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Qe 'a Monumental Mistake' - Pensions Viewpoint


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I don't like pasting whole articles so you'll just have to follow the link:

Ros Altman criticises QE as reported in the Guardian

Damaging pension returns, depressing annuities which means that

1. pensioners have less money to spend (dampens demand)

2. companies have to put more aside into pension schemes - money they should be investing in growing their businesses.

Discuss.

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QE is government central planning and intervention at it's worse - ultimately I think it 'could' be more deflationary for the host nation in a Gresham's Law 'bad money drives out good money' kind of way. If the government could create wage inflation as well then there would not be so much of a problem, but with wage inflation lagging RPI inflation the difference is made by people cutting back still further.

It's a downward spiral which Japan went down - QE creates the living dead by allowing massive private debts (companies and households) to remain high for years to come. It also stops savers/pensioners from getting the interest they need from the investors/entrepeneurs who want to borrow their money via the banks so they can start new businesses or expand further which would create more jobs.

QE is also morally 'bad money' which creates winners and losers in society. Those that don't want to have their money debased are forced to remove it from circulation and hoard/invest it in real assets (gold, commodities, houses or land) or foreign currencies/markets.

The more they do QE the more they will kill the economy and delay the eventual recovery.

I don't agree that people are forced to remove their money. I see the debasement argument, but conditions seem equal to me so flight to some other faith and credit seems pointless, unless the game is about timing, speculation and arbitrage.

But after all these years of following HPC forums, it does come down to Gresham's Law.

I've had a lively debate for months with a card-carrying Tory, the full Boris Johnson - he cites Hayak, yet celebrates Maggie's Big Bang, defends the Square Mile's monopoly, thinks banks should retain their PPI money.

He's self-employed, can't negotiate a better contract, is kept from earning a better living because the professional union won't let him join - but he can afford the disability of tax-credit adjusted income tax beause he expects to inherit.

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The BOE being given independent control over interest rates and the money supply has been an unmitigated disaster. They blew up a gigantic credit bubble then refused to allow a correction and created a great depression. With the powers they have it is difficult to see how they could have done any worse even if they had been deliberately trying to destroy the economy. All things considered I'd say it's time the bank is put out to pasture.

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The BOE being given independent control over interest rates and the money supply has been an unmitigated disaster. They blew up a gigantic credit bubble then refused to allow a correction and created a great depression. With the powers they have it is difficult to see how they could have done any worse even if they had been deliberately trying to destroy the economy. All things considered I'd say it's time the bank is put out to pasture.

True, but the trouble is how we, the sheep, put the central bankers out to pasture, when we are in fact the ones that are being farmed and shackled by these policies?

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The BOE being given independent control over interest rates and the money supply has been an unmitigated disaster. They blew up a gigantic credit bubble then refused to allow a correction and created a great depression. With the powers they have it is difficult to see how they could have done any worse even if they had been deliberately trying to destroy the economy. All things considered I'd say it's time the bank is put out to pasture.

I'm not excusing the boe but they are not and never were independent. Their arses are lock, stock, and barrell owned by the government in substance if not form .

Their so called independence was to price money given a bogus set of criteria . The only way to price money correctly is to track money supply in its broadest form against output . Bingo !

Instead they are forced ( well they are supposed to be) to keep a bogus inflation figure within a narrow band .

The results were always foreseeable . What was not foreseeable wad the extent to which those who govern us would be prepared to go to avoid the necessary correction , hence Qe .

Forget pensions, savers etc etc they should be rich enough or responsible enough to look after themselves ( unless they are poor in which case their situation isn't affected much anyway ) the big problem with Qe is that it's doomed to failure . It provides the wrong incentives .

Getting down to basics then the financial crisis should not alter a thing . The future ability to generate wealth is not effected by one iota . The same natural resources , people, ideas , innovation, entrepreneurs etc etc are still here .

What changes is how they care incentivised to act .

Cheap money and Qe allows badly managed and organised companies to survive and thrive at the expense of yet to be formed innovative and efficient companies .

This means Qe incetivises inefficiency which means the ability to produce in order to make good our debts is reduced .

This will continue for a long time until debt holders ( savers , bond holders etc) are prepared to accept less in return either via default or via inflation .

A correction would bring this pain forward but would allow for quicker rebirth . Instead we choose a longer less dramatic and less painful as we go ( but greater aggregate of pain ) instead .

It's what people choose out of the two really . Should we pay our debts or should our young people and kids ? ( I'm old and I think it should be us )

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That is also true and another reason why bad incentives result

As for the bad incentives, it allows Government to continually pay the ENTITLEMENT of public sector wages and benefits.

