Thursday, May 07, 2009
I hear Robert Mugabe has been 'boosting' Zimbabwe's economy with printed money too
BBC 'News': Economy to get extra £50bn 'boost'
A breathtakingly dishonest version of what is happening. The article completely omits any mention of how the boost will be paid for, how it will affect inflation or even the IMF's very vocal criticism of the UK's recent penchant for printing money as a strategy out of recession.
Posted by paul @ 12:37 PM (1954 views) Add Comment
32 Comments
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1. symo said...
Yes, first time I have heard the verb "to print" replaced by "pumping"
2. mrflibble said...
The money in my monopoly set is going to be worth more than Sterling if we carry on with this caper.
Any guesses as to when we call the IMF in to hold our hands, surely it cannot be long now?
3. japanese uncle said...
Last King of Britain
4. alan said...
"surveys at home and abroad show promising signs that the pace of decline has begun to moderate". Does this mean the economy is out of its nose dive or have we hit the ground?
The article is unusually upbeat for an economy going down the tubes. They quote "It may suggest they're reassured that the recovery is going to plan," Alan Clarke, an economist at BNP Paribas told the BBC.
As Harry Enfield's chum would say "Oi, BBC, NO!"
5. lenny said...
Higher Interest Rates sooner rather than later, income tax rises for the rest of us after next election
6. paul said...
@mrflibble,
There are others that can probably comment more authoritatively on this, but I think ongoing failure of the government's gilt auctions will be a first sign that the government can't attract sufficient investment to roll over its debts. At this point, the UK will go cap in hand like a foiled dictatorship in an African country to the IMF and the IMF will say "okay here's some money to tide you over"
But then the IMF will say "Oh and by the way, raise interest rates to 9%. Yes, now."
7. denzil said...
Agree with your sentiment Paul.
In many ways I see benefit of the existance of the BBC but the danger is that they are just a publicly funded mouthpiece for the government. There's so little in the way of investigation to their journalism. From the unsuspecting Government shill Robert Peston through to BBC online they tow the government line without question way too often for my tastes.
I would be sad to see the BBC go but I can see the public turning their backs on the BBC over the next decade or so.
8. little professor said...
Paul - the IMF has been reticent to treat developed countries the same way the have made the third world countries bend over. Usually the loans they make to tinpot dictators come with conditions that they must sell off the country's wealth, privatizing state industries and resources for the benefit of greedy oligarchs.
Simon Johnson, former chief economist of the IMF, had a great article in The Atlantic about the failure to treat the UKUSA the same
9. charlie brooker said...
@mrflibble
Interestingly the game Monopoly was devised precisely to illustrate the negative aspects of concentrating land in private monopolies and as a means through which to explain the single (land) tax theory of Henry George.
http://en.wikipedia.org/wiki/Monopoly_(game)
10. Leicestersq said...
I sort of agree with this policy.
Since GB left the Treasury, I have been very supportive of most of the actions of the Treasury and Bank of England.
What they are trying to do here is keep the value of the pound low, it has been rising in recent weeks. A falling pound has always helped the UK out of recession, and as expected, the devaluation last year gave the UK a necessary boost. Sure, things are bad here, but not as bad as elsewhere.
So a rising pound is now threatening that recovery, so best devalue the pound by printing more money.
Inflation is of course the danger. In theory this policy can be reversed by the Bank of England if inflation took off. A sound policy to fight inflation would be the opposite of what we have now, QT (Quantitative Tightening, High Interest Rates, Government Budget Surplus). We might also see interest rates start to rise in the money markets if the market believes inflation is on the way. Watch the price of Gilts!
11. mrmickey said...
Can anybody tell me who actually get's this money, do they just give it to the banks or do they go out and buy an aircraft carrier or something.
12. japanese uncle said...
BoE will soon lose its control over the monetary affairs, from then on, base rate manipulation will be utterly irelevant. Demise of a central bank.
13. mark wadsworth said...
@ Charlie, we discussed that at a Labour Land Campaign meeting and the story is a lot more complicated than that, but hey.
