Wednesday, March 4, 2009

Maybe too much

Bank of England set to boost money supply as rates near zero

This article suggests that the amount of QE will be 100 billion. To put that in perspective, there are 20 million workers in the UK, everybody else is either a dependant or a state dependant. Thats 5000 per worker. I hope this is just talk to move the market, because that seems a bit too much for my liking. Maybe the intention is to trickle feed the money a bit at a time.

Posted by stillthinking @ 02:43 PM (4051 views)
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16 thoughts on “Maybe too much

  • ST why do you think too much? The sum is dwarfed by the credit contraction for example and it is just one example 20 million homes having gone from increasing 10% per annum to dropping 15% wiping out a potential credit pool of a trillion in just over a year with a lot more to come. Add to this the losses in the markets, investments halved in a year, pensions decimated, yeilds killed, business being liquidated.

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  • sold 2 rent 1 says:

    100 billion is just the start.
    Wait till the banks lend that out using the fractional reserve system.
    That’s trillions that will end up in commodities within a year.

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  • Alphabetzoo says:

    The banks won’t lend it. Velocity of circulation is close to zero so it’ll have no impact whatsoever (as Steve Keen as said). They’ll hoard it to try to rebuild their capital – they’re all INSOLVENT. We’re following Japan pretty much to the letter.

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  • alphabetzoo says:

    The banks won’t lend it. Velocity of circulation is close to zero so it’ll have no impact whatsoever (as Steve Keen as said). They’ll hoard it to try to rebuild their capital – they’re all INSOLVENT. We’re following Japan pretty much to the letter.

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  • but surely bellwether, the trillion you refer to never actually existed. It was, as you say, credit. It didn’t have an inflationary effect because it never existed. The fact that it (credit) is now no longer available just takes us to ground level, where the amount of money in circulation is equal to the amount of money in circulation (i.e. not plus a load of made up credit). The total wealth is equal to the total wealth (i.e. marked to market).

    Every single penny of credit is future earnings. It does not “exist” now, and it therefore “is” the bubble. Every penny of it.

    If every single penny of credit were removed, there would be no bubble. There would be sustainability. Affordability.

    We just need to learn that we cannot sell the earning power of future generations otherwise it leaves them in poverty.

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  • inbreda – the credit did have an inflationary effect. Just because the people spending would eventually have to pay it back, didn’t stop it being real at the time. It sure felt real to those folks who MEW’d and found endless tenners coming out the cashpoint. Retail demand increased and so therefore did prices.

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  • stillthinking says:

    If I go to the bank and borrow 200K and the seller gets 200K credited, then actually the only transfer that takes place is my payment of say 1K a month, so presumably the seller must spend 1K a month. Basically I work off the debt by providing something to the seller.
    So although the sums are large, they don’t result in so much additional spending. They are an agreement over time. In the case of above, it works out at 12K spending a year due to credit, pensioner to worker etc
    But the government are suggesting forcing 5K non-debt per worker in a very short period of time. This money isn’t debt, it just changes hands forever. The government have no idea when they can pull this money back through taxes, and we have no idea whether they will destroy this money later.
    So I think it is a lot. I am sure they won’t dump the whole amount immediately though, they will probably look at the patient during the “operation”.

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  • Affordablehousing says:

    Currently there are about 30 million, not 20 million as stated.
    Though there are about 20 million in full time employment, the rest are part time.

    All this money printing is going to do is devalue the pound, it’s already lost a good 20%
    in the last 12 months against most other currencies.
    The pound won’t be worth anything soon, not even in Britain.

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  • stillthinking says:

    Actually kind of as inbreda says, on having another look. If I have money in the bank, and I don’t spend it, that isn’t inflationary. Inflation only comes from excess demand against production, and when the Austrians say inflation is the expanse of credit they are just looking at the logical conclusion that all of that credit expansion will be spent eventually. Key part, eventually. Not necessarily now.
    If everybody spent their savings right now we would be fighting each other for bread, but they aren’t. A lot of debt, and a lot of savings, just sit on the books and don’t affect the real economy. Of course in the end yes.

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  • S2, big printing, inflation, money put into commodities, more inflation…. no one spending on unnecessary goods, those businesses going under, increased unemployment, prices of basics going up. Is this looking messy? Soylent Green?

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  • Stillthinking, “Inflation only comes from excess demand against production”
    What about sellers increasing prices simply because excess money provides a greed opportunity?

    “Austrians say inflation is the expanse of credit they are just looking at the logical conclusion that all of that credit expansion will be spent eventually”
    Surely prices will start increasing almost as soon as that extra starts to be spent – sellers testing resistance asap?

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  • mark wadsworth says:

    You’ve all beaten me to it.

    Money is not credit. It is credit that is collapsing, at the rate of £600 billion a year (if the house price bubble is the flipside of the credit bubble, then a 15% fall on a £4,000 trillion asset must wipe out £600 billion of ‘credit’) that’s 50% of UK GDP, give or take.

    For sure, a few people will spend that extra bit, but most will either stick it in the bank or use it to pay off mortgage or debts, which comes to much the same thing from the bank’s point of view. It’s all just numbers on bits of paper, we are following Japan.

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  • Sorry late back to this one. But a huge amount of “equity” was withdrawn – as mentioned before £275bn in the 6 years running up to 2008. Add to that the apparent profits from banks and house builders (but particularly banks) that cascaded onto the economy as a result of rising prices, or the increasing willingness of individuals to take on and spend othher forms of credit.

    This goes into reverse as property prices collapse, not just hundreds of billions not available to spend but hundreds of billions also conserved to meet themounting negative equity.

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  • ie not only did values rise and the implied credit but a great deal of the credit was transferred into currency and found its way into the economy – the vast expansion of money supply from this source cut off entirely

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  • stillthinking says:

    Actually I do mean too much in the inflationary sense. I think 5K being pumped in over a year, yes I think that could spill into excess demand. I don’t see that inflation is impossible. The Japanese never went that far, or that suddenly, and they always had the option to soak up excess yen. We can’t soak up sterling, with what? And the raising interest rates won’t affect money disconnected from debt, it will always be there.
    What happens after the money is gone? I don’t know. Maybe just another inflationary flare off like the late 2007 rate raising panic, then back to deflation again.
    Basically it is in itself lot of real (!) money, it isn’t a guarantee for a large amount, fingers crossed etc.

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  • “6. timmy t said…
    inbreda – the credit did have an inflationary effect. ”

    Yes – but it was a “false” inflationary effect. It was inflation over and above fair value. Removal of the credit will return us fair value. Just look at house prices. The credit blew up house prices to above reasonable value. Remove the credit and (not counting a retard glubberment that prints money) house prices will return to the level that they are supposed to be at. What is wrong with having prices at the right level? Why constantly try and keep things more expensive than they have to be?

    When was the last time we experienced deflation? Have we EVER experienced deflation? How long have we had inflation? Even at 5%, over an extended number of years, prices will have increased massively. And I mean increased beyond fair value. So what we actually NEED is some deflation, to get things back to where they were.

    I know this is an odd argument, but I am trying to highlight the absurdity of the situation that we are in. Since when did constantly rising prices becone the assumed equivalent of a growing economy?

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