The ludicrous thing was that Britain had a AAA rating in the first place.
It is four years since I started pointing out the blindlingly obvious, that quantitive easing would cause inflation and devaluation. Four years ago this blog had far fewer readers than it does now, and I am quite proud of that piece, so do read it.
At the time it was a deeply unfashionable view – in part because it was New Labour doing it, so all the BBC and Guardianista media were backing quantitive easing. Even when I wrote this two years ago:
Inflation as measured by the retail price index remains stubbornly at 5.2%, despite all the obvious deflationary pressures on the economy and continuing weak consumer demand. Strangely, the attempts to explain this being offered by media pundits all miss out quantitive easing, or to use a more old-fashioned term, printing money.
It is deeply unfashionable to hold to the view that simply to create more money reduces the value of the money already in circulation in relation to the supply of available goods; but that is what all history tells us (the benchmark example being the rampant inflation after Spanish opening up of the New World greatly increased the amount of gold coinage in circulation). Common sense tells us that too. Otherwise we could simply solve many of our problems by printing another couple of trillion pounds.
A couple of years ago, I suggested “Enough quantitive easing and we can eventually get back to stagflation”. We are just about there. Why have none of the experts noticed?
nobody much agreed.
Fashion in economics is fascinating. Now every financial pundit on the BBC and Sky has noticed that quantitive easing causes devaluation and inflation. Suddenly they have remembered that if you create a lot of something, it decreases its unit value.
Hey, but the banks have the money that was created, and bank bonuses are back to normal. So all is fine.
“Money is Bullshit.”
Bat guano has certainly been used as a currency, but more generally I think it’s best not to use something that has utilitarian value, or is perishable, as a means of exchange.
Money, as distinct from a currency or means of exchange, ought really to be a store of value, and in this you’re absolutely correct.
In many circumstances, one can indeed see bullshit providing an excellent store of value.
http://www.economist.com/content/global_debt_clock
So to whom is this $50t debt due and whats the interest?
“So to whom is this $50t debt due and whats the interest?”
Public debt, that is money borrowed by the government to run the country not to finance a trade deficit, is mostly owed to ourselves. If the government needs more money than they take in taxes they issue bonds which they promise to pay back with interest at some time in the future. The Bank of England buys the bonds which then count as assets allowing them to print more money. When the bonds mature the government can just print more bonds to get the money to redeem them but because there is interest to pay the amount we are in debt will always be going up.
Who gets the interest? Well as a private company the bank pays taxes on their profits then as major shareholders the government gets 25% of what’s left in dividends.
BTW – Sovereign debt has TRIPLED from $18t (accumulated over say 100 years)in 2002,to $52t in the 10 YEARS to 2012?!! Something is seriously amiss?
Of course the BoE pension scheme, of which the majority of the MPC are members, have bet the farm on index linked securities. Surprise surprise. Guido Fawkes has pointed this out frequently; Max Keiser has mentioned it too.
Sad to say that the kind of economic system which embraces and relies on QE is at core a life-destructive system. By this I mean that if the goal of an economy and economic relations from the local to regional to global reaches is to provide a better life for all – therein lies the contradiction which when analysed reveals the destructive processes of our economic system.
Professor Schumpeter’s famed phrase is “creative destruction” . It encapsulates the nature of the beast. War and destruction clear the ground for the creation of new wealth.
We over-produce; poach from North to South; create domestically skewed distributions of incomes and welfare – then call the whole dysfunctional process – democracy.
One may care to weigh for a moment the reality of an economy which is failing domestically and the co-relations to the failed or lost ( or assuredly lost via horrendous mutually destructive) wars in Iraq, Afghanistan and then the cross-hair next war – Iran. The amoral constants will continue to unfold – unless people become sufficiently aware to reveal, then act on ( against) the power brokers of the life-destructive system which continues to direct us as a species.
It is one thing for bankers and financiers to raid pension funds, mortgage portfolios and every accessible source of accumulated capital that can be plundered ; but, then when these processes are the handmaiden to the golden parachute bail-outs and payoffs to the very gangsters who brought the crisis to this point – one, if not preoccupied with considerations about the impact of domestic life-destructive processes – might shed a tear or two for the military equivalent projected in places like Iraq, Libya, Syria, Afghanistan, Pakistan and maybe soon ( Iran?).
Where are life sustaining processes and practices to be found?
” There will be growth in the spring.”
re. Iceland
@ Fred : I stand partially corrected with the other two individuals you linked to, thank you.
@ Herbie : OK, it could stay still but experience shows that these things don’t on the whole. Iceland is also (re)starting from a rock bottom base.
Interesting thread on the whole.
@ Jives There will be growth in the spring….
Green shoots is a term used colloquially to indicate signs of economic recovery during an economic downturn. It was first used in this sense by Norman Lamont, the then Chancellor of the Exchequer of the United Kingdom, during the 1991 Recession. At the time, Chancellor Lamont was criticized for “insensitivity”.
