money (like from UK depositors) which was then lent out with fewer and fewer controls.
    I suspect that a lot of the money that is not being used to buy UK guilts is actually being invested abroad (probably India and China). So the BoE is in effect delivering a stimulous package to the countries who least need it. (Sigh).
    Even if the money is invested in FTSE 100 companies, how many of them do the majority of their business in the UK?

  • Comment number 44.

    Fin. Instns. are reluctant to lend (retain cash) because we are yet to see the full effect of appauling mortgage facilities and the dubious method they are sold to unsuspecting households in recent years. Specific case: couple with £36000 mortgage, house V £100.0000 and monthly outgoing of £550 for loans and personal insurances. Finance Rep: "Would you like to reduce monthly outgoings to (say ) £450 and reduce your mortgage to 15 years (from 20 years)." Result :£51000 mortgage BUT includes car loan £6000, up front PPP premium £7000 & life cover premiums ( can`t recall £amounts), and fees £1500. Such arrangements have yet to be tested with FSA but the fall out will be huge.Large lending & insurance institutions are caught up down line.

  • Comment number 45.

    It's all very clever, Robert. The banks extended loans to people who couldn't afford them and fuelled a credit boom that has brought the economy to its knees. The govt rescues the banks by doling out astronomic sums from taxpayers to keep the banks in business and tells them to get their houses in order and get back asap to lending money again. At the same time, banks are required to balance their loans to deposits ratio..which means tightening criteria for borrowers and attracting more deposits from savers. Interest rates for savers and currency investors are reduced to marginally above zero. People who relied on savings interest for income (pensions having been destroyed) become benefit dependents and draw their money out of the bank to live on. The pound is considered a lame duck by currency investors because other countries pay more interest on deposits. The B of E tackles this by giving more monopoly money to the banks which future generation of taxpayers will pay for. Bankers put aside huge sums of govt largesse to fund their bonuses and fixing their balance sheets. Then they tell the govt they need more money to issue loans....Alice in Wonderland... will you, won't you join the dance.
    As I said it is all very clever..far to clever for ordinary mortals to understand. When most of the people who didn't get into debt have left the country and are replaced by more benefit dependents..what next?

  • Comment number 46.

    So at the point when the ratio of loans to deposits exceeded 100%, NO ONE on the board of directors said "Isn't this a really stupid thing to do?"

    It's what you would expect from a person concerned about the continuation of the company would do, not someone looking to make a quick buck.

  • Comment number 47.

    #37 BankSlickerminustheR wrote:

    Ireland can expect some very generous help from EU-land very soon

    Yes - we can see which way that is going sir!!

    Consider this, in the past, the opposition have made a lot of noise about the value of keeping the pound, if they weren’t so keen on telling us to follow Ireland’s current slash and burn fiscal policies, which ironically enough comes as a result of having adopted the Euro.

    Anyhow my point that seems to be lost by many people, but what are the consequences of not using QE?

    Ireland now has high unemployment, a depressed housing market and commercial base which incidently is impairing much of the HBOS debt.

    Charlie Bean at the Bank of England seemed quietly enncouraged in July 2009, but how much more of it is actually necessary? This is crux. I don't think we have enough statistics to confidently judge that QE will or will not work. The vast majority of this money is being funnelled into banks' reserves not to their staff or customers that need it!

    I would advise people to contact BOE directly if they really want to know more because I can't claim to know everything...

  • Comment number 48.

    I do have some sympathy for the dilemma facing the banks (and banker) because they will never be able to satisfy the conflicting demands of the government, to build up their reserves and meet the needs of small businesses and homeowners to be able to borrow more money.

    It is reasonable to assume that the BOE quantitative easing programme is helping the banks to build up their reserves and at some stage in the future the banks will have enough finacial resources to lend more freely. However I suspect it will be at least another twelve months before the banks feel confident enough to relax their lending criteria. Even then the banks will not be a position to lend anything like the ammount of money they were lending before the onset of the credit crunch. At a guess I would say no more than 90% of what they were lending before and at a much higher rate of interest.

    What would would be of help to small businesses right now (especially the wealth creating ones) would be if the banks deferred paying out the billions they have set aside for bonus payments for at least the twelve to eighteen months. That total ammount of bonus money would help a considerable number of small businesses to weather this storm.

  • Comment number 49.

    Once again we seem to have totally misunderstood the point of Keynes' solution to the 1929 crash. Government printed money was used to pay for extra public works (which were also intrinsically useful to society) and created both employment and demand for services (cement, transport, etc). Much of the money ended up directly in the hands of ordinary people who spent it on food and clothing, and then indirectly to banks to pay back loans and improve their balance sheets.

