Bank bailouts. Where's the money coming from?

[Anna B]

Call me stupid, but where are the billions coming from to bail out the banks?

 

Are they borrowing it from the banks?

 

And if we're just printing it, why can't we print the money, or some of it, to pay our debt?

[Chris_Sleeps]

And if we're just printing it, why can't we print the money, or some of it, to pay our debt?

I can't answer the first two, but printing money does not create more wealth. You have more capital to represent the same amount of wealth and that leads to inflation, and hyper-inflation when it goes really badly.

[LeMaquis]

Can I call you stu for short?

 

The Treasury intervenes in various ways.

 

See http://www.guardian.co.uk/politics/reality-check-with-polly-curtis/2011/sep/12/reality-check-banking-bailout

 

Governments don't print more money as that's inflationary. It would devalue money. The government could print enough to make everyone in the country a millionaire but it would lose most of its value and a bag of chips would cost thousands.

[donkey]

Can I call you stu for short?

 

The Treasury intervenes in various ways.

 

See http://www.guardian.co.uk/politics/reality-check-with-polly-curtis/2011/sep/12/reality-check-banking-bailout

 

Governments don't print more money as that's inflationary. It would devalue money. The government could print enough to make everyone in the country a millionaire but it would lose most of its value and a bag of chips would cost thousands.

 

But the Bank of England has printed hundreds of billions of new pounds (quantative easing) with government approval.

[donkey]

Call me stupid, but where are the billions coming from to bail out the banks?

 

 

http://www.bbc.co.uk/news/uk-politics-15611429

 

Suddenly we have £40 billion spare for the IMF. I wonder how people seeing their pensions erroded or those losing their jobs will feel on learning we aren't quite so broke after all.

[melthebell]

but it would lose most of its value and a bag of chips would cost thousands.

like zimbabwe

[Chris_Sleeps]

But the Bank of England has printed hundreds of billions of new pounds (quantative easing) with government approval.

Not quite. It puts it back into the market, basically purchases financial assets from the banks, to ease the pressure and get money moving again. It isn't giving it directly to the people, but just flooding the market. Think of it as a financial laxative.

[donkey]

Not quite. It puts it back into the market, basically purchases financial assets from the banks, to ease the pressure and get money moving again. It isn't giving it directly to the people, but just flooding the market. Think of it as a financial laxative.

 

So money tied up in assets is released into circulation without any money being taken out of circulation to pay for those assets, even though they have been sold, the end result being that (albeit indirectly) new money is being printed and released into the economy.

[epiphany]

Not quite. It puts it back into the market, basically purchases financial assets from the banks, to ease the pressure and get money moving again. It isn't giving it directly to the people, but just flooding the market. Think of it as a financial laxative.

 

Yet the banks still seem to be "constipated" in many respects.

[Chris_Sleeps]

So money tied up in assets is released into circulation, the end result being that (albeit indirectly) new money is being released into the economy.

It isn't far from printing money, I'll agree with that. There is debate to how much QE causes inflation, as far as I have read. I'm only new to economics.

 

Buying assets from the banks frees up the capital they had locked in those assets, so it isn't new money. If a bank has land worth £1m for example, then QE could unlock that money by buying the land and creating £1m capital in its place. I presume when the land goes back into the market the capital created will have to be deleted again, at a guess.