The phrase was used again by Baroness Vadera, former Business Minister of the UK in January, 2009 to refer to signs of economic recovery during the late-2000s recession, again to criticism from the media and opposition politicians.
The U.S. media started to use the phrase to describe domestic economic conditions in February 2009 when in New York Times quoted Bruce Kasman, chief economist at JPMorgan Chase as saying, “It’s too early to get excited, but I think there are a couple of green shoots that say we’re not going down as heavily in the first quarter [of 2009] as we were in the fourth quarter [of 2008].”
The Federal Reserve Chairman, Ben Bernanke, made the first public use of the phrase by a Fed official in a March 15, 2009 interview with CBS 60 Minutes. Since February and March 2009, it has been used increasingly in the media and by a number of commentators to refer to positive economic data and statistics during the late-2000s (decade) recession.
🙂
“BTW – Sovereign debt has TRIPLED from $18t (accumulated over say 100 years)in 2002,to $52t in the 10 YEARS to 2012?!! Something is seriously amiss?”
It’s personal debt that is the really worrying one. £54,000 per household. The government happily let the shyster bankers lend cheap Chinese money to the population at high interest and now we, the people are £1.5 trillion in the red.
They cripple the economy with their greed then steal the benefits of the disabled then send hired thugs and bullies round to illegally throw people on to the street and take their homes.
http://www.youtube.com/watch?v=FPKOa-5GPPg
Now, despite the misery caused in America, they are allowing the pay day loan sharks to operate in Britain robbing the desperate.
“Fred : I stand partially corrected with the other two individuals you linked to, thank you.”
No, if you had stuck to the facts you would have been corrected but as you decided to make derisive personal remarks about me you stand totally humiliated.
Je You speak of public spending and baldly stated, category by category, the sums do look alarming.
However, the expenditure should be compared to the income* from taxes, which in 2011/12 was £550.6bn which is 36% of GDP.
http://www.guardian.co.uk/news/datablog/2010/apr/25/tax-receipts-1963
*Revenue relating to activities in the current year, comprising mainly direct and indirect taxes, but also including social security contributions, interest, dividends, capital taxes and profits from trading activities. Proceeds from the sale of assets are not included.
PS What has the cost of taking children to school by taxi got to do with the price of fish? School buses have been abolished in Surrey. Most of the children concerned are those handicapped, with special needs or living in remote places.
The Tory types in Surrey County Council abolished a perfectly good school bus service some years back. The Tory troughers at Waverley Borough Council have just voted themselves a 94% increase in councillors’ allowances. Surrey CC have raised their portion of council tax by 1.99%, as has my local council and the police. They chose these percentages to avoid the ridiculous Pickles referendum ie any rise in council tax over 2% triggers a referendum.
The idea that Quantitative Easing is inflationary is predicated on the fallacious arguments of the discredited Quantity Theory of Money. Quantitative Easing is basically an asset swap, and it is designed to increase commercial bank reserves in the mistaken belief that increasing reserves will enable increased bank lending. So it’s a silly policy. See Quantitative Easing 101
http://bilbo/economicoutlook.net/blog?p=661
A far better policy would be for the Government to spend directly into the economy? Would you regard that policy also as inflationary? Sigh, it’s as if Keynes had never lived. The progressive views of this blog need to correlated with an enlightened view of macroeconomic policy.
Charles Melville,
It is the idea that no matter how much money you print, it does not affect its unit value, which is nuts.
Correction : the link to Quantitative Easing 101 should read:
http://bilbo.economicoutlook.net/blog/?p=661
Sorry about that.
A few years ago I bought a book on European history by an ex-German bloke (whose name I forget) and was rather startled by his deadpan description of the C20th as a period when authority was removed from representative assemblies as fast as the franchise to elect people to them widened. I haven’t been startled since, except by realising how long it took me to get the point. The bankers haven’t got politicians over a barrel, they are the politicians and have been made so by politicians who don’t want democracy getting in the way of rule.
It doesn’t matter to rich bastards that inflation, unemployment, the end of (derisory) social security, ill-health, premature death and negligence flow from their decisions, because that’s where their money comes from. Economic collapse for us, is a tax which is levied to benefit them.
The principle of quantitative easing is sound enough, the Bank of England buys assets from the banks and increases the amount of money they have to put into the economy.
Where the system falls down is when the assets they buy are bundles of mortgages on ramshackle log cabins sinking into a swamp somewhere in Mississippi and when the bankers decide not to put the money into the economy but instead give themselves huge pay rises and buy out other failing banks.
@ Mary,
Sorry im not really clued in on economics.My ‘growth in the spring’ quote was from the Peter Sellers film Being There.
I’d recommend it if you aint seen it. 😉
@Craig,
Yes, it seems counterintuitive. But it is the Quantity Theory of Money that is nuts. That theory mixes up stocks and flows, and doesn’t get the dimensions of the quantities right. See Joan Robinson (1982) “Shedding Darkness” Cambridge J.of Economics 6(3) 295-6. Getting stocks and flows consistent is important, if one is to understand the effects of macroeconomic policy. Please look up Bill Mitchell’s work on bilbo.economicoutlook.net or Randall Wray on New Economic Perspectives at Kansas. Shed light on economics too. Start from the notion that Income = Spending.
