Monday 14 September 2015

People's QE by the descendants of Mao

Her Majesty's Opposition now are led by two men who seriously think you can just print money and buy stuff with it.

No worries about the effects on gilts or inflation; or indeed on the concept of fiat money at all.

This idea by the way, is in reality copied from Communist China, who have been doing the same thing for the past decade or so. They do have lots of nice new cities and stuff, but they also have lots of pollution and corruption as well as a rather tricky economy.

Plus of course, China had consumers to come and consume all the new goodies and hoped that would help repaying some of the debt raised.

In the UK we have no such thing, private debts are high and public debts are high. There is not even a credible plan to pay off the desperate QE we had to do to avert a depression.

Of course, China does not care about the Capitalist system, the Communists just want power and control. We are starting to discover the consequences of this, but in the UK, where is the support for people who would end the way of life that we more of less gifted to the World?

It's a bizarre turn of events.


Lord Blagger said...

QE is the state lending itself money. 375 bn

That doesn't matter.

Pensions are the public being forced to lend their retirement income to the state.

The state now owes them 9,200 bn rising rapidly.

That does matter.

But that's what you get when you have a state running a socialist pension ponzi.

The Tories screwed up. Day one they should have put that debt on the books. Then they can blame labour for its legacy. Everyone should have got a personal statement with their share of the debt. Pro rata.

They didn't. Instead they carried on the fraud like Bernie Madoff.

andrew said...

Some people will support him.

Those who think they should given money
- not many

Those who think you (the undeserving rich) should give money to others (the deserving poor)
- quite a few and wide open to some blairite triangulation

Those who think it is stupid to make them pay
- students as more than half of them will not be paying off that loan under the current rules
(I have sympathy here)

It is not the 70s anymore and most will not fall for this.
- but dont forget about 5% of the population cannot read very well never mind maths and economics.

Lord Blagger said...

Those who think it is stupid to make them pay
- students as more than half of them will not be paying off that loan under the current rules
(I have sympathy here)


Then the education hasn't worked.

You're going to pay one way or another. Directly via student loans or indirectly via higher taxes.

Mind you the sympathy bit, its heads you lose, tails the state wins. Student loans and higher taxes.

If you can't see that, then your education has been particularly bad not teaching you a basic fact of life.

Steven_L said...

private debts are high and public debts are high

But after a big 'people's QE' induced devaluation in the £ and lots of price/wage inflation they'd be a lot smaller no?

Brad said...

That's the usual trick. SL

Once we've had a few years of 18% inflation. And the average price of a 1 bed, council flat in Hull is £2,567,000, our pathetic UK averages of £350k of mortgage and £25k of unsecured debts won't seem or be very much to worry about.

Lord Blagger said...

But there is around 10 trillion of state debt that is linked to inflation. That doesn't shrink when you have inflation.

That's the key myth that it can be solved with inflation. Fixed rate debt - yes. Inflation linked debt - no.

dearieme said...

Oh the inflation-lnked debt wouldn't matter: they'd just find some trick to redefine it away.

Comrades, our new definition of the inflation index is xyz, and the rules meant to inhibit us from such a trick were repealed at midnight last night.

Lord Blagger said...

For RPI, its absolutely clear. Redefine RPI and it will be treated a default.

So for the pensions, why do you think they changed to CPI? Correct, they can fiddle that to their hearts content. That cost the public 15% of their pensions.

But its going to be an even more overt default. e.g Raise retirement age. Each year its raised costs the public about 11K on average.

Electro-Kevin said...

Frankly I'm sick of pop stars and musicians being able to affect policy. They are a bigger threat at the moment than Corbyn.

In fact I think this:

The Cameron government is pro EU leftist. "We accepted all the immigrants because the people (Thompson, Oliver, Geldoff) told us clearly that they wanted it"

"We went to war with Russia to support EU expansionism but really did so in defence of rights for homosexuals. Elton John even told us we were right to do it."

Corbyn is a gift for the Tories.

It reprises the old Thatcher struggles and gives them new relevence - at a time when they couldn't be more up to their own armpits in gifting our country to every other bugger than than those entitled to it.

CityUnslicker said...

SL - I am with Lord Blagger, inflating away curretn deficit is possible, private debts is possible, but 50 year index linked gilts - not so much.

