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Helicopter Qe Will Never Be Reversed

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html

Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better.

"All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt monetary financing".

He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit.

"If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. This could done with a flick of the fingers. The debt would vanish.

Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary, QE will turn out to be permanent."

The write-off should cover "previous fiscal deficits", the stock of public debt. It should be "post-facto monetary finance".

The policy is elastic, for Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles.

Today's QE relies on pushing down borrowing costs. It is "creditism". That is a very blunt tool in a deleveraging bust when nobody wants to borrow.

Lord Turner says the current policy has become dangerous, yielding ever less returns, with ever worsening side-effects. It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy.

no+shit+sherlock+2.jpg

356j00.jpg

Has the penny finally dropped?

Once the magic printing press has been turned those in power will never ever turn the fecker off until they are forced.

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http://lynncoins.com/fiat-money-france5.htm

I have now presented this history in its chronological order—the order of events: let me, in conclusion, sum it up, briefly, in its logical order,--the order of cause and effect.

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; “self-regulating” schemes, “interconverting” schemes—all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “_law of accelerating issue and depreciation._” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France-a prostration from which only a Napoleon could raise it.

But this history would be incomplete without a brief sequel, showing how that great genius profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendée. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807--there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, “While I live I will never resort to irredeemable paper.” He never did, and France, under this determination, commanded all the gold she needed. When Waterloo came, with the invasion of the Allies, with war on her own soil, with a change of dynasty, and with heavy expenses for war and indemnities, France, on a specie basis, experienced no severe financial distress.

If we glance at the financial history of France during the Franco-Prussian War and the Communist struggle, in which a far more serious pressure was brought upon French finances than our own recent Civil War put upon American finance, and yet with no national stagnation or distress, but with a steady progress in prosperity, we shall see still more clearly the advantage of meeting a financial crisis in an honest and straightforward way, and by methods sanctioned by the world’s most costly experience, rather than by yielding to dreamers, theorists, phrase-mongers, declaimers, schemers, speculators or to that sort of, “Reform” which is “the last refuge of a scoundrel.”[88]

There is a lesson in all this which it behooves every thinking man to ponder.

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html

(...)

Has the penny finally dropped?

Once the magic printing press has been turned those in power will never ever turn the fecker off until they are forced.

The question becomes, when he says this:

Lord Turner says the current policy has become dangerous, yielding ever less returns, with ever worsening side-effects. It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy.

Does he mean instead of financing the gov's deficit, or on top of it?

And it won't generate inflation?

And when it does, IRs will stay low? If so, won't capital move out of sterling? Worsening the downward spiral? :huh:

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Does he mean instead of financing the gov's deficit, or on top of it?

And it won't generate inflation?

And when it does, IRs will stay low? If so, won't capital move out of sterling? Worsening the downward spiral? :huh:

I'll say he's suggesting if you want real economic benefit don't malinvest the money put it into solid infrastructure. Trouble is pet projects get the money and govts recently have been very poor at long term investment.

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I'll say he's suggesting if you want real economic benefit don't malinvest the money put it into solid infrastructure. Trouble is pet projects get the money and govts recently have been very poor at long term investment.

The Japanese have spent twenty+ years building bridges to nowhere and what's become of it? The hole in the nation's finances is 100x what it was in 1989 and the economy further away from a self-sustaining recovery than ever. If they'd let the economic cycle take its course the bubble debt would have been worked off years ago.

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The Japanese have spent twenty+ years building bridges to nowhere and what's become of it? The hole in the nation's finances is 100x what it was in 1989 and the economy further away from a self-sustaining recovery than ever. If they'd let the economic cycle take its course the bubble debt would have been worked off years ago.

Brown abolished economic cycles........all ok now.

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It's amazing that a guy who ran an incompetent regulatory body thinks he knows what needs to be done. Even more amazing, this idiot is probably still getting paid more than minimum wage.

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The days of bartering one pair of old shoes for two pounds of carrots will come! Fiat currency is gradually losing increasing value. With nothing to print it against, soon the masses will lose confidence in it and perhaps people will opt for more tangible asset creation ie. a run on the bank and then change that money into stuff like food, clothes so on and so forth!

There will be a reset and the world currencies will fail as the entire system of fiat currencies folds on itself.

Sounds like a plot for a Hollywood movie...but then could this actually happen?

