Wednesday, Jan 21, 2009
Expect a rise in gold....
Times: Mervyn King paves way to start Bank print presses
''The Bank of England's Governor paved the way last night to unleash the weapon of “printing money” in a last-ditch drive to combat the rapidly deepening recession. Mervyn King braced Britain for a further sharp slump and a “difficult year for all of us”, and laid the groundwork for the Bank to turn to “unconventional measures” as interest rates fall towards zero.''
Posted by hpwatcher @ 06:59 AM (1503 views) Add Comment
33 Comments
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1. paul said...
I doubt the Times will print my comment - they really wouldn't want to start a panic.
"Printing money is is forced government appropriation of savings and Zimbabwean economics. In past economic crises, all it has ever succeeded in doing is impoverishing the prudent. But its different this time, right? Expect migration, further plummeting currency value and at worst, riots and looting."
2. greytornado said...
Weimar Republic Mk 2 here we come - King won't be printing money to pay for war reparations, but the end result will be the same. God help us all, as the saying goes, the road to hell is paved with good intentions. Can none of these people learn from the past, or are they totally ignorant? Best way to retain any savings you have is to convert them into gold, that worked in the Weimar Republic and it will work this time around.
3. debtfree said...
what happened to the deflation crowd ?
4. Crunchy said...
''The Bank of England's Governor paved the way last night to unleash the weapon of “printing money” in a last-ditch drive..............................................crunchy- to total destruction.
Who is going to bail-out UK plc when it all goes to the wall. This is going exactly the way I expected. Hyperstagflation depression.
Funny money galore and still no takers apart from the truley desperate, who will later default.
As fast as they print and lower interest rates further, the quicker savers will withdraw funds to invest in anything but the UK.
The Bemuda Triangle?
5. Kelvin Newman said...
they've been talking about it so long time now, if they think it's the right thing to do they should do it not allow the papers to discus the pro's and cons for the best part of the month
6. paul said...
Deflation will be avoided.
Low inflation is a good thing so we've been told for the last ten years (most smart people didn't believe it though). Now, low inflation is a bad thing we're being told (and again, most smart people don't believe it).
State-sanctioned confiscation of wealth by printing money won't work, but that's what happens when you forget Keynesian or Monetarist strategies and start looking at Zimbabwean strategies.
7. My Final Offer said...
This is truly both scary and infruriating.
Like a lot of us here, have prudent savings in the bank waiting to buy a correctly priced home.
If both house prices crash AND the Government print more money, what does this mean for us?
Will the Government's meddling in money printing (or QE) slow down or speed up the HPC?
And will we still have any savings left?
For those with money in the bank, when are you thinking of buying a home?
8. rm96696 said...
King mentions "excessive lending" in the past. Isn't that what the government wants to revive?
9. bellwether said...
I am begining to wonder how bad it is going to get for the UK, apart from language, ties with the US and a bit of oil and gas I'm struggling to see what we have going for us, even as compared to the other bust states out there.
I had written off the idea of physical gold and continue to see it as absolute last resort but maybe the last resort is moving closer, been buying up yen recently which has been good, offset only by specualtion with financials which is proving a disaster. Own barclays at a £1 a share, though it was a bargin!
10. vindicated said...
Greytornado, as an ordinary Jo Bloggs (well, Jane Bloggs) on the street with absolutely ZERO understanding of economics and money markets and the such like, just how does one convert one's hard earned savings into gold????
We have a fairly hefty sum of money sitting in a number of different UK banks and whilst I don't tend to go with the various conspiraloon theories on here, I do also have a healthy fear of something going terribly horribly wrong. I don't however much fancy stashing the cash in the divan!!
11. debtfree said...
vindicated,
if you don't mind me adding the following advice:
you could diversify some of your savings into maybe swiss franc's (difficult to tell what curency is worth holding) and pyshical metals. the price has shot up recently and bullion is now extremely difficult to get hold of so you may have to wait for delivery. use baird & co @ www.goldline.co.uk.
read jsmineset.com for information on gold and do some of your own research before taking advice from anyone. including what i just told you :o)
all the best
12. cyril said...
@ vindicated
I thought about buying gold some time ago but struck me as a bit complicated so I didn't bother. I think the easiest way is to buy gold coins or krugerrands and put them in a safe deposit box. But remember the market for gold coins isn't quite the same as the market for gold bullion.
13. Crunchy said...
7. vindicated
Some slippery snake oil may ease your pain, if it goes to $25 I would buy again.
Little to lose, but much to gain, or you can watch the bank return you a grain. IMHOpinion.
14. japanese uncle said...
