Friday, Jan 30, 2009
Money gift to the rich
Guardian: Quantitative easing: last resort to get credit moving again
The problem with quantative easing, i.e. printing money to purchase assets, is that -if- the easing doesn't work, then the government has just paid 10 million for something remaining at a value of 1 million, basically purely and simply -giving- money to asset holders. Which is pretty terrible. Or, should everybody believe that the qe will work, then individually they won't want to sell anyway, because holding onto the assets is better. The whole thing depends on the impossibility of perfect accuracy in guessing the future price. Which is impossible. So hopefully, should qe be deployed, they should err on the low side of valuations and take compulsory asset ownership from failed/ing enterprises, otherwise the taxpayer will lose a lot.
Posted by stillthinking @ 10:48 AM (339 views) Add Comment
3 Comments
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1. bellwether said...
I was reading George Soros in the FT the other day who said
Total credit outstanding was 160 per cent of gross domestic product in 1929 and rose to 260 per cent in 1932; we entered the crash of 2008 at 365 per cent and the ratio is bound to rise to 500 per cent. This is without taking into account the pervasive use of derivatives, which was absent in the 1930s but immensely complicates the current situation.
In fact here is whole art
http://www.ft.com/cms/s/0/09b68a14-eda7-11dd-bd60-0000779fd2ac.html?nclick_check=1
The only alt to QE is letting things run there course but the suggestion is that the debt is so bad deflation would lead to world wide poverty that would make 80 years ago seem lite. I get the feeling that it is really a discussion of type of QE we use and sense also that it should simply be to take the edge of the depression rather than look to forestall it altogether (bit late for that anyway) and risk almost cert flipping into hyperinflation. I actually think that the creditors potentially provide a good deterrent to this.
Was reading the other day that mark to market accounting for the banks was serving the same function as the gold standard in 1930 which was an interesting idea. Mind you the level of the insolvency of banks has been what has really shocked me over the past few days.
http://bankimplode.com/
Reggie Middleton in particular seems to have critiqued US banks and insurers well and the picture is pretty gross.
Given bank exposure in the UK, and little else in our locker, I remain incredibly concerned about the UK. The estimated contraction for GDP of 3% in 2009 looks hopelessly optimistic
2. rm96696 said...
Back in the old days "quantitative easing" used to be called "debasing the currency". It was widely used (beginning with the romans), but never seems to have given positive results, at least as far as the overall economy was concerned, but was a way of squeezing more money from the surfs by surreptitious means. Things haven't changed very much.
3. stillthinking said...
I worry about the UK as well. I sometimes think, quite often in fact, that being forced to go to the IMF would be best thing in the long run because of the rules they would enforce.