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It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy

Central banks to do this? Or whatever? Just chuck money at it. It's, not Government or central banks to decide, and it's way more difficult to identify projects for stimulus spending that creates lasting effects with businesses with jobs that grow around the initial spend. Much harder to do that when US built highways during the last depression to create new suburbs, very cheap houses for new buyers, and towns and hugely increase auto use. Such suburbs are dying now, owners living there often MEWed out on the inflated values, higher cost of fuel to places of work.

Money for clean energy. Sounds nice but didn't one of the US QE granted solar companies recently fold with multi-millions disappearing into nothing, or some business persons bank accounts? Bridges? Stimulus spending on old world projects often overlooks and impedes new economic dynamic changes emerging in the markets; new revolutions of where the economy is changing, if markets are allowed to operate as they should, without authorities trying to protect dying ways of doing things. How about just waiting and allowing market participants s to find their own way of where the new growth will be. Perhaps in graphene associated developments revolutionising stuff, making the stimulus even more wasted.

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At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles.

Otherwise known as feeding the cadaver. Frankenstein economics from the new member of the Institute for New Economic Thinking (Inet).

The Institute for New Economic Thinking’s mission is to nurture a global community of next-generation economic leaders, to provoke new economic thinking, and to inspire the economics profession to engage the challenges of the 21st century

Turner's new economic thinking just seems so old hat.

Inet executive director Robert Johnson described Lord Turner as "one of the most brilliant and courageous economic and financial thinkers in the world today".

It doesn't say much for the other economic and financial thinkers in the world today does it.

Edited by billybong

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Is anyone surprised?

Who doesn't love the smell of free money.. The poor dream of the lottery or suing the pants off the rich.. The rich dream of getting as close to the qe money as possible.. We are heading for a crack up boom.. Cash into assets at every opportunity..Posterity will judge fools like Turner and King .. Like they care..

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Who doesn't love the smell of free money.. The poor dream of the lottery or suing the pants off the rich.. The rich dream of getting as close to the qe money as possible.. We are heading for a crack up boom.. Cash into assets at every opportunity..Posterity will judge fools like Turner and King .. Like they care..

The entire country is doing a Mick & Mairead. Their moral squalor and welfare-dependence is a microcosm of the nation.

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One of the US state Fed chiefs - Texas or San Franciscio or somewhere - said yesterday that QE has done its work and that by the Summer they will be able to start stopping it/tapering it down.

Whether you believe him or it is his opinion or whether it is smoke and mirrors who knows - it is impossible to second guess what is going on in the mind of Ben Bernanke.

I think it does not bode well for the UK that we are about to see a new BOE Chief arrive with a big helicopter.

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The entire country is doing a Mick & Mairead. Their moral squalor and welfare-dependence is a microcosm of the nation.

Which reminds me .... No one has commented on the elephant in the room on that story... They did it to gain custody of the children... But was it love for the children or love for the benefits associated with said children that made them want custody... !! I chalk that tragedy against the benefits system ..

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Which reminds me .... No one has commented on the elephant in the room on that story... They did it to gain custody of the children... But was it love for the children or love for the benefits associated with said children that made them want custody... !! I chalk that tragedy against the benefits system ..

Indeed - I think it was mentioned in the ITV documentary. What I don't understand is why this government has not limited child benefit and child tax credit to 2 children only. Yes, they spoke about it and there was uproar because it would affect those with loads of kids already. Howoever, just say first 2 children only from those born after 2012 and that would at least be a good start and get past the champagne socialists.

Edited by mikthe20

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One of the US state Fed chiefs - Texas or San Franciscio or somewhere - said yesterday that QE has done its work and that by the Summer they will be able to start stopping it/tapering it down.

Whether you believe him or it is his opinion or whether it is smoke and mirrors who knows - it is impossible to second guess what is going on in the mind of Ben Bernanke.

I think it does not bode well for the UK that we are about to see a new BOE Chief arrive with a big helicopter.

Slowing down the printers is quite different from destroying the printed money. The latter will never happen*.

* Except for the poor sods burning worthless notes to keep warm!

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...With nothing to print it against, soon the masses will lose confidence in it and perhaps people will opt for more tangible asset creation.

Many articles, HPC or mainstream trigger me to think "That's one more step into making this fiat money meaningless". The key point will be when the masses start asking "What exactly is the pound in my pocket, what does it mean when a £10 note says that it promises to pay me £10".

.....but then could this actually happen?

It is for me. I'm converting all my savings (~1.5x gross income) into real stuff.

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Many articles, HPC or mainstream trigger me to think "That's one more step into making this fiat money meaningless". The key point will be when the masses start asking "What exactly is the pound in my pocket, what does it mean when a £10 note says that it promises to pay me £10".