    How can the current policy of QE possibly acheive these things as well? It looks suspiciously like another kind of money-go-round of the same type that created this mess.

  • Comment number 50.

    "Take Royal Bank of Scotland. Today, its chief executive has set a target to reduce its ratio of loans to deposits from 156% to around 100% by 2013".

    The easiest way to do this is decrease the margins between lending and deposits ie pay savers more and charge borrowers the same.

    This is what the government in part attempted by reducing Base rate almost to zero to stimulate the spending boom, most of it in housing.

    But savers who rely on interest and dividend income are also spenders and if interest rates fall, less income, less spending, as sure as night follows day.

    Since banks are unlikely to reduce their margins time I think for the Bank of England to increase Base Rates and the government to set a maximun level on the differential between lending and deposits. That way borrowing will reduce to sensible levels. Savings will increase to notionally at least cover lending. The banks will still make profits. Spending will resume on greater stability and we have a win win situation.

  • Comment number 51.

    So how much of the £122bn soon to be £172bn is still in the UK?

  • Comment number 52.

    Interesting summary Robert. Can I just check I got the facts straight?

    1. The government needed money, so borrowed it from creditors (banks) in exchange for IOUs
    2. The creditors got into trouble and faced bankruptcy.
    3. The government decided to help their creditors to avoid bankruptcy, by repaying their debts with "imaginary money," buying back the IOUs and putting them in a safe somewhere.
    4. Banks then either lent the imaginary money straight back to the government in exchange for another IOU or put it in a safe somewhere, neither organization noticing that the money didn't exist.
    5. Things didn't seem to get much better, so the government went back to 3 and repeated the process, giving banks more imaginary money.

    Now, I may be naive, but I don't think this achieves anything - apart from getting various economics experts writing articles on how the crisis is over. The debts still exist, but are growing like Topsy. And we will have to cover them by hyper-inflation.

  • Comment number 53.

    The whole thing's a ghastly nightmare!

  • Comment number 54.

    Robert, you are getting there. After a long last, you recognise importance of loan to deposit ratio (L/D). But you still do not recogniase that lending with L/D above 100% constiutes a pyramid scheme and is a crime. Read this document published by The Treasury Committee:
    "The largest heist in history"
    The other two short article will give you an idea what is happening to QE money (you will be surprised).
    "Is another loot going on now?"
    "How to make money?"

  • Comment number 55.

    One of the key problems , which has been around for 10s of years is that its not easy for new banks to come into the market. To me most of the current banks are business failures. In a normal market they would be replaced by better and more efficient businesses. Unfortunately this does not seem to happen in the banking world.

  • Comment number 56.

    It seems useful that the QE cash has filled a hole in balance sheets that would otherwise have had to come from elsewhere - and probably wouldn't have, sine depositors are unlikely to be very keen to do much depositing at the moment.

    And that seems to be a root cause - if we do not encourage saving then there is no platform on which to build an economy based on sound banking principles. If nobody is saving, how can lenders have the money to lend unless they borrow it elsewhere?

    Therefore it is looking more and more of a 'no-brainer' to abolish tax on savings? Even to incentivise it further than the neutral position?

  • Comment number 57.





    'Personal insolvency at new record'

  • Comment number 58.

    Has QE ever worked anywhere it has been tried...i can find no evidence of it. I also note that RBS benefited from a one off gain of £3.7 billion relating to the redemption of some outstanding securities... in other words it bought back some of its own debt which was now cheaper due to the very crisis that RBS was involved in...So the apparent "profit"! was due only to another accounting trick..QE is giving the banks a one way bet at the moment, it will be interesting to see what happens when the BOE has to start withdrawing the money....

  • Comment number 59.

    In a few years time I can't help thinking all of this money creation will have to come "out of the wash" and I can't help wondering in what guise that will be?

    I happen to think QE is solely designed to protect the banks from going bust and if that co-incidentally happens to protect deposit balances, for the moment, then so be it. When there is no more QE what will be convenient for banks then? The losses that banks, companies and individuals have been sitting on today (and trying to nurse through the recession) may well be forced out then. Bank balance sheets by then will have been restored, so they won't suffer too much pain. However, companies and individual's with, for example negative equity or highly geared balance sheets, i.e debts they have not been paying down quickly enough, will be wide open to the financial pressures caused by their excess borrowings and rising interest rates. They will not have had Government assistance don't forget. Bank write-offs will increase but they have had QE protection and won't go under, (and bankers will still get their bonuses!) The question is what then happens to the "man in the street," who has had no protection? He's, in effect, been fed to the lions. This hardly seems fair, but the Establishment won't give a damn, right? (They didn't in the early 1990's.)

