Sunday, April 11, 2010

Fairy dust wealth

The country's renewal is being betrayed by cheap, paltry politics

"Quantitative easing has become the most flagrantly regressive public policy intervention in modern times. It has enriched the wealthy further by putting a floor under especially high-priced property, boosted share prices and done nothing for small- and medium-sized business."

Posted by letthemfall @ 01:50 PM (1663 views)
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11 thoughts on “Fairy dust wealth

  • The article states ‘What actually happened is that quantitative easing cash is going where cash has gone over the last 20 years – to support property and share prices – because that is what the UK financial system is set up to do.’.
    What is the evidence for this and surely there should be some sort of fraud or inquiry about this if it’s true? Ultimately I would like to know who has decided where the money went and whether there is a political aspect to it. A person or group of people who have control over 200bn should surely be monitored and held accountable.

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  • And I want to know what the low price chickens of the title have to do with it!

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  • Miken,

    Here’s how it worked. The banks had a bunch of IOUs (from their mortgage borrowers, from companies, etc.). In normal pre-crunch times, the backs could swap these IOUs with other banks or sell them to investors (savers, pension funds, insurance funds, etc.). Basically they were liquid and as good as cash.

    However rising fear of default led to the value of those IOUs falling rapidly, and the banks risked going bust. So the BoE offered to exchange those smelly IOUs for freshly minted cash. The banks can lend out that money, which they did: they lent it out to home-buyers and to big companies. Hence house prices and share prices have stayed firm (even recovered) while Sterling plummeted like a stone.

    The winners were people who own houses and shares, and companies in debt. The more property or shares they owned, the more they gained. The more indebted they were, the more they gained.
    The losers were people and companies with savings in cash or bonds. That includes pension funds, who invest more of your money in bonds as your pensionable age approaches.

    It wasn’t specific individuals or specific properties or shares which gained; but all of them (though especially London property). It was a political decision taken to prevent house prices from falling.

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  • Hi Drewster, a lot of comments on this site just after at that time were about how the banks had all of this money but were not actually lending it and that the government seemed duped: banks had money enough to prevent a run on the banks but they were not using it to lend to house buyers: banks seemed to rule the roost.

    What is your view on this?

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  • tenant super says:

    Drewster @ 3… so right.

    Even though we (my other half and I own our homes) have to some extent benefited, we have lost as we wish to upsize and my world of things that matter extend to my younger brothers and the children I may have. This is why the “we’re all in this together” spiel from the government and the opposition makes me laugh. I am not ‘in this’ at all. I did not want rampant HPI . I did not borrow mountains of easy credit. So there is no more “we”. Those who engineered this are my enemy. Warfare such as maximising ones tax credit position or even tax evasion (which sadly isn’t really available to those of us on PAYE) are, in my opinion, valid instruments in this war.

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  • @3 drewster…nicely summed up.

    This crisis of confidence by Will Hutton is nothing unusual – the country has been in decline for about the last 100 years or so, and every few years we are reminded of the long term problem. i.e. what the hell is everyone going to do? Our industrial base has just shrunk even further while the smart money has been spent on houses, pointless financial derivatives etc.
    People are very resilient. They’ll think of something.

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  • Andrew Barry says:

    My company has just finished spending some Fiscal Easing money. Being a private company with a government agency contract we don’t sit around all day waiting for something to do, as in the public sector. On the contrary every hour is planned ahead. So when we are given £80M to spend in a few months we have to borrow staff from other offices and take on short term subcontractors. We did the work and now, with a correspondingly lower budget for the next 2 years, we not only had to let the temporary staff go, but 10% of our full time staff too. Where’s the stability for those people?

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  • mdmick,

    The situation you describe happened in America, but not in the UK.

    America’s boom and bust was different to the UK’s. Their bubble burst earlier and more vigorously, so the population learned that borrowing to buy assets isn’t a one-way bet. There has been an incredible shift in mindset; the American people are now more frugal and are learning to live within their means. This shift in attitude simply hasn’t happened in Britain – although there has been some improvement in savings habits, people are largely still borrowing and spending as before.

    Unlike America, two of our four big banks have effectively been nationalised. That must make quite a difference too….

    tenant super,

    We could learn a few lessons in tax-dodging from the Greeks. Apparently they still pay for nearly everything in cash.

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  • mark wadsworth says:

    Well there’s a surprise.

    Will Hutton is actually a state-funded cheerleader for the government and normally talks and writes absolute tosh, but there’s not much in that article I could disagree with.

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  • ZOMG Will Hutton talking sense, in a succinct and zesty manner!

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  • letthemfall says:

    Will Hutton works for the Work Foundation, an independent charity, which is not state-funded. Whether he talks tosh depends on your point of view. My view is that his tosh is rather more tolerable and sensible than other tosh from certain political parties.

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