Blimey: the Bank of England are printing money...

[WilfSell]

...Or quantitative easing as they call it.

We'll be inviting Berlusconi to run the NHS next. And paying 2 million pounds for bread.

Ho hum.

As long as they spend it on public works, I don't mind.

Do you think they could print a bit extra,i could do with a new car

I don't understand it

they are basically just buying STUFF off the banks and giving the banks more money

how does it work? What STUFF are they buying? Why doesn't anyone else want it?!

Can someone explain

fucking stupid.

oh, let's get people spending again! by punishing the only people who had money to spend: savers.

let's sacrifice the entire stability of the economy all to keep the artificially inflated housing market from doing what it needed to do a few years ago: correct itself.

this will end in tears, but not for the folks cocking it all up.

it's also beyond stupid to penalise what is basically a huge segment of the voting population: pensioners, as they were the savers, in order to boost the housing market.

why not just cut your losses and inviting David Cameron to move into No. 10 right now rather than beating about the bush?

I rememver a thread like this a while ago. Isn't it that the money will be worthless, just because you print off the money doesn't mean it is actually worth something?? I am very confused now!

Can you imagine - Style and Beauty is going to be filled with threads about the best-looking wheelbarrow to get, to carry your money (to buy bread) about in.

Maybe an Orla Kiehly shopper?

In a nutshell, we are so fucked.

that's right Stretch.

Worryingly, when I watch the news, I am reminded of this...

"Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. But, we have also run into a small inflation problem on account of the high level of leaf availability. Which means that I gather the current going rate has something like three major deciduous forests buying one ship's peanut. So, um, in order to obviate this problem and effectively revalue the leaf, we are about to embark on an extensive defoliation campaign, and um, burn down all the forests. I think that's a sensible move don't you? "

indeed.

I am finding many things from both hitchhikers and yes minister/prime minister coming to mind with alarming frequency atm.

How in hell is this actually supposed to help anything? It's just going to push prices up, surely?

They just haven't got a clue, and they've almost run out of options now we've basically abolished interest.

It's sort of like the Bank of England going to the school fete and buying a large stuffed poodle and 50 raffle tickets - because it all proceeds go to the school so it's the thought that counts???

what are they going to do with all these bonds and gilts and stuff?

The reasoning is that we are currently heading towards deflation, which is the opposite of inflation - ie prices start falling.

This sounds like a good thing, and it can be if it only goes on for a short time, but if it continues then you find that wages start falling too which can become a vicious circle as prices fall further as a result. When wages and prices fall over a sustained period the actual value of people's debts increases and makes it harder for people to pay them off, so people default on loans, stop spending so much, more people lose their jobs, prices fall further etc etc.

So the idea behind this is that if you increase the amount of money in the economy then prices start to rise again. Obviously, nobody wants them to rise too quickly as inflation then becomes a problem, so presumably it will be done cautiously.

That's my understanding anyway and I have no idea whether it will work. I think they tried something similar in Japan which has been crippled by prolonged deflation, and increasing the supply of money didn't help then. I think the idea is that by doing it now you prevent deflation taking hold which can be very difficult to get out of, just as inflation can be.

Does nobody in the Treasury have a History GCSE then? Weimar Republic anyone??

Oh great!

morningpaper: how it works is a little like this. All the banks are currently holding tens of billions of pounds of government and corporate bonds. Unfortunately, they have relatively little cash and that cash which they do have they're sitting on. If they could sell some of these bonds they could raise more cash and make this cash available for mortages, small business loans etc. thereby boosting the availability of credit in the UK market. The Bank of England steps in and offers to buy some of these bonds - say £10 billion from Barclays - it transfers £10 billion to Barclays and becomes the proud owner of some lovely second hand bonds and Barclays now has £10 billion extra cash to make available in credit. In order to find the £10 billion, the BoE effectively says "hmmm this account currently has a balance of 50p, I type a couple of extra digits and gosh now the balance reads £50 billion," and then transfer part of this new balance to Barclays - no big deal as after all, the vast majority of money only exists electronically.

In this case, this isn't simply printing money though - the of the £75 billion indicated that would be available, the first £50 billion will be backed by the issue of new treasury stock so this is being create in a very real way - only the residual £25 billion will be created out of nothing.

The risk of course, is of inflation, however, the BoE is clearly trying to weigh up warding off a cataclysmic recession in the short term with potentially higher inflation in the longer term (which we'll have more tools to tackle, particularly given where interest rates are at the moment!)

scuse the thicko (me)

but i presume they don't just hand it out on the streets - so how does one get hold of this money?

I don't think we get the money . I think it goes into the stupid banks to get them lending again, which I bet they don't do because they are in more shit than they are letting on. There was a good article in the guardian yesterday about how it won't work and the only way we can boost the economy is to give people the cash. It's a fucking mess.

Jut in case here.

Seriously though- nice posts cestlavie and daisymoosteiner - for about ten minutes I feel everything is very clear.

I think it sounds like the best option we have at the moment. Didn't it work for Japan in the early 2000s? (Genuine rather than rhetorical question).

Custy - I think the deal is that the govt buys assets like bonds (I don't really know what they are) off the banks with the "new" money. The banks then have more cash to lend the public. Therefore people will be able to get mortgages and loans more easily again.

Question to Wilf - why no public works spending? In our city we've got some lovely parks created during, and to offset, the 30s depression. I wouldn't mind getting my spade out (for money of course) to set up something similar for DSs great-grandchildren

Oooh that is interesting cestlavie - so is that why they've hammered interest rates so hard so they can start putting them up fairly soon to tackle the inflation that will occur when the banks chill out a bit?