Thursday, 20 November 2008

Potential Radical Solutions; Suggestion 1

Yesterday we disclosed how the BOE has lost control of monetary policy. They only have the interest rate to control and this is meaningless in the face of LIBOR and CDS and the Bond market.

On Monday, whatever Darling and the media report, the Government will outline the loss of control of fiscal policy. perhaps with debt ballooning to 50% above target for the year.

As a result of the above the pound has sunk, now trading at £1.48 to the US Dollar and £1.20 to the Euro; Osborne's little saga apart there has been little public reaction to this.

When we then consider the issues facing us; deflation of asset values in all classes, capital inadequate banks, low savings, consumer over-indebtedness - we are in quite a pickle. it is very Japan circa 1990-91. They had a 10 year recession and their stock market is now 85% below its peak (=FTSE100 at 800, rather than 4000 as today).

But perhaps the BOE do have an answer. Print money now, deflation is setting in for the moment as global deleverage occurs - so the inflationary effect will actually be countered in the short-term. Plus inflation would then allow the BOE to raise interest rates back to levels which may enourage saving. Asset prices would be reduced in real terms and there would be more money to spend to stimulate the real economy. Also with no need to issue gilts, the government will not need to get into such financial hole as is currently planned.

In the US, The Fed Chairman Ben Bernanke has hinted at the US going down this road to avoid depression. The time to do it is now, in the deflationary window. If we wait until the deflationary period is over we could set-off hyper-inflation.

Thus there is a strong argument for printed monetary stimulus today. Comments?


roym said...

interesting, especially if it would reduce govt borrowings. whats the technical term for printing more money though?

Old BE said...

Hmm I have a funny feeling that this is exactly what I was proposing a while back - printing a relatively large sum say £10,000 per voter and sending a cheque. Most will be used to "deleverage" as City types call paying off debt, some will be spent, people will feel a bit more financially healthy.

The danger, as I see it, at the moment is that even with offical rates at zero many people will be deleveraging rather than borrowing or spending.

Anonymous said...

Yes please, I could do with another ten grand to get the S-Class serviced.

Steven_L said...

If Gordon send me a cheque for £10k I'm going to cash it at a pawnbrokers the morning it arrives, then change the cash into dollars, then go to the nearest airport where, providing I get there before midday, hopefully I should have enough to buy a one-way flight out of this mess.

patently said...

Interesting suggestion.

How would we work out the right amount to print? Could be a fine judgement call; too much and hyperinflation would be the icing on the cake.

At least someone is thinking laterally; Brown is just doing more of the same that got us into this whole mess.

Alan Dean said...

Funnily enough I was discussing exactly this with a friend of mine on Monday and I said that she should take note if she hears 'unsanitized' in a financial news report as it is the codeword for "We're just printing money now, like Zimbabwe, because it's the only option left to try".

Sackerson said...

Eric Janszen of iTulip, today:

"Why did the credit markets crash? The credit market is best understood as a transactions network. One node or set of nodes crashes, and in the process transmit the information that caused the crash to other nodes. Entire sections of the network crash and become inoperative while others continue to function, which explains why credit continues to flow almost normally in some credit markets that function as more or less autonomous sub-networks. However, eventually the entire network may fail, with only a few isolated sub-networks functioning, and large sections of the US economy will devolve into operating on a cash-only transaction basis as has occurred in other instances of credit market breakdown in other places in the world.

This was, by the way, why I supported the original stinky Paulson emergency bailout plan. [tk]. Not that I love Paulson or what he represents but after I interviewed Dr. Peter Warburton at the time (See Inside the Whirlpool: Interview with Dr. Peter Warburton $ubscription), who wrote the book on the flawed modern credit system in Debt And Delusion in 1999 and forecast this debacle years before anyone else, I realized that there was a moment when rebooting the first set of crashed credit system network nodes quickly might have prevented a systemic credit network failure. Paulson did not have time to put together an elegant plan or present it well, and Congress gagged and chattered while the network melted down those first few days. Might the $700 billion bailout have worked if immediately applied versus two weeks after proposed? We’ll never know. Now Paulson stands accused of bait and switch, when in fact months ago the time passed when the $700B emergency credit network reboot might have worked. Now he can either return the money and explain “too late” or keep it and try to use it for some other purpose. What would you do?"

