Friday, November 6, 2009

London Zimbabwe Weimar

Printing money is not the solution

"With another £40bn disappearing down the black hole known as the British Banking sector, the financial cost of the economic and banking collapse is now only rivaled by the two World Wars in it’s cost to the UK taxpayer"

Posted by mken @ 12:03 PM (1672 views)
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23 thoughts on “London Zimbabwe Weimar

  • ‘The fact the new money is being laundered back to the Government via the investment banks does not change the economic reality of this process: the Bank of England is financing the Government’s debt needs via printing money in the manner of the Weimar Republic and Zimbabwe.’

    Clearly put.

    Coincidence that the recently announced 25bn more QE covers the recent further bailout of RBS?

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  • something else that Labour has politicised, and then wrecked.

    Get gold.

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  • This is a poor article. Manifestly QE is not like Weimar or Zimbabwe (and money is not being printed). It concludes telling us the real problem is the bad debt. No kidding!

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  • mountain goat says:

    Thanks for posting, the charts hold useful info, like net selling of gilts by all except BoE. Not sure what the last chart means “average rate on a new mortgage taken out in the UK each month”?

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  • On the upside this latest QE will ensure next years bonuses in the casino banking sector.

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  • Okay then letthemfall, you tell us where the money that is not being printed but is still available is going, I suppose you know for sure do you ?

    What happens when the country has to survive without the extra stimulus ?

    QE is exactly like Weimar or Zimbabwe, if our economy could be fixed by simply injecting more money then we would be fine by now, we are not, and the financial day of reckoning is coming closer, and it does not look good for most of us.

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  • yes but they are printing money to offset private debt contraction.
    there will be no inflation if the rate at which money is printed does not exceed the rate of debt-deflation.
    all that is happening is that public debt is expanding whilst private debt contracts.
    provided there is some kind of balance between the two, inflation/deflation should not be an issue.
    and when private debt starts to expand again, if public debt gets paid down at the right rate, again inflation/deflation will be balanced.
    the problem is to achieve the balance. so far they’ve actually done a pretty good job given the enormous complexity of the problem and the vagaries of national statistics.
    of course this says nothing about whether they are correct in trying this. all i mean is that they are doing a pretty good job of delivering their chosen result.

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  • The QE money begins life in the BoE (numbers not notes), which is using most of it (as the article does make clear) to buy gilts. Much of the resultant money goes to the banks, who are supposed to lend it out, but rather seem to be keeping some in reserve and using the rest to buy assets, hence the recent rise in all asset prices (including property).

    Note that this money is not finding its way into general circulation to any extent, which it would have to do for anything like hyperinflation to occur. Furthermore, both Weimar and Zimbabwe had/have their economies wrecked.

    All this stuff can be found in the papers. I have no special source. The question of whether QE is actually working is up in the air; even the Bank doesn’t know.

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  • cynicalsoothsayer says:

    The public private offset justification is no more than an economic theory: arguably a smokescreen. Ultimately the government is spending money created by QE rather than borrow it.

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  • waitingfor hpc says:

    printing money devalues the pound in your pocket, as we in the uk import almost everything that puts prices up. that therefore puts inflation up.

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  • sneaker – if all they are doing is replacing debt that is no longer available, then how come the original debt did not cause inflation?

    Are you really suggesting that so long as the public spend money they don’t have before the government prints the money to replace then everything will be fine? That sounds naive to the absolute extreme.

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  • stillthinking says:

    In reality the government is spending the saved wealth of their own population, who don’t realise because they aren’t trying to spend, with the outcome of replacing that stolen wealth later through taxation/lower state provision against that same population. This maintains economic momentum. They are also not targeting inflation generally, they don’t want wage inflation spirals to develop and still many controls in place to hold down wages, immigrant workers being dominant, and are targeting specifically financial asset prices pushing them higher to lower yield so that investment that seeks a healthy return has only one choice, investment in the real economy.

    But is it going to work? No, basically because they can’t maintain low yields over a sufficiently long period of time, or even maintain expectations of low yields, they will run out of time. Maybe they can hold until the next election but even that looks doubtful. Also they are absolutely hamstrung by the UK property market which offers untaxed capital gains and is responsible IMO for stalling all desired investment. What are you going do, put your money in a startup company or wait until property prices drop? The restructuring required in the UK is absolutely HUGE, we have got possibly 20% of the workforce doing the WRONG job.

    Also in some ways it is an absolute lie to say that they have lowered yields anyway, they have just hidden yields in sterling devaluation. Who wants to invest in a country with a falling currency? Nobody, and which aspect of the economy has bottomed out?
    Housing? No.
    Unemployment. No.
    Demand. No.

