Monday, Jul 24, 2017

QE, source of asset-price inflation and rising inequality

RT: QE, the largest transfer of wealth in history

QE has inflated the prices of property and other assets and in other ways enabled the wealthy to steal the wages of workers, in addition to causing havoc in 'emerging markets'. But what's do be done now? If the Fed, BoE and ECB unwind QE, sell govt securities into the market and raise IRs that's a lot of taxation to be raised to pay off the interest on the national debt. The Fed, e.g., is planning to do these things, with fed funds rate going up to 3.5%. Eventually US taxpayers would be paying bondholders over $800bn a year in interest alone. Is Japan on the right track? It creates lots of money for the BoJ to buy back the govt debt and to pay the interest to the govt - an interest-free debt rolled over each year - effectively a debt cancellation.

Posted by icarus @ 01:15 PM (6475 views) Add Comment

8 Comments

1. icarus said...

For the BoJ debt cancellation see https://ellenbrown.com/2017/06/27/sovereign-debt-jubilee-japanese-style/

Monday, July 24, 2017 02:17PM Report Comment
 

2. britishblue said...

A lot rests outside our hands. Trump is a businessman who has been through many a bankruptcy. One of the cards on the table must be default on all USA debt and send the world into a depression. Given America has every economic base covered from being self sufficient on fuel, the largest military in the world and can feed its own people this must be one option on the table. another option is for America to go to war and renege on its debts. It looks like the Chines and Russians are planning for this, hence they are now sidelining the dollar. This article also states that real wages in the UK dropped by 10% between 2008 and 2014.If we couple that with large rises in rent, especially in London where renters now outweigh owners you can see how like frogs people have been slow boiled without realising what is going on.

Monday, July 24, 2017 02:52PM Report Comment
 

3. icarus said...

The Ellen Brown article asks whether the US can manage its debt as the Japanese are managing theirs. Why default if indeed the BoJ policy is an option for the US, as she suggests? (I don't think Trump was personally bankrupt - companies in which he has/had a large but minority share have used the bankruptcy route.)

The Chinese, Russians and BRICS in general have been sidelining the dollar because they are fed (no pun) up with dollar imperialism whereby they have been forced to buy US Treasury securities to balance what the US military, investors and consumers have spent abroad in excess of US earning power. This imperialism enables the US to have low IRs and easy credit despite conventional economics, which says that a country which has the world's largest government debt and balance of payments deficit should have the opposite regarding those metrics.

Other countries have had to buy those USTs because low US IRs cause US companies to lend abroad or buy foreign assets yielding more than the rate at which they borrowed the money. Those countries cannot throw these excess dollars onto the market without driving up their own currencies and making them uncompetitive (or driving down the value of the USTs they hold) and there are 'security' and other restrictions on BRICS and others using their excess dollars to buy US companies and other assets. Hence China etc. have been forced to fund the US deficit while the US carries on spending freely. (Hence the jokes about a handful of shipwrecked people who work out a division of labour enabling them to become a self-sufficient community - with the American volunteering to consume the output and arguing there would be no point in producing unless there was a final consumer.) Much of the spending by the US on the military and other means of propping up US-friendly regimes ends up in central banks. Their main option is to....finance more Federal deficit spending. A free ride indeed.

Monday, July 24, 2017 04:59PM Report Comment
 

4. jack c said...

Article running on a similar theme

www.professionaladviser.com/professional-adviser/opinion/3011882/andrew-morris-risk-and-return-has-been-distorted

Wednesday, July 26, 2017 01:55PM Report Comment
 

5. hpwatcher said...

QE has inflated the prices of property and other assets and in other ways enabled the wealthy to steal the wages of workers

The workers have also faced Quantatitive Labour - a nice term for mass immigration.

Thursday, July 27, 2017 08:40AM Report Comment
 

6. mombers said...

@5, it's a bit more complicated than that. The low skilled have faced more competition from foreign labour but by and large it has a net positive effect. There are not a set number of jobs - more people entering the labour force creates more demand and more jobs. My job in asset management depends on there being a large pool of retirement savings to tuck into. So a lot of our business is as a direct result of a growing labour pool. And recruitment is a constant problem - there simply aren't enough people in the UK with the right skills.
And of course there is the ageing population problem. Going to be interesting to see how public services and the private sector get on with a diminished workforce. The retirement age can only be raised so far, most people get too ill to work as the get into old age.

Thursday, July 27, 2017 09:14AM Report Comment
 

7. hpwatcher said...

>The low skilled have faced more competition from foreign labour but by and large it has a net positive effect.

Positive effect for who? Wages have not risen significantly for around 10 years now. The only people who have benefited are those who run large corporates.

I simply don't accept the the effect has been positive.

Thursday, July 27, 2017 09:38AM Report Comment
 

8. mombers said...

@7 I think the most important issue is how the pie is divided. The working age population in Japan has been shrinking for decades, but no wage growth there either and all sorts of problems stored up for the future. Similar story in Italy. Would we be richer on average if the economy was smaller due to a slower population growth? I reckon labour would still get shafted as much as possible, the pie would just be smaller. A universal income would sort sort this out very quickly, providing an alternative to selling one's labour to the lowest bidder

Thursday, July 27, 2017 01:25PM Report Comment
 

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