Old BE said...

No, I think we just have to accept deflation and depression. Our recent prosperity was not based on productivity it was based on borrowed money. Somewhere along the line that money has to be repaid. Printing money is just another way of destroying thrift or as the City boys call it "moral hazard".

Anonymous said...

Printing money may be the only way out but it is fraught with severe hazard. The least is that the whole thing WILL cause hyperinflation, since the idea will be not to solve the underlying structural problems in the UK economy (i.e. to balance trade and balance government accounts) but to perform a paper right-off of existing debts by the back door so that further debt can then be created. It is not the printing of money that will cause the hyper-inflation (because it will only be a swap of cash for debt) but the supposition that paying off the debt will lead to yet more debt spending. If it were not to lead to debt spending we can assume that the government would have to then think in terms of printing excess cash to stimulate spending from savings -m then we would be in a real Zimbabwe situation.

The second, more serious, problem with printing money is that it could lead to a very severe loss of confidence in the pound such that international trade based in the currency became impossible. We would then need to trade items in a barter situation to pay for imports - oil for bread for instance, as Russia had to do after the last Rouble crisis.

It should be noted that the UK printed a lot of money between WWII and 1975 to right off its war debt - did terrible damage to the UK economy over the period but with debt at 250% of GDP and no-one coming to wright-off our debt (as as done for the losers - Japan and Germany) it was pretty much the only escape. It was done very slowoly over a period of 30 years in the hope no-one would notice. It screwed the £ as an international trading currency and left Germany with an open goal on export trade with no UK to compete against as the inflation led to industrial strife.

The fact that we are considering such options as printing money as possibilities is really terrifying. We need to keep our wits about us as individuals. The key to surviving hyperinflation is to see it coming and prepare. Watch out for controls on buying gold and foreign currency - often a precursor to massive money printing.

Mark Wadsworth said...

The whole thing is arbitrary and self-cancelling. At best you could achieve a random transfer of wealth from savers to borrowers, which is what they did by reducing interest rates to well below inflation (in itself self-cancelling - borrowers have more money to spend, which they will probably use for deleveraging; savers have less money to spend).

And even if the gummint were to physically print the money, this is matched by an equal and opposite liability assumed by the gummint - this effect would be most direct if people used the cash to buy government bonds or pay off tax liabilites, let's say.

I am all in favour of sensible tax cuts, but as Laffer pointed out, the best way to stimulate the economy is to promise future tax cuts, not to make one of payments unconnected to anything.

So, sensible tax cuts must be the way forward if we are to work ourselves out of the mess that we are in.

Anonymous said...

Can you explain:

You think now is the time to start the monetary printing presses cos we are moving into deflation. You suggest that no inflationary pressure wil result cos the demand for money has increased so much. So you launch your Money helicopter and start dropping it out the cockpit.

But eventually, as confidence returns, aggregate demand will pick up. What happens then? The excess money will still be in the system. Its not just going to vanish. So the demand for money will fall - cos confidence is returning - and people will spend all this extra money. Result? Chronic inflation. Maybe hyperfinlation. Monetary collapse. I dont even want to think about the social consequences of that situation.

Forgive me if I ignore your advice on this one and move on to sbdy with a plan which makes sense.

CityUnslicker said...

Thanks for all your comments. For all those who think I advocate this, this was kite flying!

We need better ideas than the Government or Oppostion have.

To the two anon's (great comments btw). I do not advocate printing money ad-infinitum. Money is needed now to replace the deflationary destruction we are seeing. My point was at this exact point there is a window where deliberately increasing future inflation in the face of deflation is possibly not insane. Then it would have to stop and interest rates rise to support the pound and savers.

How much should this stimulus be - well I am not close enough to the details but certainly not more than £100 billion in total - which in itself might be too much to sneak away.