    QE shows quite glaringly the massive extent of banker greed (for profits) and RBS results today show that they don't even know how to lend properly to a retail market either. This is what I consider basic banking, as compared to the casino stuff. They have been "retail lending" for over 300 years and they ought to know how to do it sensibly by now. Nowadays they only know how to lend it, they ain't got a clue how to get it back and what with the Sales Culture in Banks, getting it back is clearly just an awkward afterthought with risk analysis being consigned to the back office. (Where any back office function is considered to be, merely a cost and therefore of doubtful validity.)

    Until the "man in the street" takes resonsibility for installing an Establishment that works for him and not the privileged or the elite, he will be "rooked" by the powers, that are not working in his interests, forever!

  • Comment number 60.

    Money moving about, so presumably someone in the Financial Services Indusrty will be taking a cut (of £122 billion)..... then it all stops!!!!

    Only one Winner, and it's the Financial Services Industry..... No Change then!

    No wonder we are seeing the Investment Banking divisions showing profit!

  • Comment number 61.

    The real aim of QE is to rescue the debt securities held in off-balance-sheet structured vehicles. By doing this the banks can save these 'Enron-type' entities, whilst reflating the asset bubble that gave them their value in the first place. The stuff about helping the real economy is all just guff. Reflating asset prices and the return of securitization is the true aim of all this, AND IT WONT WORK.

  • Comment number 62.

    GBP 150,000,000,000 equates to approximately GBP2000 per person.

    Why not just give each person in the UK that sum with two options;

    1. Use the money to pay off debt owed to a G.B bank/financial institution or

    2. Spend at least that sum within a year, in Britain, on anything.

    The gov. would receive a significant sum back straight away via the various direct and indirect taxes. The banks' balance sheets would be improved, the money would be remitted to G.B accounts and many would choose option 1.

    At present it seems that there is confusion re what exactly the government want to happen;

    1. Consumers to spend, but only within their limits when their cards are at the limit,

    2. Banks to save to improve their leverage ratios but then to simultaneously lend, but again only within their limits when they've been told they've lended negligently (effectively).

    And how is this 'investment' being funded? Invisible money being borrowed (but which has to be paid for) and then lent back to the banks to do with as they please, with much going abroad- partly due to our low interest rates. What?

    Consumers should be forced to maintain manageable debt levels, in much the same way as the banks are. The market mechanism failed in this miserably, self certified 120% mortgages for example. Fundamentally we simply have too many outstanding IOU's and the QE scheme/borrowing more money is akin to taking out a consolidated loan at an extortionate rate when we can afford the existing repayments if we only stop spending as much money.

    We desperately need an election now, not for political reasons bizarely, rather because we need a government, any government frankly, who will take a longer term view on the economy. QE, increased gov borrowing, low taxes, will only get us so far. Enough delaying the pain. We know it is going to be painful, for many it already is. Taxes must rise, spending must go down, unemployment will go up and it will be harder to borrow money. We know this, it is already happening.

  • Comment number 63.

    Hi Robert

    Pretty good blog - its just unfortunately over 12 months late. This is not new in terms of comment. The question is why aren't the media hounding GB and AD for what can only be described as the biggest disaster economically.

    At the risk of repeating myself and others, there is no evidence that QE on this scale and for these purposes works. There never has been. It's just an economic idea, but those who are desperate have endorsed it to the full and keep throwing the great line that it would have been worse if we didn't. Yeah....yeah.

    What's absurd is reading all the press comment yesterday abour recovery (though it doesn't fool any of us in business seeing the latest CBI survey - well two thirds anyway - the others must be social enterprises) when the BoE announces another surprise move to inject another £50 billion of QE?

    Doesn't anybody spot the conflict? Not even a question. Or are we just too collectively dumb as a nation nowadays with all of our worthless degrees?

    Parliament should not be on holiday right now....

    This is bad. Very bad.....I'm currently reading Japan in the 1990s and Germany of the 1920s. You may want to even try Zimbabwe of the 00s. I suggest everybody does the same. Even I'm getting a touch nervous....

  • Comment number 64.

    Following up on my last comment please read:

    Very, very scary....

  • Comment number 65.

    In response to CockedDice early you are assuming that the directors of these banks are not arranging their balance sheets to increase later bonus income. The newly appointed head of RBS only has to move the share price from 39 to 78p to obtain over £6m in bonuses.