Carried on for too long, and no private company will be able to compete.

Free Government money will inevitably lead to the Socialisation of the entire economy. ZOmbies financed by unbacked money will be able to outpay anyone trying to earn a living.....so there will be a brain drain to the zombies....TBH...this thought is sickening me as I write it.

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I don't like pasting whole articles so you'll just have to follow the link:

Ros Altman criticises QE as reported in the Guardian

Damaging pension returns, depressing annuities which means that

1. pensioners have less money to spend (dampens demand)

2. companies have to put more aside into pension schemes - money they should be investing in growing their businesses.

Discuss.

Playing the devil's advocate you could just as easily argue that without QE stock markets and bond markets would have crashed a lot harder in 2008 and would have stayed low. This would have caused exactly the same problem, pension funds would be in deficit and people retiring would have a lot less money to buy their annuities with as they cash out of equities.

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Playing the devil's advocate you could just as easily argue that without QE stock markets and bond markets would have crashed a lot harder in 2008 and would have stayed low. This would have caused exactly the same problem, pension funds would be in deficit and people retiring would have a lot less money to buy their annuities with as they cash out of equities.

so when are they going to crash?...or is QE needed forever now?

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so when are they going to crash?...or is QE needed forever now?

Doesn't matter. Either markets crash and the yield goes up but your assets go down or they don't and your asset valuation is high but the yield is low. Same result - crap pension.

Edited by gimble
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Doesn't matter. Either markets crash and the yield goes up but your assets go down or they don't and your asset valuation is high but the yield is low. Same result - crap pension.

if markets crash, yields increase....and if banks cant get QE, they have to pay more to savers to attract funds.

at the moment, we have the exact opposite.

QE is designed ( Merv and the BoE Said so) to keep asset values up.

Sorry Mr Advocate.....it cant work...money is a construct...it only has any value IF someone has to work to earn it.

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As I see it the main purpose of QE is to enable state spending to continue at current levels without interest rates rising.

We need urgently an enterprising academic researcher or investigative financial journalist to find out exactly what the recipients of QE money (i.e. the pension funds, insurance companies etc...) then do with that new money. Interview the relevant fund managers and so on ...

I suspect that the answer is that they promptly use it to buy new gilts from the DMO, but that this fact is too politically sensitive to be admitted publicly.

Another important effect of QE is vastly to increase the quantity of base money in circulation between the UK clearing banks, thus enabling and securing inter-bank liquidity.

Edited by The Spaniard
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Don't see what the big deal is.

QE is a tax.

Like any other tax it has negative implications for some people and positive for others and this also applies to classes of investment.

I suppose there is an argument that QE is insidious and therefore is a less "fair" tax because it is not so apparent when it is deducted. That is of course what you get if the electorate routinely punishes politicians who are honest re tax rises.

To me one of the interesting things is that QE/inflation is a tax on all currency holders, not just UK residents. So the x% of bonds/cash that is held by foreigners is also subject to the tax.

Re asset prices, well boomers who have massive houses have paid to maintain their assets by having their pensions reduced. Swings and roundabouts IMO.

There are no winners here. The only choice is between continuing to fund the defict/economy by taking money from people who have it and giving it to fund the deficit or not, and to what degree to do this.

How this is done is simply a matter of detail.

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Silvercrest

I don't like pasting whole articles so you'll just have to follow the link:

Ros Altman criticises QE as reported in the Guardian

Damaging pension returns, depressing annuities which means that

1. pensioners have less money to spend (dampens demand)

2. companies have to put more aside into pension schemes - money they should be investing in growing their businesses.

Discuss.

There are winners and losers. It is to simplistic to say QE benefits the bad and punishes the good. In any case, people may have different opinions who is good (and therefore deserving) and who is bad.

As a relatively young family we have a large mortgage. The current low interest rates benefit us (we are on a cheap BOE lifetime tracker). What we save, goes mainly into shares (private pensions, ISAs), which are doing well thanks to QE. The interest savings we make on our mortage allow us to put even more into our ISAs and pension funds, and we can also refurbish and extend our house which benefits the economy. Do we deserve it? I think we do (as everyone in the same situation would).

Boomers have generally (as a whole) not much to complain about - they had cheap house prices, almost free university and good pension deals, just to name a few. Young people who cannot afford a home have more to complain about, and the government could help them best by relaxing planning permissions (which would also bring the house prices down).

Edited by Lion
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Silvercrest

There are winners and losers. It is to simplistic to say QE benefits the bad and punishes the good. In any case, people may have different opinions who is good (and therefore deserving) and who is bad.