The US will likely copy us too if it works, so affecting the dollar and giving us a first mover advantage as the world moves our way. Look how japan has been constrained by huge debt and a strong currency for the past 15 years.

Also, we may get hyperinflation anyway if we hold interest rates below negative for a few quarters. The current monetary and fiscal policy won't work for sure.

Anonymous said...

Yes, Stop Borrowing Money and take control of our own money supply instead of Borrowing it from the International Moneylenders who Own Brown, cameron, Major, Blair etc.!CB609AA4E892F479!121.entry

Anonymous said...

To Cityunslicker:

"Money is needed now to replace the deflationary destruction we are seeing."

Point is any money you print now would still be in the system when when consumer demand for goods and services picks up again and people's preference for holding cash falls and settles back tdown to more normal levels. Your proposal would, therefore, be inflationary. Maybe not today but in the future. We'd simply end up lurching from one economic crisis to another. To suggest that we can scientifically manage the situation to inject just the right amt of money to nudge us back into prosperity and not overshoot the "target" is wrong.

CityUnslicker said...

Anon - we will have to diasgree on this point. Anyway causing some inflation is what we need right now to avoid a deflationary tailspin.

Anonymous said...

aaaa片, 免費聊天, 咆哮小老鼠影片分享區, 金瓶梅影片, av女優王國, 78論壇, 女同聊天室, 熟女貼圖, 1069壞朋友論壇gay, 淫蕩少女總部, 日本情色派, 平水相逢, 黑澀會美眉無名, 網路小說免費看, 999東洋成人, 免費視訊聊天, 情色電影分享區, 9k躺伯虎聊天室, 傑克論壇, 日本女星杉本彩寫真, 自拍電影免費下載, a片論壇, 情色短片試看, 素人自拍寫真, 免費成人影音, 彩虹自拍, 小魔女貼影片, 自拍裸體寫真, 禿頭俱樂部, 環球av影音城, 學生色情聊天室, 視訊美女, 辣妹情色圖, 性感卡通美女圖片, 影音, 情色照片 做愛, hilive tv , 忘年之交聊天室, 制服美女, 性感辣妹, ut 女同聊天室, 淫蕩自拍, 處女貼圖貼片區, 聊天ukiss tw, 亞亞成人館, 777成人, 秋瓷炫裸體寫真, 淫蕩天使貼圖, 十八禁成人影音, 禁地論壇, 洪爺淫蕩自拍, 秘書自拍圖片,

做愛的漫畫圖片, 情色電影分享區, 做愛ㄉ影片, 丁字褲美女寫真, 色美眉, 自拍俱樂部首頁, 日本偷自拍圖片, 色情做愛影片, 情色貼圖區, 八國聯軍情色網, 免費線上a片, 淫蕩女孩自拍, 美國a片, 都都成人站, 色情自拍, 本土自拍照片, 熊貓貼圖區, 色情影片, 5278影片網, 脫星寫真圖片, 粉喵聊天室, 金瓶梅18, sex888影片分享區, 1007視訊, 雙贏論壇, 爆爆爽a片免費看, 天堂私服論壇, 情色電影下載, 成人短片, 麗的線上情色小遊戲, 情色動畫免費下載, 日本女優, 小說論壇, 777成人區, showlive影音聊天網, 聊天室尋夢園, 義大利女星寫真集, 韓國a片, 熟女人妻援交, 0204成人, 性感內衣模特兒, 影片, 情色卡通, 85cc免費影城85cc, 本土自拍照片, 成人漫畫區, 18禁, 情人節阿性,

Anonymous said...