    There appears to be no sign that the banks as the are structured at present have any intention of returning to their primary objective of lending savers money to institutions and individuals who have need of temporary (short or long term) funding. The previous "quick buck - short term investment" of previous times still lingers, eating away at the stability of the banking system.

    Privatise the banks, we the taxpayer own, break them up into the historical small local banking institutions they were previously so they can cater to their local needs more appropriately. Tax the wealth out of the global monster banks - 50% rate on every penny earnt in this country, no facility to move funds out of the country of origin, 90% taxation on bonuses earnyt for doing what a lucrative salary is being paid for, legal recourse for reimbursement of bonuses at any time (say 3-5 years after payment) for failures.

    An LSE investigation into the proportion of cost, trickled down from bank to instore purchase, for corperate bonuses, expenses and privileges (such as free school fees for overseas employees - non-contributory pension/family medical insurance, car and travel costs, flights to all compass points, so called working lunches and sponsored sporting/cultural events and the corresponding free tickets). The gravy train gets longer than this rant, but costs each an every working individual in this country a large amount of our spending power, which in the main leads to a borrowing culture where that which is extremely over-priced has to be purchased with money not yet earnt. How long ago was it when Leeds United was booming on the assumption that the team would be playing European footbal for ever more, and where did they end up Division Two (old Third Division).

    Banks are not doing what is necessary because they see themselves to be larger than the state - just remind them what happened to Charles the First and see them scurry back to their foreign havens (Scotland included).

  • Comment number 66.


    Do you mean that in one sense QE is really just a giant sized 'back-door bail out' and that the government does not want to admit that the original bank bail outs are too small and that the problems in the economy are still mcuh worse are worse than anyone cares to admit?

  • Comment number 67.

    One good thing that is coming from the current crisis is that the British people are starting to see the true face of their enemy, and the biggest threat, by far, to their future prosperity, freedom and way of life; and that face won't be seen on dusty, far-flung battlefields and ramshackle failed states but rather in the board rooms, offices and chambers of Westminster and the City of London.

    War on Terror? My a$$! Couldn't we just have a War on the Money Elite instead?

  • Comment number 68.

    I usually don't like your articles as they are sensationalist and misleading but have to say today's article was clear and informative.

    Well done Robert.

  • Comment number 69.

    Quantitative Easing is quite simply a watering down of currency, rather like clipping the edges off silver coins, theft in another word. Creating debt to reduce debt is lunacy.

    I propose Quantitative Squeezing as a solution to crisis; taking money out of circulation. That would do the trick. The savers would benefit; the borrowers would suffer. The workers would reign; the scroungers would have to beg. That's what we need.

  • Comment number 70.

    Lets all look on the bright side, once George osborne and co get in next year we will be saved by the 'prudent' tories.

    I remember their last 18 year stint,


  • Comment number 71.

    Whether we like it or not there is a real economy.
    The participants in the real economy get to choose the next government.
    The present government, red party, wants to get in next time. So they try to get the feel good factor going. But the banks only want to save their skin. They have become detached from the real economy.
    The real economy is well used to generating credit every time an invoice is raised but payment is not received for perhaps 3 months.
    Multiply that up by the turnover of all the SMEs in the country and you rapidly approach 80% of the UK's GDP.
    But of course if the banks don't allow SMEs credit then the country's GDP rapidly goes down the pan.
    So the government, through QE, makes it easy for the banks to release money for the real economy to work.

    Wakey wakey!

    Why not just have the government cutting the banks out of the loop and directly fund the real economy? Far and away more cost effective.

    After all, it is the real economy that actually counts.

    Ah of course. I am being simplistic. Back on your heads. I had quite forgotten that the real economy only exists to serve the banks.

  • Comment number 72.

    Time to get out the wheelbarrows?

    "It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty.You could buy nothing with your paper money." Quoted from Fiat Paper Money by Ralph Foster

    And if were to happen here, it's just as likely to strike like lightning.

    But the story has an even more intriguing twist:

    "Within two years, Germany's unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare."

    And the secret to this amazing turnaround? Abolition of usury and privatised money creation. But as they say, history is always written by the winning side.

  • Comment number 73.

    To all the posters commenting on the contradiction between the Govt castigating the banks for not lending more to UK SMEs and Retail customers, and the Govts and FSAs requirement that they need to hold higher capital ratios.
    I've been raising this quandry on here for too long now, highlighting the incompetence of this Govt. The fact they put more effort into Spin than effectual policies says everything.
    Also the fact that Peston hasn't commented on this contradiction since RBS and Lloyds were part nationalised, and GB started his blame spree on the banks only for the failings of the UK economy.
    Don't let this big con trick fade from your memories.

