Tuesday, 7 June 2011

IMF verdict saves FTSE, screws UK

I get most upset these days when looking at my trading portfolio, still 33% down on the year, sigh. However, yesterday's statement by the IMF on the UK Plan B did cheer me up. Not that only does it suggest growing interest in an already quite successful pop group, but also that Mr Market is to be inflated in a way that will not allow the balloon to pop.

This is because more quantitative easing is suggested as the answer to any slowdown in UK growth. Heaven forbid the market or price of assets may fall to reflect the new situation. Instead money is to be printed to 'keep the economy going.' From the reaction of the Government, they seem to be in agreement with the IMF.

So Plan B seems to me to be an idea where we will trade-off current fiscal austerity with by paying for it with future monetary austerity. We may get a nice balanced budget but end up with £400 billion of Quantitative Easing.

The problem with this is how do you sell off all of these Government bonds, even over time. Issuance will have to be so high that demand will be full and yields will have to rise substantially to make it attractive. Oh, dear, that means high interest rates for a long time.

Let's hope that the recovery is long and strong or else what the reality maybe is sclerotic growth in the UK for a decade or more.

At least the FTSE, pumped with QE money, will be able to hold its own or break new highs...

12 comments:

Blue Eyes said...

Tight fiscal, loose monetary seems like the only way to go. Or is there some clever alternative that nobody has mentioned yet?

Barnacle Bill said...

One could think of what both the Bernanke and Osborne are doing to their respective economies as being the pumpmen on one of those old air pumps that were used to supply helmeted divers with air.

They are committed to continue to pump or the diver (economy) dies.

We're doomed!

Dick the Prick said...

If George QE's he can fuck the fuck right off. It's a proper dangerous strategy and they have been quite canny so far. The right are already quariling - this is an Arnem decision with unforeseeable ramifications and one which I would definately advise against. Politics is not economics and should never be aggregated.

The Governor of the BoE has prooved himself to be a good lad. Why the fucking hellski they retained Gus O'Donell as head of the Civil Service baffles me.

CityUnslicker said...

BE - My query is why fight the recession every time. This is politics. After the financial disaster we have had you should expect a horrible recession or even depression, but fighting it off with constant QE (note I said QE would get to £350 billion when it started) we are stealing from the future in terms of forcing higher rates and restricted growth. Labour stole from teh future with excessive borrowing too.

At some point we have to man up and face the consequences of our actions.

Blue Eyes said...

But doesn't the IMF (and others) argue that letting the recession take its course will actually reduce long-term productivity, because inactive people don't learn new skills they forget old ones.

Also, the money doesn't just pump up asset prices, money invested in the stock market allows those companies to invest in their businesses.

Surely by diluting the existing money QE reduces debt not increases it?

Elby The Berserk said...

Can anyone explain to me just WHY we need permanent growth?

Sean said...

Send the debtors a voucher to pay the bills off and raise interest rates to 3%, everyone will be happy but cautious.

At some point we are going to have to gamble, until the euro is dealt with I dont see much opportunity to do just that.

Anonymous said...

We had ten fat years by increasing debt, it follows that we will have ten lean years paying off debt.

Demetrius said...

The very big problem is the scale of the monetary leakages from the UK via the Alternative and Illegal Economies. The more QE the bigger they are. They do nothing and could be even damaging to the UK real and Taxable economy.

Timbo614 said...

Harking back to inflation and the economy... have you seen the price increases from Scottish Power? I remember a conversation here not too long ago about energy prices increasing by 20% over the next decade. Well that's put that to bed.

[Timbo looks up latest prices of solar panels...hmmm more attractive every year!.] ITYS!

P.S. I thought there was a world-wide glut of cheap gas! Humpf!

Mr Ecks said...

QE reduces the fucking govts debt and screws everybody else. Maybe all you boys on here are so well-heeled that the cost of living doesn't bother you but lots out there are very squeezed-not to mention the energy price green rip-offs being carried by the plastic-faced boy, huhne and the rest of those scum calling themselves a govt.

Blue Eyes said...

Whereas an economic depression benefits who, exactly?