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When Will Quantitative Easing Be Announced?


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Guest Steve Cook
I did, but you argue either inflation or taxation.

I wouldnt think either is mutually exclusive.

If the Gman just tells the BoE to issue 1bn pounds to the treasury, then that is debt free, valueless money that needs no repayment or taxation to settle.

It is, as you say just an addition to the money supply.

This will of course either offset some of the black hole in bank credit we currently have, or go into circulation. I suspect it would be quickly hoarded into the banking system, filling the black hole after a short while in circulation

The Man will say, look that worked for a while, but we didnt print enough. They will do it again. This is what happened in the Weimar Hyperinflation.

I fail to see where tax comes into it, Im afraid, Steve.

I dont think tax will come into it

Simply that by increasing the money supply in the absence of either recouping it later through taxation or by relying on increased economic growth so as to give all of the new money a new home to go to, will result in a devalued curerency as more money chases a static, (at best) or diminishing (at worst) supply of goods and services.

For bigger, geological, reasons I don't believe that significant future growth is going to happen. In fact, quite the opposite. I also don't think that raised future taxes will happen either because there will not be the economic growth to suppoort it. So, we will get rampant, inflationary driven rises in the exchange rate of goods and services.

However, this rise in price of commodities is simply a repayment of the monetary debt by proxy since each and every holder of the currency will find that they have lost some of it in real terms

As I said, there aint no such thing as a free lunch. However, by virtue of monetary-supply manipulations, a government can dictate who exactly it is that pays for it.

Edited by Steve Cook
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luv your humour, Injin :lol:

Now, they print up £100,000,000 notes. What to they do with them? spend them, put them in CS paypackets, what?

Whatever they do they will end up in the banks.

nah.

in zimbabwe and other tinpot nutcase states it works like this -

Tax demandfor £xbn hits your doormat, with severe penalties attached. You shit yourself. A day or so later a government official comes in and offers you said billions (coincedntally in just the right amount) for something you own. In relief and full realisation you are now a full on slave you hand over the stuff, take the cash and bribe the taxman with it. Or you might see an advert in the paper working for some government agency for £xbn.

It's how it always worked but it's very in your face.

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Whenever things like this happens, people start to think it's a permanent condition. People like nobel price winner Paul krugman were writing about stagflation, peak oil, oil not going below 100 dollars as soon as a half year ago. Then he started to get into his theoretical world of deflation. Ben Bernanke was worried about a repeat of the 70-s stagflation as soon as 10, months ago, and not long ago one of his collagues from princeton said that you would have to be insane to worry about inflation.

The US have a totally different monetary regime than Japan. What japan did was to manipulate their currency through the 70-s and 80-s, somehow similar to the game china are playing now. That left japan, when their economy came crashing down, with a currency that suddenly could buy a hell lot more, at the same time as the world economy in general was in a cycle lasting from 1980-1998, with falling commodity prices, amplifying the problem. The US is not in that situation. They have inflated their currency so much that there is not that much left of it, however deleveraging, and panic, as money came home, caused the dollar to strenghten, even US goverment bonds, with yields to record lows. For it to have made any sense, oil should had been below 8 dollars, the level in 1998, when there also was a panic in government bonds.

The problem with government bonds is that they have been in a bubble since around 1992, when the first movies and books about the US being bankrupt showed up. First it was japan, from 92- to 2000, as japan tried to solve their problem with a strong currency, and deflation, and generally a weak economy, through buying US government bonds, keeping the US economy strong through artificially low interest rates, the YEN weak, and US consumer demand from Japanese exports strong. That way inflation was high, higher than in the 80-s and yields were lower. After the asian crisis, it looked as if treasury bonds could blow up, in 97 warren buffet even bought the largest stake of silver since the hunt brothers tried to corner the silver market, but at that time, mostly China stepped up as a buyer, and that game has been on since around 2000, with japan being a net seller of US government bonds for the last years. For Japan to issue help to the US, it's likely that the US will have to borrow in Yen, or some other foreign currency other than the dollar.

That kept US interest rates low even for another round of bubbles. All these bubbles are just symptoms of the larger treasury bubble, mainly caused by foreign central bank buying, creating an artificially low level of US interest rates.

bond-chart1.gif

When things loosen up as they are starting to do now, with t bonds dropping 7,6 % for each of the last two days, the dollar will get stronger, if fed does the sane thing, to raise rates, and if they do not, then inflation will take hold again, and the dollar will weaken, however if all countries in the world, is doing the same game, at the same time, we will not notice it that much, the weaker dollar, but inflation will come back.

Will there be a China now, or another country to step in as a buyer, when the panic fade, as it have done the last two days? If not? Will the fed print to keep rates down, or will they raise rates to attract buyers of debt?

This are the choice they will have to face in the end.

Edited by carseller
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I can also say why you should by stocks.

Look at berkshire hathaway, always a stable and good company of Warren Buffet.

http://finance.yahoo.com/echarts?s=BRK-B#c...ource=undefined

Where are we now?

At a point that is totally similar to the bottom in 1998/1999, or 10 years ago.

Why did not berkshire rally into march 2000?

Because money got sucked away from sensible and good investments into the dotcom bubble. I think history can repeat, making money going into some bubble, that will burst once the federal reserve finally tighten interest rates to kill inflation.

The bubble, is probably something related to inflation. I am not sure what the bubble that will take off is. But there is to much money out there. It have to find a home.

Edited by carseller
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I think they're unlikely to attempt quantitative easing due to the associated risks what they are more likely to do is highlighted here in Bernankes speech;

By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

You need to figure out how the US devalues the dollar by issuing threats, I believe this may be the answer,

Ka-Poom Theory since 1999 occupies a position outside this framework. It asserts that all of the money that the US needs to create monetary inflation that deflates both its external debts and domestic private debts already resides outside the US in the form of more than $13 trillion in gross external debt to the tune of 95% of GDP. Most of that debt is in the form of US treasury bonds. All the US has to do to devalue the dollar is induce its trade partners to sell, perhaps by indicating an intention to monetize debt without actually doing so, causing US creditors to sell some dollar denominated securities for assets not priced in dollars, resulting in an increase in the global supply of dollars. The effect is the same as the US printing money but without a corresponding issuance of new debt and the attendant risk of hyperinflation that Roubini refers to.

As the US learned years ago, why devalue your currency when you can get your creditors to do it for you? Nothing halts deflation like the inflation signals that issue forth from rising import prices. Has everyone already forgotten 2002 to 2006 when oil prices increased 300%? Since most US debt is held by central banks, the selling is unlikely to be disorderly. Why risk a runaway inflation if you can turn a knob and order a few percentage points of deflation fighting currency depreciation?

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  • 1 month later...

bump.

dunno who won the poll (I think "next month" is the winner), but the official date is today, that they started on friday..

Remarks at National Farmers’ Union Conference

Birmingham, 16 February 2009

http://www.bankofengland.co.uk/publication...9/speech375.pdf

"will purchase up to £50 billion worth of commercial paper, corporate bonds and similar securities,"

"The first purchase under this facility was made last Friday.

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  • 1 month later...

Always intersting to look back and see how right/wrong the collective were. In this poll most people were on the right lines with "Before April" or earlier.

Did the 29% who thought QE would never be announced think it would never be done, or just that it would be done secretly, I wonder....

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