@ Paul, this whole IMF thing is a bit of a joke actually, the members of the IMF are just countries, the US, the UK etc etc, it works fine for bailing out very small or very poor countries, or even a big country if other big countries are doing OK, but given the mess that even the big countries are in, it just ain't going to work, we can't all bail each other out.
Those 9% interest rates will toddle along of their own accord (or at least I hope so, I'll be able to retire at that stage).
14. paul said...
Hmmm. I see your point Mark, but the IMF remain the backstop regardless of its makeup so not everyone will need to draw upon the IMF's 'insurance'. There is no-one else to borrow from so as a lender of last resort their conditions have to be strict and painful.
little professor, I did read that article and thought it was very good. I'm probably wrong, but I'm not sure about your recollection of what he wrote. He does explain in the first few paragraphs that when developed countries go to the IMF, they can expect to be treated in very much the same way as small tinpot dictator countries (they'll be asked "who are you ready to piss off" was how he phrased it I think?).
Anyway. I think we all agree that very high interest rates are almost certainly on their way. And now I get to quote my favourite favourite quote of all time:
Let Hercules himself do what he may,
The cat will mew and the dog shall have his day
(Hamlet, Act V, Scene 1)
15. mander said...
It looks like inflation is prefered to stagnation. Debtors having to pay back a million on hardworked money will eventually have to pay only 100 000. That is almost 1000% profit. Mugabe did not succeed because he does not have a powerful country behind him but the nukes powers will not care. The debt must go on, they will try to proove that who did not take on debt was stupid.
Will the rest of the world agree? No. Problem we have is the rest of world is against America inflation hopes and UK is nowhere.
16. sneaker said...
Yes but the big difference between us and Zimbabwe is that we have a huge crumbling credit edifice. Zimbabwe never had a credit economy on anything like the same scale.
Printing money at the moment is simply trying to replace the destruction of money elsewhere in the economy.
It's like pumping air into a balloon with another hole in it.
The mega-inflation that everyone is warning about will only occur if the printing of money continues past the point that credit stops contracting, or exceeds the speed of the credit contraction.
At the moment, credit is still contracting and the amount of money printing doesn't go anywhere near covering what has already been destroyed.
They're printing money because things are still getting worse, not better.
Whereas in Zimbabwe everyone is broke, there is no credit deflation and yet the money printing continues.
17. sneaker said...
And moreover, the money multiplier is below 1.0
Which means that even newly-printed money isn't going anywhere.
Until the multiplier kicks up back above parity, then we are still firmly in debt-deflation.
18. str 2007 said...
Some interesting points there.
Sneaker
Where and what is this money multiplier you talk of. I haven't heard it mentioned before ?
Would be interesting to see how it's fluctuated over time.
And certainly worth keeping an eye on.
Are there set parameters as to how it works ie if it goes above 1, it will be seen in the economy 6 months later etc etc.
19. sneaker said...
Definition
http://www.businessdictionary.com/definition/money-multiplier.html
http://moneyterms.co.uk/money-multiplier/
Here's the US M1 Money Multiplier
http://research.stlouisfed.org/fred2/series/MULT
20. sneaker said...
Some good stuff here too
http://wfhummel.cnchost.com/index.html
21. inbreda said...
@15 sneaker
I like the balloon analogy but I prefer to define it as:
The uk had a balloon (=amount of actual money). It went around telling everyone that the balloon was 10 times as big as it really was (with credit), in order to gain kudos. When it started to become apparent that the balloon was not actually as big as the UK made out, the UK government was embarressed and desperately started to compensate by trying to pump the balloon up (printing more actual money).
Now the balloon is really getting bigger. Can't imagine what happens next.
22. inbreda said...
my point is that credit money was not inflationary precisely because it was not real money. It was "future earnings".
Printing money. i.e. real money. IS inflationary.
credit has allowed peolpe to advance their future earnings. That gravy train has come a bit unstuck. You do not resolve the situation by borrowing all possible future earnings in this life as well as the next and including your neighbours. It simply won't work.
23. str 2007 said...
inbreda
I agree
For some reason the City don't seem to - at the moment anyway.
24. refusetobuy said...