  • Comment number 74.

    Robert, I think your final point may well sum up why the UK has not ended up at the door of the IMF just yet. I think its a safe bet to assume the banks have been using the money aquired from QE to buy up new guilts from the Government. In effect the BofE has printed electronic money which has indirectly subsidised government borrowing through the banks buying new guilts. Of course doing this directly is illegal under EU law. The question we must really ask is if QE were not taking place then would the government be able to find a buyer for its guilts? Also now that the government owns a large stake in the banks is this process really indirect and as such legal under EU law?

    From your blog entry dated 21/07/2009:
    "In April, May and June, Stheeman and his team flogged £57.9bn of gilts, while Mervyn King's traders waded into the market to buy £77.7bn of UK government debt."

    This would suggest that the QE amounts are more or less in line with new government borrowing, which may point to the possiblity of QE propping up the goernments bond auctions and therefore supporting its increased borrowing.

    One final point, what does the BofE do with the bonds is buys through QE? Does the Government pay coupon interest to the BofE and will the government eventually buy those bonds back once they reach maturity? Or do they just get written off and forgotten about to make the public finances a little easier to balance?

  • Comment number 75.

    QE causes the yields on gilts to fall as it causes gilt prices to rise. Selling gilts from a bank's portfolio allows them, to crystallise real profits. When QE stops, or when interest rates rise, then the banks can buy back the gilts for less than the received for them. ....Robert could you ask your colleagues why the BBC website says RBS made a £15 million profit when after tax and other payouts such as dividends on the preference shares which were held by the Government, RBS slid to a net loss of £1 billion. Surely not an attempt to put gloss on a dismal story....

  • Comment number 76.


    Oh dear, that was the icing on the cake during the great depression, obsulte lunacy!

  • Comment number 77.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 78.

    #54 Greg

    You keep making references to fraud. Is this along the lines of the fraud that William K Black refers to:

    If so, then who can enact an investigation / lawsuit (surely, no-one in Gvt or Crown Prosecution would pursue this unless there is some major collapse an public en masse demands it).

    Can a group of taxpayers initiate a class action against certain financial institutions?

    Damn, there just aint a forensic accountant around when you need one!

  • Comment number 79.

    Masterly (PC) understatement by the BBC:

    Personal insolvency at new record

    should read

    Personal insolvency at SHAMEFUL new LEVEL


  • Comment number 80.


    Your analogy:

    "I love analogies and in this case I think one has to think about obesity, no one becomes obese over night it takes many years of ignoring what is happening. Once you have identified the problem it would be stupid to think that the cure could be to eat loads and loads more food really quickly and hope that this somehow naturally triggers your body to become thin."

    When dealing with an obese person, you don't cut off their supply of food completely, you keep feeding them but at a lower rate.
    With the sharp slowdown in wholesale lending, the (fat) banks would have starved. They did need to be fed somewhat. Hence the need for the government (soup kitchen) to keep them going. That's the theory anyway.

    Back to my own question.

    How much of these bad debt charges are actually crystalised as actual bad debts? How much of them are provisions for bad debts that may or may not happen?
    I will wager a dollar to a doughnut that these crooks are making sure that they get all the bad news out so that they will look like heroes in a year or two when they can write a good lot of them back up again.
    Then it's nose in the trough time again.

  • Comment number 81.

    Robert, Why does the BBC always report that we the Government owns 70% of RBS as opposed to the actual figure which is 68%

  • Comment number 82.

    #73 islider55 wrote:

    I've been raising this quandry on here for too long now, highlighting the incompetence of this Govt. The fact they put more effort into Spin than effectual policies says everything.

    Fair play, you are consistent in your message. Basically the government as I see it had three objectives to acheive when the global economcic and financial downturn arose in September 2008.

    1) Bring immediate stability to the banking sector
    2) Bring sustained stability to the banking sector
    3) Ensure the resumption of lending across the UK

    2) + 3) are The Asset Protection Scheme

    As far I can see 1) was acheived and 2) is now starting to look more likely if you look at how the shares and value of the pound has increased in the last few months.

    3) is still proving to be problematic and there are doubts over the effectiveness of QE but it is still too early to say - give it 9 months from inception.

  • Comment number 83.

    Gold is money, paper is lies.

  • Comment number 84.

    Do you think Mr Peston that the level of QE has been adequate for the difficulties being faced.

    Or should we think of a number, double it and add 7 per cent of GDP ?

  • Comment number 85.