As a relatively young family we have a large mortgage. The current low interest rates benefit us (we are on a cheap BOE lifetime tracker).

snip

this is the rock and the hard place.

an over borrower gets let off the hook.

meanwhile, a prudent person gets shagged.

This is a Political decision.

It is not done for the good of the "economy", it is done for the good of the lobbyists. That IS what lobbyists are paid for...getting their way. Putting Lion on the streets is the heartstring they pull on.

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QE is government central planning and intervention at it's worse - ultimately I think it 'could' be more deflationary for the host nation in a Gresham's Law 'bad money drives out good money' kind of way. If the government could create wage inflation as well then there would not be so much of a problem, but with wage inflation lagging RPI inflation the difference is made by people cutting back still further.

It's a downward spiral which Japan went down - QE creates the living dead by allowing massive private debts (companies and households) to remain high for years to come. It also stops savers/pensioners from getting the interest they need from the investors/entrepeneurs who want to borrow their money via the banks so they can start new businesses or expand further which would create more jobs.

QE is also morally 'bad money' which creates winners and losers in society. Those that don't want to have their money debased are forced to remove it from circulation and hoard/invest it in real assets (gold, commodities, houses or land) or foreign currencies/markets.

The more they do QE the more they will kill the economy and delay the eventual recovery.

good post

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QE DIRECTLY replaces savings as a source of funding...ie it reduces the Capitalism in the economy.

QE doesnt replace savings,it replaces consumption.

Every single penny of QE has been given to the government through the bond market to pay for the welfare bill.

In fact the amount of QE is around the same as the welfare bill over the time and the welfare bill when you take out pensions is around the size of the deficit.

QE is funding consumption.

The banks have gained of course,but they arent the reason for QE,a bankrupt government and welfare system is.

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The BOE being given independent control over interest rates and the money supply has been an unmitigated disaster.

Not really. The disaster was in the mandate they were given: tying monetary policy to a price index that told us more about the (real) growth in Chinese exports than about the UK economy, thus fuelling ponzi-style growth here.

If the bank's mandate had been 2% annual growth in M4 money supply, we could've had very stable growth.

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Playing the devil's advocate you could just as easily argue that without QE stock markets and bond markets would have crashed a lot harder in 2008 and would have stayed low. This would have caused exactly the same problem, pension funds would be in deficit and people retiring would have a lot less money to buy their annuities with as they cash out of equities.

so you are sugesting that printing a paper to spend it in the public sector (such as the public sector wages) is a great idea and it will take us from the recession?

surelly if it is true we would be all super rich; instead of taxes and state borrowing we can just print a paper and give it to public sector; what a great idea

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I don't like pasting whole articles so you'll just have to follow the link:

Ros Altman criticises QE as reported in the Guardian

Damaging pension returns, depressing annuities which means that

1. pensioners have less money to spend (dampens demand)

2. companies have to put more aside into pension schemes - money they should be investing in growing their businesses.

Discuss.

Low interest rates support the feckless.

Those who have saved get shafted. It's not just olds with money in the bank.

Situation doesn't recover whilst interest rates are low.

And pensions are the thing that will make it all go boom.

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Not really. The disaster was in the mandate they were given: tying monetary policy to a price index that told us more about the (real) growth in Chinese exports than about the UK economy, thus fuelling ponzi-style growth here.

If the bank's mandate had been 2% annual growth in M4 money supply, we could've had very stable growth.

you are a heretic and you should be executed

there was a reason that our great leaders removed house prices from CPI and BoE stopped publishing M4 figures

as you can easily win elections if you give people free money

I blame Jesus who turned water to wine and also gave people free fish; perhaps he was the first leftwinger ???

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QE doesnt replace savings,it replaces consumption.

Every single penny of QE has been given to the government through the bond market to pay for the welfare bill.

In fact the amount of QE is around the same as the welfare bill over the time and the welfare bill when you take out pensions is around the size of the deficit.

QE is funding consumption.

The banks have gained of course,but they arent the reason for QE,a bankrupt government and welfare system is.

I didnt say it replaces savings, I said it replaced savings as a source of funding.

Savings are an excess of your overhead...you can save this as you dont need it today.

You have earned your savings by exchanging something for them...your labour, your old car, some interest you earned.

QE doesnt have to be earned by anyone....it can be as cheap as the paper its not printed on.

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why pick 2%?why not pick zero for real stability.genuine question.

2% is the perfect skim..too small for anyone to complain about, but can alone support an enormous industry shuffling and recyling bits of paper, meanwhile 2% compounded gives a neat return after 40 years....a careers worth of saving.

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