Deliciously, as we speak Labour activists are handing out leaflets saying that an independent Scotland will lose its AAA status.
We know this zero intrinsic, state issued, legal tender, paper money system is hanging in collapse as inflation creeps relentlessly higher (money is just a broken promise).
That collapse of the same fiat (let it be so) money system happened in china around 10 AD – read here:
http://www.financialsensearchive.com/fsu/editorials/ramsden/2004/0617.html
Jean-Luc Mélenchon explains how this dirty mendacious and nasty money system benefits the 1% few, their puppets, their launderers, their crooks and their facilitators, while screwing and pilfering the rest of us pawns (99%), trying to live between the yanks and jerks of a constantly shifting control lease.
http://player.vimeo.com/video/60150208
Bill Mitchell is a star but he can get mind-scramblingly technical at times. The following article, entitled “Taxpayers do not fund anything”, is as good a place as any to start IMO:
http://bilbo.economicoutlook.net/blog/?p=9281
Money in itself does not represent an intrinsic value, sitting there in bank vaults as collateral, only when it is exchanged for goods and services will it redeem its value.
Inflation shadows quantitative easing and in a world of diminished resources can quickly get out of hand, be the result of vigorous trading in limited resources.
The increased neo colonialism in Africa is down to the pressures on resources, these same pressures can catapult inflation as the richest can and will pay most for goods, if they really want them and can’t get them anywhere else.
Metals for example, will not go down much in price, maybe readily available iron ore will as there is large recycling base form it, but most other metals will see a rise in price as they get used up with recycling, despite decades of warning noises, still in its infancy, especially in this country were this revenue stream has not really been discovered yet, i.e google enhanced landfill mining.
Watch the Tory’s great trick, they will paste economic success/petrol prices/referendums/anything on their successful re-election, you can already see the little snippets appear now before the County council elections in May, when they are facing obliteration for their lack of candour, democracy, integrity and adherence to their policy promises.
Loosing a fake AAA is a little stick being waved at Osborne for daring to steer Britain away from Europe, the US needs its economic lever boy here in Europe and it will use its influences to strafe us into line. All that immense love in this special relationship is really coming out now…..
“It is the idea that no matter how much money you print, it does not affect its unit value, which is nuts.”
It’s not how much that matters it’s what for that matters.
A pound coin is basically a share in Great Britain PLC. If a company issues new shares to build a new factory to meet increased demand then it isn’t going to affect the value of existing shares because the value of the company’s assets has increased in proportion.
If a company issues new shares and uses the money for staff wages and to pay the electricity bill then the value of existing shares is going to fall.
The most worrying aspect about the financial markets is the number of pieces of paper being bought and sold which do not represent anything of value in the real world. They already have a value greater than all the currency in the world and they were created out of nothing. When that bubble bursts we are all Zimbabwe.
I’m sure you’re right Craig, but I wouldn’t like to say. I hope I’m not dim. Not bragging, but I got into a Russell Group Uni and was an A-grade PGCE student at the same institution. I read books, I think I know stuff, although I’m no genius and not the most articulate of trumpets. But bleeding economics?! I’ve got an ‘O’ level in it, but trying to find a serious introductory text to read that doesn’t either deliver me into a permanent vegetative state or indoctrinate me into the neoliberal cult is proving something of a challenge.
Recommendations from any economically literate folk?
“Money in itself does not represent an intrinsic value, sitting there in bank vaults as collateral, only when it is exchanged for goods and services will it redeem its value.”
Hence my interest those local currency schemes which use a rapidly depreciating note in order to ensure that it is passed around quickly before it becomes worthless. I’ve always suspected that somewhere at the back of conventional economics lurks some sort of perpetual motion machine. It can look for periods of time as if it’s working, but it always winds down and stops eventually. QE is an impetetus that might kick it into apparent life for a while, but it will stop again soon.
Vronsky
Thanks – that cheered me up (about the Labour activists). i hope people in Scotland will get the message when UKIP wipe the floor with New Labour in Eastleigh too.
Anyway, chaps and chappesses, no need to worry. St Vince of Cable says the UK’s loss of its its AAA credit rating is “largely symbolic” and there are “positive” signs for the economy despite the difficult climate.
The business secretary agreed that attempts to reduce the deficit while boosting growth were proving “tricky”.
But he said the measures were “working slowly” and rejected calls for the pace of cuts to be slowed or accelerated.
So that’s OK Vince. Carry on with the quicksteps and waltzs why don’t you!
http://www.bbc.co.uk/news/uk-politics-21564391
Please buy local and boycott Amazon, even if it costs you a few more quid. Would you like to work in one of it’s ‘fulfillment centers’?
http://www.independent.co.uk/news/world/europe/amazon-used-neonazi-guards-to-keep-immigrant-workforce-under-control-in-germany-8495843.html