情色電影, aio交友愛情館, 言情小說, 愛情小說, 色情A片, 情色論壇, 色情影片, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊美女, 視訊交友, ut聊天室, 視訊聊天, 免費視訊聊天室, a片下載, av片, A漫, av dvd, av成人網, 聊天室, 成人論壇, 本土自拍, 自拍, A片, 愛情公寓, 情色, 舊情人, 情色貼圖, 情色文學, 情色交友, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 色情遊戲, 情色視訊, 情色電影, aio交友愛情館, 色情a片, 一夜情, 辣妹視訊, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊, 視訊美女, 美女視訊, 視訊交友, 視訊聊天, 免費視訊聊天室, 情人視訊網, 影音視訊聊天室, 視訊交友90739, 成人影片, 成人交友,

免費A片, 本土自拍, AV女優, 美女視訊, 情色交友, 免費AV, 色情網站, 辣妹視訊, 美女交友, 色情影片, 成人影片, 成人網站, A片,H漫, 18成人, 成人圖片, 成人漫畫, 情色網, 日本A片, 免費A片下載, 性愛, 成人交友, 嘟嘟成人網, 成人電影, 成人, 成人貼圖, 成人小說, 成人文章, 成人圖片區, 免費成人影片, 成人遊戲, 微風成人, 愛情公寓, 情色, 情色貼圖, 情色文學, 做愛, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 寄情築園小遊戲, 色情遊戲, 情色視訊,

Anonymous said...

pA片,A片,A片,A片,A片,A片情趣商品,情趣用品,情趣用品,情趣,情趣,情趣用品,情趣商品,情趣用品,情趣,情趣,情趣用品,情趣商品,情趣用品,情趣,情趣,情趣用品,,情趣,情趣用品,情趣用品,情趣用品,情趣用品.情趣,情趣,情趣,情趣,視訊聊天室,情趣,情趣用品,情趣,情趣用品,情趣用品,情趣麻將,台灣彩卷,六合彩開獎號碼,運動彩卷,六合彩,遊戲,線上遊戲,cs online,搓麻將,矽谷麻將,明星三缺一, 橘子町,麻將大悶鍋,台客麻將,公博,game,,中華職棒,麗的線上小遊戲,國士無雙麻將,麻將館,賭博遊戲,威力彩,威力彩開獎號碼,龍龍運動網,史萊姆,史萊姆好玩遊戲,史萊姆第一個家,史萊姆好玩遊戲區,樂透彩開獎號碼,遊戲天堂,天堂,好玩遊戲,遊戲基地,無料遊戲王,好玩遊戲區,麻將遊戲,好玩遊戲區,小遊戲,電玩快打情趣用品,情趣,A片,AIO,AV,AV女優,A漫,免費A片,情色,情色貼圖,色情小說,情色文學,色情,寄情竹園小遊戲,色情遊戲,AIO交友愛情館,色情影片,情趣內衣,情趣睡衣,性感睡衣,情趣商品,微風成人,嘟嘟成人網,成人,18成人,成人影城,成人圖片,成人貼圖,成人圖片區,UT聊天室,聊天室,豆豆聊天室 ,哈啦聊天室,尋夢園聊天室,聊天室尋夢園,080苗栗人聊天室,080聊天室,視訊交友網,視訊借錢,黃金,黃金回收,黃金價格,黃金買賣,當舖,中古車,二手車A片,A片,成人網站,成人影片,色情,情色網,情色,AV,AV女優,成人影城,成人,色情A片,日本AV,免費成人影片,成人影片,SEX,免費A片,A片下載,免費A片下載,做愛,情色A片,色情影片,H漫,A漫,18成人,情色電影,自拍,成人電影a片,色情影片,情色電影,a片,色情,情色網,情色,av,av女優,成人影城,成人,色情a片,日本av,免費成人影片,成人影片,情色a片,sex,免費a片,a片下載,免費a片下載,成人網站,做愛,自拍A片,A片,A片下載,做愛,成人電影,18成人,日本A片,情色小說,情色電影,成人影城,自拍,情色論壇,成人論壇,情色貼圖,情色,免費A片,成人,成人光碟18成人,成人聊天室,成人電影,成人圖片,成人貼圖,成人圖片區,成人影片,成人文章,成人小說,微風成人區,成人交友,成人文學,成人漫畫,成人遊戲,免費成人影片 ,成人論壇,愛情公寓,情色,色情網站,情色A片,色情小說,情色文學