At the moment GBP is record low of 123.53 yen (which was 249 yen in July 2007) record.
Yesterday, I went to a local pub (Wetherspoon) to appreciate the taste of IPA Green King @ GBP0.99 (I had had no chance to visit the pub though I was obviously aware of the news of 99p beer), together with the fish & chips @ GBP3.20. But there was no Green King, so I ordered Abbots ale @GBP1.70, thinking they already stopped selling 99p ale, tricky! The bartender said ‘Are you sure?’ ‘Yeah’ I replied. But why did she have to confirm? Soon I realized that majority of the customers were drinking IPA Deucars @GBP0.99, which was sold @GBP2.40 just last year. Deucars is an excellent staff, one of the best in the whole UK, along with Londonpride, and its offered @99p! I really missed it, I should have checked the price by the menu.
Anyway a reasonable fish & chips with excellent ale comes at the cost of GBP4.19, which is 518 yen! Even in the deflation-ridden Japan, it is an impossibly cheap meal. 500 yen only for a pint of beer is reasonable price at many drinking halls in Tokyo. Deflation is not bad at all.
This is the ‘leverage’ power of deflation and the full-scale collapse of the currency of a nation (though sterling is becoming more and more valuable as long as you are within the UK). I don’t know BoE will really print millions of fiat monies from now, but one thing is certain. Tourism industries in this country must print hundreds of thousands of sales literature in Japanese language fairly quickly.
15. mountain goat said...
Be aware that buying gold and silver coins involves paying a very high premium above the spot price. I have used www.coininvestdirect.com for coins. To avoid paying these premiums consider using www.bullionvault.com or physical ETFS although some people will tell you this paper contract to gold is risky. There are counterparty risks associated with having someone else hold your gold for you this is true, but it is less likely to be stolen than keeping your coins in a safe at home and easier to buy and sell than owning physical. Personally I hold gold and silver in all forms above, including some leveraged gold ETFS which true gold bugs will damn me to hell for...
16. debtfree said...
japenese uncle,
do you think the japs are going to want to fly all the way to sit in a weatherspoons and eat and drink in a place that doesn't have an entertainment license ?
thats not exactly tourism.... mind you, weatherspoons is becoming a reflection of britain as a whole.
17. vindicated said...
@ debtfree, cyril and mountaingoat.... thank you.
18. japanese uncle said...
debtfree
No, generally pub food with sub-standard quality in this country will not match their taste, but Burberries at 75% discount can certainly attract them.
19. phdinbubbles said...
from wiki:
"Many of the features aimed for in Wetherspoon pubs, such as quiet bars and reasonably-priced lunches, are influenced by George Orwell's essay The Moon Under Water, in which Orwell described his concept of the perfect pub. Several Wetherspoon-owned pubs bear the name "The Moon Under Water". "
I've always regarded Blair as a public-schoolboy champagne socialist (Eric Arthur Blair that is) who liked hanging out with poor people as a bit of an anthroplogical project, but on this occassion I have to agree with him about the perfect pub.
20. paul said...
I see that Mitsukoshi in London seems to be getting busier.
21. stillthinking said...
JU, external tourism was always an option for Japan to get rid of the surplus, but the holiday arrangements of 3x1 week have never been altered and one week is just too short really. In some ways it isn't so good for Japan, for example, university education becomes relatively cheaper in the UK at a time when all the Japanese universities are struggling for intake. I would agree that food is getting cheaper, my local indian seems more reasonable than I remember and the last time I was there the main guy was polite for a change.
Personally I think there will be inflation problems, but later, not now. House prices are in full retreat and if they were included in the inflation measures think how negative they would be already. This, now, is the deflation, how long until inflation arrives? Who knows? I doubt house prices would be falling during out of control inflation.
Also, there are two kinds of printing money, one is to print and spend on government wages say, which is really truly printing money, the other quantative easing is printing money and -exchanging- for an asset of equal value (in this case gilts...) which is reversible, and the net value if you like doesn't change. King is talking about the second one,-not- the first. Maybe the first one will be needed, who knows, but that isn't now.
22. letthemfall said...
vindicated
I would suggest that here is not the best place for investment advice. Spreading your money around is sensible, but I'm not sure that the suggestion to buy foreign currency or even gold is a good one unless you really understand what you are doing. Both have gone up a lot lately; in this climate it is pretty difficult to predict what will happen next. If you intend to use your money to buy a house in the future, which a fair few here are I think, then so long as your cash hold its value against housing (appreciating at present) then the question of sterling value against foreign currencies is somewhat otiose.