It is for me. I'm converting all my savings (~1.5x gross income) into real stuff.

I know how you feel, but that's a lot of 'stuff'. Unless you mean shiny yellow stuff.

I think we need a "Good 'stuff' to swap your fiat for" thread in the investment subforum....

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I know how you feel, but that's a lot of 'stuff'. Unless you mean shiny yellow stuff.

I think we need a "Good 'stuff' to swap your fiat for" thread in the investment subforum....

improvements to your home that enable energy self suffeciency

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improvements to your home that enable energy self suffeciency

That's a good one, but there is always the chance that technology will continue to improve and/or there will be a breakthrough which makes energy far cheaper.

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http://www.cnbc.com/id/100616800

Global central banks are accelerating mostly ineffective policies because they feel they have no choice but to keep trying, Pimco's Mohamed El-Erian told CNBC.

Monetary policy took market focus Thursday after the Bank of Japan said it would amp up its bond-buying program in an effort to stimulate growth that has not come despite two decades of similar effort.

But El-Erian, co-CEO of the firm that run's the world's biggest bond fund, said markets may have a hard time handling such aggressive measures.

"This is the most experimental we've ever seen central banking," he said during an interview on the "Squawk on the Street" program. "They are venturing deeper and deeper, using imperfect tools, and they're not getting the response they expect."

The BoJ measures resemble a similar program by the U.S. Federal Reserve, which has taken its balance sheet past $3 trillion as it has bought government debt in an effort to flood liquidity into the markets and reduce unemployment while stoking inflation.

Both central banks have met uneven success with their efforts. In the U.S., the stock market has zoomed higher, but the economy remains mired to weak growth.

"Rather than step back and ask why (the measures have not succeeded), they just go deeper and deeper," El-Erian said. "The question is, will they finally succeed in transitioning from assisted growth to real growth, or will it end in tears? I think that's a major uncertainty and the market doesn't quite understand just how binary this outcome is."

In the Fed's case, it has set a 6.5 percent unemployment target and 2.5 percent inflation rate before it will consider normalizing interest rates.

Yet the jobless rate remains elevated at 7.7 percent and inflation is below 2 percent, despite a tripling of the Fed balance sheet. El-Erian attributed the jobless issue in particular to structural problems that cannot be solved merely by injecting money into the economy.

Asked why Fed Chairman Ben Bernanke continues to push the idea that the asset program is working, El-Erian said, "He feels he has no choice."

"He feels he has to buy time for other agencies to address the structural issues," he added. "The question is, how much time is he going to buy, and how much collateral damage is he going to create in the process?"

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http://www.cnbc.com/id/100616800

Japan is wagering its future on a massive experiment by essentially doubling its monetary base, and Kyle Bass of Hayman Capital Management doesn't see it ending well.

The Bank of Japan's announcement Thursday of it's aggressive monetary policy—with roughly 140 trillion yen, or $1.46 trillion, on the line by the end of 2014—is meant to send a signal, Bass told CNBC's Squawk on the Street. "What [Prime Minister Shinzo] Abe and [new BOJ Gov. Haruhiko] Kuroda have done is formalized the announcement that the new sheriff is in town."

Bass is not reassured. "I think it's really important to appreciate the magnitude of the path they're embarking on," he said. "The Bank of Japan is buying assets at roughly 75 percent of the rate of the U.S. Fed, on an economy that's one-third the size of the U.S."

"What they're trying to do is materially devalue the currency, in order to become slightly more trade competitive, while attempting to hold their rates marketplace flat," Bass said. "The economists and central bankers believe they can live in that nirvana, and I believe that's not the case. I believe they will lose control of rates."

Bass said Japan's not the only one.

"There are economic zealots running many of the central banks, (for whom) if some isn't working more is better—because they only know one thing. ... Central Banks around the world are creating Potemkin villages that are very difficult to invest around."

Investors should be wary, he said. "It's really important not to be long yen or Japanese assets."

"If you're Japanese, you need to go spend all of the yen that you have, or take it out of your country and put it somewhere you're not going to suffer a massive depreciation in your purchasing power," Bass said. "And non-Japanese investors should borrow in yen and go buy productive assets in other countries that aren't as fiscally stretched."

The fiscal measures, he forecasts, are bound to disappoint. "When you have a declining population and a hollowed-out industry, you may get a bump in nominal GDP (from the monetary actions), but it's not the panacea everyone hopes it will be," he said.

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  • 243 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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