@inbreda
I disagree. The UK didn't go around telling everyone that the balloon was 10 times as big as it really was. Everyone could see the size of the balloon. I agree more with Sneaker's viewpoint.
@Sneaker
You point to the US money multiplier. What about the UK. Where is your data source?
QE increases the amount of money. Are there any sources of the velocity of money in the UK?
25. dbc reed said...
@Charlie Brooker & Mark Wadsworth
What seems like a pretty exhaustive account of how the original Landlord's Game (illustrating the Henry George principles that pumping money into land and locations leads to economic disaster )evolved into the complete opposite ( bankrupting people with high rents is fun!) can be found on Wikipedia not by accessing Monopoly but by looking up The Landlord's Game .
26. str 2007 said...
Thanks for those links Sneaker
I hadn't realised it ws below 1 because of a sudden drop. I see it was up at 3 and has slowly been reducing.
Now, has it been reducing as inflation has or is it the reduction of it which has brought about low inflation.
And why the sudden drop ? Is that reflecting big losses in the banking system ?
As refusetobuy says the UK figures would be useful.
27. sneaker said...
I think it was on the Bank of England or Office of National Statistics website, but I can't find it right now.
Let me know if you can find it under Money Multiplier or even Velocity of Money.
Some more information here
http://www.marketoracle.co.uk/Article7645.html
28. sneaker said...
The big drop is a quantification of the banks' cessation of lending.
Basically money that is lent gets spent in the economy and ends up back at the banks on deposit. They then re-lend it and so this activity perpetuates itself in a self-reinforcing cycle. When the lending stops, the whole thing goes into reverse and what was previously self-reinforcing switches in to self-defeat (Soros' language).
The money multiplier is the greatest thing in the boom times - it is just endlessly intoxicating. Everyone loves the feeling without understanding what it stems from.
But in the bad times, we have an equal but a vicious, opposite effect. The multiplication of credit goes into reverse and the debt contracts in on itself, causing more contraction, more defaults and thus a reverse multiplication effect. Debt will ultimately contract to zero in a credit-money system. In this system, with no debt, no money exists. Interest is being paid on every unit of credit-money in existence, which is how the banks get so fat. So basically the central banks are mortally scared of this debt contraction because they know it can, in theory, end up with no money and therefore no economy. Clearly that is a fallacy because people would resort to barter - a gold-backed currency being just one form of this. Gold cannot contract into zero, unlike credit-money.
So basically the credit-money system is inherently unstable because whichever way it moves, towards more debt or towards less debt, it reinforces that movement. That is why there is so much chatter on the net about the ills of credit-money, or "fiat currency". It requires bailouts to persist.
So basically the sudden drop is what the bailouts are trying to offset. Credit-money is disappearing in the banking system because of all those weird credit derivatives. So the central banks are desperately creating new money elsewhere in hope of offsetting this.
Slightly rambling but hope that helps those here are new here.
29. doggett said...
@ 20 sneaker
Thanks for the 'wfhummel' link. One interesting quote from there;
"The general price level is correlated with the money supply, but correlation should not be confused with causation. Prices are seldom driven by the money supply. More commonly, the money supply reacts to changes in the general price level which can be affected in many ways unrelated to the money supply. Money growth depends on the demand for bank loans and the willingness of banks to lend. The Fed can influence the demand through its control of the interest rate. Only if it sets the interest rate too low for an extended period would the money supply grow fast enough to put upward pressure on prices."
Another interesting (and long) article @ http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
If you accept the analysis there it may lead you to question the simplistic notion that a central bank's increasing the base money supply will necessarily be inflationary.
30. doggett said...
Just realised that the last sentence in my post of 12:06am might be misunderstood. Read it as "If the analysis there is accepted then it may lead to the questioning of the simplistic notion that a central bank's increasing the base money supply will necessarily be inflationary."
31. Echothenymph said...
@doggett
"but correlation should not be confused with causation."
Quite. Try explaining that to flashman who thinks there's no link between interest rates and house prices because there's no correlation.
32. str 2007 said...
Lots of intersting stuff, thanks for that.