QE for the people?

[unbeliever]

It can work it's way down to M1 really - it doesnt matter. Let's say the BoE generates a pile of cash, buys a gilt from a bank, lets be in character and call it Plunder and Flee.

 

The BoE eventually wants to destroy that money. It really doesnt care how. Now if Plunder and Flee (PaF) are going to be responsible it gets lent to a company taht uses it to grow it's operations, takes on mre staff, sells more etc... all that good stuff .

 

So the economy ticks along nicely, and then the BoE goes to PaF and redeems it's gilt. PaF knowing the gilt is coming due, will have the cash, it pays the BoE all gone. Money has vanished after doing it's job.

 

Say PaF lends it to Dodgy Doors Ltd who instead of buying Better Doors like they said, pay the directors a fat bonus. That's in M1 supply. But we can destroy it. Easy. Dodgy Doors gets it's loan called in by PaF - and they have no money. Ooops. They go bust. PaF don't have the money. So if the BoE want to get the money back - they just force PaF into bankruptcy.

 

Now you understand why Lehmann Bros was shot dead. Why Northern Rock died a death..... Pour encourager les autres..... You will lend responsibly Or Else..... Make no bones about it - when QE is running any bank that plunders it and flees with the proceeds will be cast to wolves. The BoE wants it's QE money destroying and it doesn't care how it's done....

 

None of this money gets as far as M0. Also none if it is "given" as a freebie into M1. That would be disastrous - hows the BoE going to get that back? 300 billion that four times the total circulating phsyical currency.... and JC wants to drop that into the economy?

 

Massive inflation - because you cannot get it back. I mean you could get it back once youve given it out - but people haven't budgeted for that. I mean no one would expect them to demand it back. you could demand it back - you could impose a flat rate one off tax to claw the money back.

 

We could call it a Poll Tax.

 

I'm sure there would be no problems and people would just pay up.

 

What QE is is a way to let banks continue to lend, without violating the fractional reserve requirements. Basically instead of the ordinary lenders underwriting the banks reserves with deposits, the BoE does it with it's broad shoulders. But those shoulders have to be withdrawn, and that time is coming.

 

JC doesn't understand this (there is a good reason why politicians study economics....) and for sure his financial advisers don't appear to understand it either. To dump cash into the economy without regard for getting it back is sheer lunacy.

 

I would largely agree, except that if there is bankruptcy, you only get part of the money back. Still with the QE that we've had so far, I would be surprised if the BoE would have any trouble getting over 90%.

[Obelix]

The BoE dont want the money back - they want it destroyed. If they redeem the gilt - they get money back which they flush down the loo in essence. If Pluder and Flee go bust, then the BoE are still happy as they money has gone anyway.

 

What they don't want to be doing is bailing out failed banks any more as they then have to create money they give away and thats far tricker to get rid of....

[unbeliever]

The BoE dont want the money back - they want it destroyed. If they redeem the gilt - they get money back which they flush down the loo in essence. If Pluder and Flee go bust, then the BoE are still happy as they money has gone anyway.

 

What they don't want to be doing is bailing out failed banks any more as they then have to create money they give away and thats far tricker to get rid of....

 

I'm not convinced that the money is truly gone in the case of bankruptcy. The commercial have lost it, but it still exists. Probably not a big enough problem to be inflationary, but I still think an imperfection.

 

Has any of this deQE taken place yet?

 

What do we do about the state bonds held by the BoE? I was assuming they'd just write them off rather than rolling them over.

 

---------- Post added 17-08-2015 at 12:52 ----------

 

Is it possible that Corbyn intends to deliberately inflate away the state debt?

It's not a new trick, but it's very damaging to individual living standards and to the wider economy.

I can't think why else he would suggest such daft ideas.

Edited August 17, 2015 by unbeliever

[apelike]

Money invested in the stock market is ultimately going to business which produce things. If the money is invested wisely, as it is a little more often than not, then it grows. The businesses which are invested in create more jobs and/or are able to pay their employees better. These are good things.

 

Sorry I don't agree, the stock market is one area that needs to change.

 

What you say was originally how and why the stock market was set up but only really applies now to new businesses that are floated. The majority that trade are established businesses worth £millions/billions that are already very successful. Amazon and Apple are very successful and make great profits but dont create many new jobs or pay their workforce better. In fact some also try and avoid paying tax.

 

Although not the stock exchange you also have the people who trade on the futures market. That can affect prices that the person on the street has to pay and that is the gambling side.

 

A great deal of profit made on stock markets is because of speculation by investors on shares that pay dividends.

 

I did read recently about the billionaire George Soros;

 

http://www.bbc.co.uk/news/business-33951453

 

He speculated against the pound in 1992 and helped its collapse and at the same time made £millions and possibly billions.

[unbeliever]

Sorry I don't agree, the stock market is one area that needs to change.

 

What you say was originally how and why the stock market was set up but only really applies now to new businesses that are floated. The majority that trade are established businesses worth £millions/billions that are already very successful. Amazon and Apple are very successful and make great profits but dont create many new jobs or pay their workforce better. In fact some also try and avoid paying tax.

 

Although not the stock exchange you also have the people who trade on the futures market. That can affect prices that the person on the street has to pay and that is the gambling side.

 

A great deal of profit made on stock markets is because of speculation by investors on shares that pay dividends.

 

I did read recently about the billionaire George Soros;

 

http://www.bbc.co.uk/news/business-33951453

 

He speculated against the pound in 1992 and helped its collapse and at the same time made £millions and possibly billions.

 

 

It's all making money for the economy which ultimately makes everybody better off. The pound collapsed because of the ERM. Don't be overly cross with speculators who saw it coming. It's not like nobody told the government that it was going to happen.

 

Amazon and particularly Apple employ an awful lot of people.

What is it you think they spend invested money on if not growing their businesses?

 

What reforms do you suggest?

[El Cid]

What is it you think they spend invested money on if not growing their businesses?

 

 

For businesses to grow, they need educated people, with somewhere to live; isnt that what JC wants to spend this QE money.

[unbeliever]

For businesses to grow, they need educated people, with somewhere to live; isnt that what JC wants to spend this QE money.

 

That's what tax money is for.

QE has to be used with great caution under controlled conditions, or it just creates inflation.

 

Corbyn wants to do what all Labour politicians want to do. Increase public spending without appearing to increase taxes.

Brown's trick was to borrow. So your taxes don't appear to go up until 10 years or so later when you have to pay it back. But by then somebody else is in government and you can pretend it's their fault.

Corbyn wants to spend more money, and the borrowing model is discredited. So he's proposing to print the extra money. Sure public spending will go up and taxes will stay down, but then you'll get inflation so everything will be more expensive. What's the good in having twice as much money if everything is twice as expensive. It's a conjuring trick.

Edited August 17, 2015 by unbeliever

[El Cid]

That's what tax money is for.

QE has to be used with great caution under controlled conditions, or it just creates inflation.

 

We have not met our inflation target of 2% for quite some time.

[unbeliever]

We have not met our inflation target of 2% for quite some time.

 

Uk inflation is 0%. How's that not meeting the target of <2%.

[El Cid]

Uk inflation is 0%. How's that not meeting the target of <2%.

 

The target is not 2% or lower, it is 2%, some inflation is deemed to be a positive thing.