Thursday 9 July 2009

Bank of England can't see beyond more Quantitative Easing

Yes, that is what the Bank of England is likely to say today: print more money, the Government spending is the only thing keeping the economy alive.

This is an horrendous trap, see FT here, we have fallen into, now that the UK is existing on printed money for its government financing, it will be difficult to see how this can be stopped. The Bank of England may need to keep extending the 'window' and I have no idea where that will lead, but Zimbabwe is the worst option and Japan, with 20 years of sclerotic economic activity, is the other.

Many economists are now openly saying more stimulus is needed, what they are not saying is that the markets are seriously considering another September to November event like last year; that is the fear. Not so much a double dip a as tombstoning.

However, why are no alternatives being put forward by the Opposition? The need for stimulus is quite clear, even to me. Allowing the economy to collapse to make Austrian Economists and goldbugs happy is not the answer.

However, the stimulus could be provided by tax cuts and holidays; OK, VAT did not really work as it was too small and mixed with Christmaes in any event, but there are options on income, property and business taxes.

The net affect in the short term will be to increase public debt as with QE, the difference is the sector being stimulated is the private sector, not the non-producing (in a fiscal sense) public sector.

This is what the Tories should be recommending, they need to look into their own ideology to see solutions and not be blinded by the socialists decrying only the State can save us. The state is bankrupting our futures at a record rate; time to stop it.


Steven_L said...

So do you think the QE is primarily to hold interest rates down, to plug the fiscal deficit or to spark inflation?

People seem to disagree on this one.

Old BE said...

How about returning to my proposal of ages ago which is to send a cheque to every voter?

It could be a huge amount because we know that most of it will be used to pay down debts or repair savings rates. And people should know that it is a one off. Call it £10,000 per person. Some of that will end up being spent, some will avoid people going bust, some will go into bank accounts to increase the capital available in the system.

Mine might pay for a flight out of Dodge.

JDM said...

@Blue Eyes

I bloody wish!!

Hairy Arsed Bloke said...


Yeah, BA and the other airlines would do very well out of it.

James Higham said...

Talk to the BIS about it - they seem to ahve a finger in every pie now.

Eckersalld said...

@BE nice idea, but I'd have it as a one-shot credit card forcing people to spend.

Tax breaks would be nice, and not as a holiday - reduced businesses taxes with added incentives for those employing or training british workers might allow us to draw in investment at the expense of other nations.

Mick said...

easy - make export earnings tax-deductible.

Paul said...

I've always said (and not yet seen a really convincing argument to the contrary) that the UK and US are repeating the BoJ's mistakes almost to the letter.

The credit boom and bust look very similar to the Asian financial crisis, the proposed solutions ("QE" is very likely a crude translation of the Japanese term 量的金融緩和) look very similar and the best case scenarios look remarkably alike.

What is most depressing is that ever since western central bankers first came up with the bright idea to stoke the credit boom post 2001, they have point blank refused to believe that they were playing out scenes in a greek tragedy written and performed in Japan some time hence.

So we have sclerotic growth to look forward to, a lost generation (advice to current graduates amounts to "go abroad") and progressive deflation of asset prices (yes that means your overvalued house) and anaemic business investment.

That's what you get for not paying attention to others' mistakes, Mervyn King.

Saturn V said...

Put the QE money into a new bank. Just make one. Start up the Girobank. It will mean a bank without any toxic assets and just the QE costs which can be paid back from profits. Only HMG as the shareholder.
Just start again. should have done it with NR. Let it go bust. Depositors cash guaranteed, shareholders and investors isn't.

Anonymous said...

Did you see the story in the Telegraph today regarding UK Energy Crunch?
According to their figures, North Sea Oil generates 13% of corporation tax or 30 billion quid a year. As you know North Sea oil peaked in 1999, production is expected to fall to 40% of peak production by 2012. So we can add another 60 billion a year to our structural deficit.
Just when you thought things couldn't get any worse...Prepare to say goodbye to the welfare state.

roym said...

well, they're not increasing the amount which is one thing. merely chomping through the full 125bn.

I like what Mick and Saturn V said

CityUnslicker said...

yes, good comments. They have stalled until August; I am sure teh jittery markets have spooked them into thinking let's not rock the boat now.

Agree with comment re Japan; no other way out for us except a big inflation/£ devaluation. if it comes to it I would rather that than the Japanese experience. Plus as it hoves into view we all know what to do.

Anonymous said...

All that cash squeezed into the system and we still don't see any GDP growth. Even if we did see an improvement in GDP figures it would be entirely due to massive and rapid inflation of the money supply. So expect the job figures to keep on falling even when the BBC are crowing about "green-shoots" and "growth" and "improvements in trade figures". Squeeze enough printed cash into the system and the government's propaganda arm will have plenty to brag about, plenty of charts pointing upward. Sadly the charts shoiwng currency depreciation, inflation, employment will all reveal the worsening realities. The Tories really don't have to say much at all. The path we are on will lead to the inevitable unwinding of the economy back to the reality of ten wasted years.

guthrie said...

Cityunslicker - when the inflation/ £ devaluation hoves into view what do you do? Do you mean put your money into land or suchlike, or overthrow the gvt? I'm afraid I am not totally up to speed on what should be done to avoid being screwed over the next few years.

Anonymous said...

It appears you were wrong. BoE decided not to print more money, "For the now". However no doubt we are not our of the storm yet.