The emperor's new clothes

[breadandbutterfly]

Good article by Simon Jenkins on QE:

www.guardian.co.uk/commentisfree/2012/jul/12/qe-bankers-swindle-liquidity-crisis

Very good article, thanks for the link.

'If the government really wanted to inject cash into the economy, it would address the liquidity trap head-on. It would order the Bank of England to add, say, £1,000 to the current account of every adult citizen as a "people's bonus". Such an injection would not depend on Bank discretion. It would not await a government infrastructure project or a business wanting to invest. It would instantly transfuse between £30bn and £40bn of cash into the demand side of the economy.'

Exactly.

'Opposition to doing this seems to be not practical but moral.'

'The Bank of England monetary policy committee, the Vatican of QE'

Simon Jenkins is always interesting to read. Sometimes I think he talks nonsense, and sometimes I think he makes sense, but he is always thought provoking.

I often disagree with him but on this one I thought he was spot on. The ONLY impact I can see of QE on the real economy has been that bankers have gone on getting huge bonuses. But it's not helped ordinary people at all.

breadandbutterfly

I often disagree with him but on this one I thought he was spot on. The ONLY impact I can see of QE on the real economy has been that bankers have gone on getting huge bonuses. But it's not helped ordinary people at all.

'The bankers' have not 'gone on getting huge bonuses'. OH works for a bank in the City. The bonus has been deferred for 3 years, then divided in to sections, and is only paid in shares, which are, sadly, worth around 1/10th of their original value.

The biggest impact from the new rules on bonuses has been on ordinary staff in the bank, who are on salaries between £16k and 30k, and who would see a 15-25% lump sum around Christmas if the bank had performed well. That doesn't happen any more.

The question of the worth - or not - of QE is rather more complicated than either you - or Simon Jenkins - make out. Personally I'm unconvinced of its efficacy. But I don't subscribe to the ignorant Guardian stereotyping which has no bearing on reality (rather like everything that comes out of the Guardian).

flatpack-

Your post is entirely devoid of content.

The content shows up fine for me, so I don't think fog has a tech issue.

Do you need to check you connexion/device, or perhaps report the problem via site issues? Are there any other posts (this one perhaps?) where you have realised you cannot see the contents?

I admit to being out of my depth, but wouldn't giving money to people come under fiscal policy, being essentially a tax cut, and thus be outside the BoE remit?

Also, how would you stop people saving it or spending it on imported goods?

Yes, it would, adeu - but no reason why we have to rely on monetary policy, is there? Given it's blatantly not working and all.

Re the latter, I was thinking aout this today - vouchers that you could only use for Uk made goods for example...

I don't think vouchers for just UK goods would be legal under EU law. But even if tehy are imported or European goods, they are still sold in shops staffed by UK employees and keep those businesses profitable and keep those people in employment. It gets the money circulating in the economy and stops businesses shutting down.

Surely the problem with a gesture like the one that the article advocates would be the effect on inflation.
IMO It would be much better to use the QE money to build social housing thus investing in business but bypassing the banks. This would save the state twice over - once in the effect of a stimulus and later saving in payments to private landlords.

Agree, a state house building would be a good idea. It would create employment and housing. Everyone's a winner. Why not do it? no more need to "incentivise" the banks to lend to businesses and consumers.

Maybe as Simon Jenkins says the opposition to something like this is "moral", maybe it helps the people and not the bankers.

b+b - I suppose I was just pointing out that the central premise of the article - that the government could 'order the Bank of England to deposit £1000 into every adult's bank account' is not possible because it is fiscal and therefore outside the remit of the BoE. When people get fundamental facts wrong it makes me wonder what else might be wrong, maybe lots of things that I wasn't clever enough to notice.

Fair point, adeu, but don't think the point of the article was to suggest literal policy for the Bank to introduce, more just to question the accepted status quo. Given that QE failed so signally in japan, why is being used here on such a scale without any evidence it works?

Re building more social housing, I am 100% behind you there, but can't see the Tories ever taking it on as they all own lots of properties and make a killing renting them out - don't want any competition from the state lowering their profits! My MP owns 22 properties. Nuff said.

breadandbutterfly

Fair point, adeu, but don't think the point of the article was to suggest literal policy for the Bank to introduce, more just to question the accepted status quo. Given that QE failed so signally in japan, why is being used here on such a scale without any evidence it works?

It's been used because the Keynesian orthodoxy insists that spending is the way out of recession. This would work fine if the previous government had followed the other half of Keynesian thinking and accumulated a large surplus in the good time. However, being Labour, they didn't.

Cutting spending in a recession does work. It worked for Thatcher in the 79-81 recession. In 79-80 GDP fell very sharply, but by 82 it had worked its way back up and by 90 there had been a 25% rise in GDP.

Thatcher never tried QE. Which is what the article referred to in my OP was about.

The only country where it has been tried over a long period - and failed - is Japan.

Simon Jenkins is entirely correct.

If you want to stimulate spending by printing money - just do so and give it to people on low incomes who need it and will definitley spend it immediatley. Do not give it to banks which is what QE did.

The BoE printed lots of money and gave it to the banks who did not lend it on to people and businesses as expected. The problem is that although printing money increased money supply the velocity of that money circulating in the economy has kept on falling.

The money is literally piling up on the bank balance sheets and they will simply not lend it on at low rates to people and small businesses for fear that they will not get repaid. Indeed banks are raising mortgage and other lending rates to anyone but the very best credits.

The other problem is banks have too little capital so cannot afford to take any losses at all on new loans - hence they refuse to lend as they struggle with losse son existing loans which sit rotting on their balance sheet as toxic assets rather than written off.

breadandbutterfly

Thatcher never tried QE. Which is what the article referred to in my OP was about.

Indeed. She did quite the reverse, cutting spending during a recession. She was told by everyone except her Monetarists that it would never work but, to the shock of all the Keynesians, the UK bounced out of recession.They seem to have forgotten that lesson.

flatpackhamster - do you know what QE is and who does it?

You seem to be under the impression that QE = spending money and that it is done (only) by the left.

You're wrong on both counts.

Your post makes no sense. Could you go and look it up and come back and post when you know what you're talking about please? Feel free to Thatcher-worship, or discuss public spending, but could you please do it on relevant threads. Thanks.

breadandbutterfly

flatpackhamster - do you know what QE is and who does it?

You seem to be under the impression that QE = spending money and that it is done (only) by the left.

You're wrong on both counts.

Your post makes no sense. Could you go and look it up and come back and post when you know what you're talking about please? Feel free to Thatcher-worship, or discuss public spending, but could you please do it on relevant threads. Thanks.

Gosh, I'm sorry, I thought this thread was about you knowing the square root of fuck all about bankers bonuses. Maybe I'll take my big-picture view of money supply and fiscal policy to a thread where someone will understand it.

Ciao for now.

Er..this thread has nothing to do with bankers' bonuses either.

Did you actually read the OP at all, or do you just launch into a pre-prepared rant as soon as you click on the thread?

Please go, your 'contribution' won't really be missed. I'm sure your 'big-picture view of money supply and fiscal policy' will be extremely valuable if you feel like sharing it; your views on how great Thatcher is or bankers' bonuses however add about as much to this discussion as a great big