But I can't resist adding my unlearned views. Corporate bonds (bought through a fund of course) are cited as good value at the moment - yielding 6% or so. The Bank is talking about buying these up as a first choice in the quantitative easing which is looking more likely every day. Worth considering, but there is a risk associated with owning anything like that. More simply, some building societies are still offering reasonable rates, and at least they don't have the dodgy hidden exposures of the big banks.
Someone now will say that the UK and all its companies are going bust.
23. japanese uncle said...
letthemfall
I must mention that you cannot bet on corporate bonds unless you are utterly familiar with their balance sheets often meddled with 'off-balance' and other tricky instruments in which nasty skeleton may be hidden, (though bonds may be better placed than shares in terms of the pecking order in the event of bankruptcy. Meanwhile investing in foreign currency involves tremendous fluctuation in the FX market dictated by well-informed big boys. I would rather save in term deposit than invest.
24. letthemfall said...
japanese uncle
I agree with you. I wouldn't buy individual bonds, though would be happy to invest modestly in a decent fund. Deposit is still the best option for the ordinary saver.
On the inflation discussion, I don't think comparisons with Zimbabwe or Weimar are sensible. Zimbabwe's main problem is govt destroying the means of production, which started with wiping out agriculture. Whatever you think of our govt, that is not happening here. The problem is the immense bad debts of the banks. So deflation is the immediate likely event; inflation may come later. Of course I may be totally wrong, but I won't admit it.
25. bellwether said...
Agreed on investment being tricky but it is fun and I guess it is something you get better at.
I wouldn't take investment advice from here or anywhere but there is a lot of material that might help form a view of what is going on overall.
There are always things that crop up which are no brainers eg getting out of housing int he UK once the US market was crumbling or selling sterling once there was an appreciation of how bad our debt profile is and how little we now matter in the global ecomomy.
Short term movements in currency are not really the point it is the overall trend that matters.
You can incidentally open accounts that allow you to save in a variety of currencies, although I'd stick to the currencies of the largest economies ie US and Japan and possibly the Euro (although its not for me) as these are most likely to be forgiven.
If these look like failing and the world is going to breakdown, then your onto survival mode and investments won't matter.
26. plato said...
No doubt about it, we are presently in deflation. To counter this £s will be printed or even the threat will be used until the day comes when there is no other option. Inflation will be caused by avoiding deflation which would probably lead to depression if allowed to fully develop.
27. japanese uncle said...
letthemfall
To this date I did not anything like a 'decent fund' ever existed.
Meanwhile as I mentioned time and again, hyper-inflation cannot take place in an economy riddled with skyrocketing unemployment (without strong unions), and influx of foreign immigrants though not a few of them may forsake Britain and go home. First of all where will be the money? People have been on a sleepwalking spending spree using the borrowed money often generated through equity release. When the judgment day = payback time arrives after all, whatever big money printed by BoE, will inevitably be sucked into the black halls aka coffers of banks that are calling loans they offered like pushers during the past 10+ years. In the meantime millions of people find dole the only 'real money' they can draw. Unless billions of money will be literally given away for nothing which is not going to happen as everyone knows, money will not come into your pocket, thus not circulated for consumption and investment. Japan's original quantitative easing started circa 2001, only to see the deflation carry on for the seven years that followed, as the money was channeled through FX market into overseas economies by carry trade of one sort or another. Things were the same in that cheaply printed money does not reach the economic entities that actually consume and invest in the daily terms. In the UK unless and until 1.5 trillion personal debt is repaid in full, there will be little money people can spend or invest at their will.
99p/pint will quickly be the norm and won't go away for quite a few years. Graduates salary will come down to 13,000 in a couple of years (if any job at all), and eventually going back to the old familiar four digits level.
Most miserable will be the reality in the financial sector. As the monstrous froth by the name of investment banking sector will be all gone (which is a logical and natural course of event in view of the utter distrust by the public, of any form of ‘investment’ which more or less proved to be none but the art of voluntary self-victimization), UK financial sector will shrink by 50%, likely to shed full million workers on the street ultimately, along with another couple of millions in the sectors totally dependent on financial sector’s fictitious prosperity. Thousands of students studying finance will end up in farms earning minimum wages.
Bellwether
Euro zone will be the next, be prepared. Anyway Euro will be no more in 2012, as actually intimidated by an economist, ex-Irish central banker as reported by the Telegraph.
Having said that Germany will come back sooner rather than later, given their rigid industrial base and their industrious attitude. The same applies to Japan, while UK has been too badly poisoned by the pseudo-success of financial non-business. Just work hard in a diligent manner without tricking your neighbors (I know personally this was the principle once prevailing in UK, in the North of England and Scotland in particular) is the lesson here. Look what happened to the good nation of Iceland. Financial business must be auxiliary and supplementary to the core industries like farming and manufacturing. If it creeps out of its depth, it can easily be nothing short of gamble at best, and con at worst.