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  • Much of the resultant money goes to the banks, who are supposed to lend it out, but rather seem to be keeping some in reserve and using the rest to buy assets, hence the recent rise in all asset prices (including property).

    and this is the mechanism that it uses it’s way into the wider economy. Sure the veliocity is limited at the monment, but just wait until it gathers momentum…..

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  • I was very interested watching question time last night to see immigration and race openly debated – it appears very clear to me that there has been a shift and social unrest is but a few years away. This government is trying to maintain the illusion that al is well but wealth is shifting from West to East and unfortunately I feel minority groups will be blamed (cheap immigrant labour) instead of a general acceptance of the new world.

    Printing money (QE) is part of that illusion – the government wishes that the UK will remain an economic giant – things will return to the norm, Chinese investors will want to fund our extravagant lifestyles again and buy gilts back off the BOE. The truth is that when or if demand picks backup this new money will remain in circulation as investors money goes East, i.e. inflation, or if as I fear demand does not pick back up the government will print us into oblivion.

    P.s. Russia is offering 10% on its debt and has oil – HMMMM gilts (no oil or gas) Russia (natural resources plenty)

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  • letthemfall – you said “…hence the recent rise in all asset prices (including property). Note that this money is not finding its way into general circulation to any extent…”

    It is indirectly. Sure banks aren’t giving out new loans to folk, but if those same people are happy spending because they feel safe because their house isn’t being allowed to deflate, then surely the net result is the same.

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  • timmy t
    Well, yes, to some extent that could be so. But it would seem that people are not spending enough to make a difference. I suppose this could all change but my feeling is that it won’t. The undercurrents seem to suggest that QE will slowly be withdrawn starting fairly soon. I find it hard to see how things will revert to normal, whatever that might mean, with all the debt still out there. What will happen? Long stagnation, growing inequality, continuing deterioration in society? Quite possibly. It’s all guesswork of course, but the future does not look too bright to me.

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  • letthemfall – couldn’t agree more – which is why I don’t think QE will end for some time… unfortunately.

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  • general congreve says:

    @16 – Yep, the future is going to be rubbish, that’s assured for the vast majority. But if you carefully pack your golden parachute now, you will most likely be in a position of greater wealth in the future and therefore ready to capitalise on the misery of the masses.

    It’ll be a case of gold/silver up, houses down. Trade at the right time for a better quality of life for you and your family and screw the over-indebted suckers whose lovely 5-bed you’ve just bought for a song.

    I got mine baby!

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  • tenyearstogetmymoneyback says:

    inbreda said @ 11

    “sneaker – if all they are doing is replacing debt that is no longer available, then how come the original debt did not cause inflation?”

    And what does the graph on the home page show.

    For years one of the great mysteries to me was who was funding the 125% mortgages that were pushing house prices up.
    It turns out that the country borrowed £700 billion off the international markets (Chinese etc). Now they are trying to replace it by printing money which is causing inflation of other goods. At work I had to place a repeat order for some French made connectors.
    It was surprising how much they had gone up in just 6 months presumably due to the plummeting pound.

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  • matt the hat @ 14 “it appears very clear to me that there has been a shift and social unrest is but a few years away”

    Are you saying unrest caused by financial or immigration?

    If it’s the latter, and again I emphasise that I have no time for the BNP, it will be the result of uncontrolled immigration under successive governments culminating in a tidal wave of migrants since 1997.

    I suspect that when the ruling elite tell us immigration is good they have only met educated and cultured individuals not the average inhabitant of certain areas of Dewsbury or Bradford who, and this is not anecdotal as I have experienced it at first hand, in some cases are illiterate in their own language.

    This together with the self imposed apartheid in the areas I mentioned in the last paragraph, is the recipe for a disaster which won’t touch those in power.

    I’ll now wait for the torrent of abuse from those living in Basingstoke, Tonbridge etc.

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  • Interesting article and it is as we knew…the only buyer of UK govnt. debt is the UK govnt. Now, can anyone find a graph like that for Japanese govnt. debt please because I would be interested to compare results for a profigate population with high personal debt to a country with (up to recently) a population of savers to see whether they take the weight.

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  • Mr. G…I agree entirely with you and my missus is Japanese…hence the question above. By the way, for the nutters, not one day has she claimed a penny off us white folk as she is quite gainfully employed, a graduate and fluent in English. Is that alright? Can we stay here now when the new order comes?

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  • On question time the other night, it was indicated that with the flows we have already had, and with current projections. We would need to new cities the size of Birmingham, every two years – that means all of the roads, services, shops, hospitals, jobs. Did Labour have a plan? No, it seems that they just left the door open. It is a way of crushing a populace. Just like the BBC reports that seem to detail every scurrilous local crime, they want to promote self-loathing and to devalue wages. Meanwhile they believe that they have made the world a better place (with other people’s money) by encouraging international wealth distribution.

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