    Your commentary is peurile on RBS is telling us nothing we don't know already save you are enlightening us as to what Cameron and Co will be facing.
    Why are you not focusing on Barclays deliberate misrepresentation that they have not received any government help so can pay whatever bonuses they want.
    All you have said is that the government has spent £billions of our cash and only just about managed to stop us sinking that much deeper. Impressive.......not. We all knew, why are yoo not highlighting what would have happened if we had let HBOS go belly up, who would actually have lost out? Depositors are so called protected so all the rest would have to found a new lenders and shearholders woudl have been wiped out. Isn't that how its meant to be? HBOS was no international RBS.
    And what of Barclays and their assumed bonus culture when are they going to be read the riot actand brought nto line with what is actually going on in the world.
    And idf they say they have to pay so much for the best how was it they screwed things up so badly when others came out smelling of roses!
    Come on Robert you need to read up man and re-look at Glass-Stegall you empathy for the banks is becoming ominously uncharacteristic and not good independent journalism.
    Fair play and good reporting require you and the BBC not to be economic with the truth and get to the bottom of all issues not sychophantically print from Barclays and others what are clear misrepresentations of what is is really happening!!

  • Comment number 86.

    I am starting to become a fan of QE now, just for the sheer mind numbing cheek of it!

    The bank of England creates money (value) out of nothing, then uses it to buy back its own debt (Gilts)thus reducing the quantum of its debt, in the meantime it is still selling those same gilts by the truckload and increasing its debt. the banks use the cash to lend to people to get into more debt so they can buy stuff (not made here) in order to kick start the economy!!


    let none of us forget that this is not even paper anymore this is just shuffling around atomic level indentations on hard drives between computers based around an agreed international trading system protocol. none of this actually exists until someone tries to buy a can of baked beans with it, then all of asudden it has value.

    But is only has value if the guy you are buying the can of baked beans from believes it has value and can trade it in for ...something else!

    With the internationalised markets the value of currency all seems to orbit around 'confidence' in an economy as there is very little that is tangible now to hang your confidence hat on. So as long as we can keep blagging it that we have stuff to exchange to the world of real value then we can just keep on printing 'value' out of nothing and the rest of the world will just keep giving us their stuff to keep em busy because they believe it has value!!!!!!


    QE is like a new global religion we can get rich out of nothing at all!! Just a perception that we are well governed stable, relatively uncorrupt rich nation who has our own relatively credible currency off the back of our history.

    Wasn't the universe created out of nothing? Surely we can use the same model, it seems to have worked pretty well for the universe has it not?

    Why stop at 50 Billion more, lets push the envelope here, lets drip feed in another 50 billion in a couple of months, see if the currency markets notice (they seem to be going up if anything at the moment!) and go on from there. By the time their economists realise what is happeneing (lets admit they are hardly the sharpest knives in the drawer are they) it will be too late!

    We will have paid off our debt and invested in loads of 'real' stuff overseas with value out of nothing creation scheme to keep us in the manner we have become accustomed.

    or am I missing something here anyone?

    keep buying those gilts boys, if it looks like someone has noticed what you are doing just back off a bit then print a few more later when they are focussed on something else. You guys all go to the same cocktail parties anyway, i am sure this can be smoothed out on the high seas of the mediteranean during the summer.

    thank goodness we never joined the Euro and had a big enough but not too big economy, otherwise we would have been totally *******.


  • Comment number 87.

    #54 GregPytel As you say, and as you demonstrate, much of modern banking is a criminal enterprise. However the government is propping up the banking system, and hence by extension they are also involved in a criminal enterprise. Taxpayers are dragooned into supporting this whole charade, and the media acts as cheerleaders for this course of action - thus making the media and the general population accessories to a crime.

    Try and remember, in the end crime never pays.

  • Comment number 88.

    Please could somebody help answer me three questions all of which I once thought I new the answer to but now day by day for the last five years I grow increasingly unsure of the answer and I wonder if anyone else is becoming puzzled too.

    Question one; what actually makes money, wealth – where does it come from- I do not mean a die, a press, the village of Flash or the mint. I mean what actually increases wealth financial wealth that is

    Question two; why does my house which cost 375 pounds in 1948 and which I have maintained and added a conservatory to now have a value of 375,000 pounds but which means nothing because I’ve still got to put a roof over my family’s head. Who gained the wealth there.

    Question three; why does my car which cost 30,000 just five years ago and which I have maintained and added a roof rack to become only worth 12,000 yet will still take me anywhere I want to go in the country in comfort and serves a practical essential support to my being paid for what I produce.

    As I set the questions a caveat - which may make them six questions - does the answer to the above stack up the same for a National economy as it does for a truly global social economy?