28. bellwether said...
JU I actually think most tertiary educated people in UK are fairlyhard working. I'd agree the working class have lost their way, first the unions, then the debasement of industry and now wellfare, but survival has a way of forcing change. I hope.
29. letthemfall said...
japanese uncle: "To this date I did not anything like a 'decent fund' ever existed."
I understand your skepticism. There are probably a handful, in the sense that the manager has a long term ability to generate reasonable returns compared to others. But my feeling about financial types - fund managers and the rest - is they are in the perfect position to hand themselves large amounts of our money, regardless of how well they do their job. I think that has been shown by recent events to be a commonplace statement.
Your comments on what happens to increased money are interesting - and you after all probably have a better knowledge than the rest of us here. If the Govt starts buying up corporate bonds then they should be able to borrow money more cheaply thus boosting economic activity. The question is how much of the extra money will end up paying off debt instead, at the expense of the public debt and the taxpayer. The fact debt has to be payed off - assuming our Govt does not default, the most unlikely event I think - means, as you say, deflation is more likely than inflation, let alone hyperinflation.
Dramatic economic and societal changes seem more and more likely every day. Notwithstanding the upheavals this will bring, there are good reasons for wanting them, especially the gross disparities in wealth distribution that have arisen in the West. More power to Barack Obama's elbow. Perhaps he really is our best hope.
30. troy said...
From 1999
BCM (bank created money) should be abolished just as slavery was abolished.
But it won't happen until the public understands the magnitude of this hidden injustice and screams blue murder.
But better scream soon. With weapons like NAFTA and the MAI international banking fraternities, such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS), will soon have the middle class in their gun sights.
They may use a crashing stock market as a smoke screen to contract the money supply as did the Fed in 1929.
(In a radio interview in 1996 free-market champion and economic advisor to Nixon and Reagan, Milton Friedman said, "The Federal Reserve [the privately owned U.S. central bank] definitely caused The Great Depression by contracting the amount of currency in circulation by one third from 1929 to 1933".) Then the screams will be deafening. But it's better to cry out before you are hurt than after you are hurt, especially after you are critically hurt.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Do you want to take some action? First discuss this with others. Then send a few faxes and make a few photocopies. Tape one up in your back seat car window. Leave another in the nearest bank to show them that people are beginning to understand how they siphon off wealth from the community through their outrageous privilege of creating interest-bearing money. (Government created money is interest-free.) Finally – for the really committed – ask your local bank manager just how much truth there is in all of this. You can be fairly sure he or she will resort to their much feared weapon – impenetrable economic jargon. Some bankers will actually deny that banks create any money! This is an example of what Marshall McLuhan called motivated ignorance.
http://www.basicincome.com/basic_banks.htm
31. troy said...
"They may use a crashing stock market as a smoke screen to contract the money supply as did the Fed in 1929. "
written 1999
Problem ~~~ Reaction ~~~ Solution ~~~ end game? control and wealth transfer .
32. troy said...
"History teaches us that banks are forever finding new ways to commit financial suicide, and when they do they bring the public down with them. (With the collapse of their debt-pyramids the once mighty Japanese banks have been living off the public purse for years.) But what we witnessed in 1998 was unprecedented in human history. In South East Asia, Russia and Latin America, national economies were plundered and millions impoverished, almost overnight, through the deliberate manipulation of "free" market forces."
http://www.basicincome.com/basic_banks.htm
33. troy said...
though this book is not written for the beginner, it is far more "beginner friendly" than most of the other scholarly efforts I've read. If you have a fairly decent grasp of economic terminology and concepts, you will definitely walk away with a deeper understanding of the fraud known as "fractional reserve banking." More importantly, the author lays out a bullet proof case for an "Honest Money" solution. --An extremely impressive collection of information and well-reasoned arguments.
From Amazon.com:
Can the market fully manage the money and banking sector? Jesús Huerta de Soto, professor of economics at the Universidad Rey Juan Carlos, Madrid, has made history with this mammoth and exciting treatise that it has and can again, without inflation, without business cycles, and without the economic instability that has characterized the age of government control.
Such a book as this comes along only once every several generations: a complete comprehensive treatise on economic theory. It is sweeping, revolutionary, and devastating--not only the most extended elucidation of Austrian business cycle theory to ever appear in print but also a decisive vindication of the Misesian-Rothbardian perspective on money, banking, and the law.