  • Comment number 89.

    The 'Lavender Hill Mob' certainly didn't get away with printing money...they are in prison now!

    What's the difference?

    BTW - Where's WOTW today?...maybe he's been silenced!

  • Comment number 90.

    Addendum to may last note...I especially like the Judges comment at the end of the article.

    'Judge William Kennedy said it would be wrong for people to become "misty-eyed" and liken it to the Ealing crime comedy The Lavender Hill Mob.
    He said it was absolute nonsense to suggest that counterfeiting was a victimless crime.'

  • Comment number 91.


    This is a fascinating set of questions, and no doubt will yield very different answers depending on whether you are speaking to Chrematisticians (currently known as Economists, but people who only really understand the concept of trading), or genuine students of REAL economics. My punt is as follows:

    1) Wealth is the access to, or ability to generate economic surplus. By surplus I mean freeing a proportion of people from having to do directly productive life giving activities (e.g. food, shelter, warmth, medicine etc.). If only 5% of our population is doing these activities, the rest of us are free to do other things, some of which are beneficial (law & order, research & development, improving for the future etc.), but some of this could manifest as economic drain (celebrity culture, fashion, holidays to Ayia Napa etc.)
    2) There are two things to compare here. One is the difference in REAL asset value (i.e. what it does for you - which in your case has some slight improvements), and the other is the monetary assessment. The fact that the monetary value has far exceed the increase in REAL asset improvement suggests a devaluation of the monetary currency of 10 to 100 times (depending on how much we accredit to REAL asset improvement)
    3) The answer to this is similar to point 2. Your car (as with many other consumer durables) depreciates slightly in REAL (physical) asset value due to wear and tear. But as you say it is still reasonably fit for purpose. The false appearance in monetary value decrease is because we are conned into thinking that we need to replace it every few years (just as with mobile phone handset etc.) Yes there are improvements made in some aspects of the car, but the real neccessity is that capitalism demands ever more increased consumption (so this can only come from you replacing your car way before you really need to). I recall being appalled many years back when I had no other choice but to drive a perfectly good 12 year old car to the scrap yard, simply because I could not get more than £30 for it.

    In answer to your last part, I would say it is more about trying to understand our economy (rather wealth) at a national or international level (which can benefit from non-zero sum gains - win/win), rather than the Chrematisticians who are (despite their bluster) actually masters of zero-sum (i.e. win/lose) activities. As a start point I suggest you take a look at the following:

  • Comment number 92.

    88 - go to youtube or google video and watch the masterful "money as debt" - fundamentally what we call money is now an instrument of debt rather than a store of value.

  • Comment number 93.

    I read somewhere that QE is likely to go far further than this again - I think the figure of 300 billion was mentioned. This seems to have the ring of truth about it because, if the government has been forced to increase QE already in order to keep the Ponzi scheme going, unless the government decides to have a general election in the Autumn, it will have to keep printing money until next Spring's general election.

  • Comment number 94.

    "We have substantially increased public / national debt (i.e. gilts) with little or no actual trickle down effect on the REAL economy."

    No, the national debt is not increased by the BoE's QE policy. The debt is the responsibility of the treasury. Nothing in Robert's post is about the national debt.

    ""Within two years, Germany's unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare."

    And the secret to this amazing turnaround? Abolition of usury and privatised money creation. But as they say, history is always written by the winning side."

    Rubbish. The inflation ended when the German government created a new currency, which was fixed at a specific rate, instead of being able to float.

    How this is relevant to now, I have no idea. Hyperinflation won't happen now, because we are in a liquidity trap, whereas the Weimar Republic wasn't, and they had crippling war reparations to pay, whereas we don't, and they had the French seizing lands containing most of their industry (the Ruhr), whereas I don't see anyone marching into our territory and seizing anything of ours, do you?

    Nor is this Zimbabwe under "ZANULIEBORE GORDON MCBROON LOLZORZ!!!!!!!eleventyone". Labour are bad, but there are easy ways to criticize them without resorting to childish caricatures and distortions which make everyone against Labour seem crazy and easy to dismiss. Concentrate on the real evils of Labour, and the government will have an even harder time dismissing people against them.

  • Comment number 95.

    The National debt is screaming skywards as is unemployment and yet the Footsie is on the rise !!!!!!!! The banks are not lending although that is their "raison d'etre". Bank rate is 0.5% but it might as well be zero and seems to have lost all link with rates that Joe Public pays or receives. QE is set to continue but nobody is telling us about the effects this will have on all our (and future generations) finances in the years ahead. It seems that we are in an "Emperors new clothes" situation with nobody willing to tell us the truth. It's like a D notice has been slapped on any mention of the effects of all this Govt fiddling with the nation's finances. Like a lot of us , I can deal with the truth but the not knowing is getting very scary

  • Comment number 96.

    "fundamentally what we call money is now an instrument of debt rather than a store of value"

    So money has no value? Good luck convincing people of that when you try to steal things in the shops because "money has no value". Or maybe when you come to pay your energy bills, the energy company will decide not to accept your money, as it has no value.

  • Comment number 97.

    #88 hack-round. From the perspective of a society there are only 3 ways to generate wealth: Make things, grow things, or extract things.

    Your house has risen in value as a consequence of a complex set of interactions. Government policy has restricted the supply of houses, and government tax policy has tended to be relatively benign with regard to the capital value of housing. Inflation will account for a good portion of the capital value increase. Since 1948 there have probably been a lot of improvements to your house - central heating for example.

    The UK has been a stable, prosperous and growing economy and this means that UK assets have grown in value. If you had bought a house in Baghdad then its value would likely have been wiped out. People like living in houses and hence will sacrifice something else in order to be able to do so. It is a cultural thing - a lot of Mongolians are quite happy living in yurts.

    Who knows why your car has depreciated in value? People see cars as some kind of status symbol and so will pay up for something brand new. It is a cultural thing - but there is something wrong with the model, that is why all the car companies are in trouble and why the roads are clogged up. People go on about the evils of drugs - yet for the most part they tend to kill far less people than cars. It makes no sense.

    Whereever you are in the world you can only grow richer by making things, growing things or extracting things. Houses and cars are purely cultural and their monetary and utility value varies depending on where you are.

  • Comment number 98.

    Post 91 an interesting attempt at answering the questions posed in post 88.

    I wouldn't disagree greatly with your answers but would like to add a supplement. In the past people acquired wealth generally by means of production be that food via agriculture or goods for sale be they made or manufactured.

    This gets us on to the question of use and exchange value. The so called water diamonds paradox that tormented some of the greatest minds in history. Now people seem to acquire wealth with no apparent effort or reason. Much of it is illusory wealth merely borrowed from others such as our friends Mr Madoff and Stanford.

    If the mods would allow me a slight deviation many of the answers are in the Birmingham Museum and Art Gallery. Please humour me for a moment and it has a BBC link as well.

    Currently there is an exhibition at the Museum marking the 200th anniversary of the death of Matthew Boulton a man who with his partners James Watt and William Murdoch and associates and fellow members of the Lunar Society such as Josiah Wedgwood laid the foundations for the modern wealth of the UK via the industrial revolution and empire. They made the things the world needed.

    People like them and others in cities such as Manchester and Liverpool created huge wealth by exploiting machines, industrialisation and the earths natural resources including human labour admittedly.

    This wealth allowed their heirs to lavish huge sums on many things and some of the wealth was distributed not only via industry but also the arts. The Birmingham Museum has the worlds largest collection of pre raphaelite art purchased with the wealth created by the industrial revolution should those fans of the current BBC2 series want to see the paintings and pictures of Rossetti, Millais, Hunt and others.

    This wealth was redistributed in art and public works in the same way that people like Andrew Carnegie bought hospitals, libraries and arts centres. This same desire drives people like Bill Gates to use his wealth to try to solve some of the worlds major health crises.

    Wealth is merely a means of you having choice to do what you want.

    Re question 2. The house may have increased in notional monetary value but its real value is effectively unchanged in that a 3 bedroom house is still a 3 bedroom house. A house to live in is only worth something if you no longer need it or can move to a smaller one. To a large extent no wealth has been created as the increase in monetary value has been eroded by inflation and also the cost of alternatives.

    I tred to think deeply about the answers to the questions posed in 88 and to be blunt it gives me a headache.

  • Comment number 99.

    Bravo Robert! Someone has finally put their finger on one of the unspoken purposes of QE. Namely to shore up the banks' balance sheets against the aftershocks of the current crisis. (mortgage and credit card defaults amongst other things. )
    Helping plug the budget deficit is no bad thing either.
    I'm not convinced this was ever about allowing the banks to lend more.

  • Comment number 100.

    Stephen Hester may not have been coloured by the failure of his predecessors but by saying today that 'RBS will get the tax-payer out of a hole' demonstrates that like all other bankers he out of touch with the public. It was a truely gob-smacking comment. It is the tax-payer that will get the bankers out of a hole and if Stephen Hester does not realise this he needs to make way and let someone else more in tune with public opinion manage RBS out of their woes


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