QE was a desperate measure to stave of the pure money destruction that 2008/9 wrought. I always worried, even in my posts then where I was one of the first in favour (to much opprobrium I recall), the the biggest downside was that the genie was out of the bottle; it was the real magic money tree so many crave.

Lord Blagger said...

inflating away curretn deficit is possible,

Deficit is taxation - spending. You can't inflate that away because spending is inflation linked.

What I suspect you mean is inflate away current fixed rate debt. You can do that. Not without consequences.

ILG - correct.

However, Gilts are just the borrowing. 10% of the debts.

There 1.5 trillion of gilts.

There is 9.2 trillion of pension debts with no assets. They are inflation linked. You cannot inflate your way out of thos.e

I dissagree about 2008/9. There was no money destruction. It's all still there. The reason is far simpler. No one was lending to the state and the state wanted to carry on spending. So they created it. Now they haven't a clue as to how to get rid of it.

Sebastian Weetabix said...

Dare I venture to suggest something? The minute the banks were in danger in 2008, the state was quite happy to print money to save them. That opened a door, didn't it? If the state can print money to save scumbag banksters, why can't it print money to build houses/hospitals/schools/full employment, etc?

If QE had never happened, and we'd let RBS et al go to the wall rather than socialise the massive losses, we'd be in better shape now. As it is the lefties do have a leg to stand on.

CityUnslicker said...

SW - can't disagree with that can we. But we would have an answer if instead of raising interst rates we were discussing unwinding QE. but we are not, the Bank of England do not even have a plan.

DJK said...

Re pensions: "The Tories screwed up. Day one they should have put that debt on the books." If you put the NPV of future liabilities 'on the books' then you should do the same to future income (taxes). It's not clear if the national debt would go up or down as a result. I suppose it depends on how creative you want to be. Employer pensions are a different matter as they are deferred salary --- already paid out --- that is being held in trust.

DJK said...

I quite like the sound of nationalising the railways. There are good precedents: TfL and East Coast when it was between franchise operators. Not to mention the fact that the railways as a whole now consume far more subsidy than they ever did in BR days.

Nationalise utilities? Well maybe, if we could get back the Victorian idea of municipal enterprise (Alderman Foodbotham etc.)

Nationalise the banks? Well they do get a huge implicit subsidy so the creation of a state owned utility banking system makes a lot of sense.

Really, what's not to like here? The Sunday Telegraph had a headline saying that Gove said that Corbyn would leave Britain's armed forces "toothless". But hasn't Dave done that already?

visceral said...

Funny thing is the QE genie is out the bottle, nothing can be done to stop it. Banker's QE, People's QE little difference.

CU: good luck unwinding it (QE) - that's a funny one - you should try stand up :-)

A FRB / debt based money system such as ours where 92%+ of "money" is bank credit the only thing underwriting the value is our own "sweat equity" - debt slavery if you prefer. Now that makes the power of money creation an awesome one, I am not sure if either private banks or government deserve that power.

Pandora's box has already been opened - too late. If money can be printed and the markets not react (or be rigged)- as has occured in the last 7 years then why not invest in infrastructure? No one is seriously contending that we've had functioning markets during this time are they? Price dicovery, rational markets, my ar**.

As with most Corbyn articles lots of heat and little light - and I don't even support the bloke.

MyI'veSaidItBeforeName said...

Corbyn is the result of the same impetus that brought UKIP to the fore - the 2008 crash and the continuing fuckup that masquerades as an economy since.

The people arent stupid. They might not understand the minutiae of economic policy or the utterings of the politicians or the wonkers but they know the economy is severely out of balance. They also know it cannot stay this way.

There is nothing surprising in this win or in the inevitable Labour landslide/massive increase (depending on the area, obviously) at the next by-election.

Wildgoose said...

Limited QE would have been fine, but we haven't had limited QE.

RBS was bankrupt. The Government should have declared as such, implying the shareholders and bond holders would lose everything. Having done that they should then have forcibly converted the bond holders into shareholders in a Debt-for-Equity swap, thereby instantly repairing the balance sheet. No taxpayer involvement required.

Electro-Kevin said...

DJK - The railways were nationalised in WW2.

Why ?

Because it was the most efficient way to run it during a time of crisis. As it happens privatisation was the best thing to happen to me.

Anonymous said...


You are mixing your Requirements: It was NOT the most efficient way to run the railways; it was the best way to achieve a given objective with the requirement that the marginal cost of failure was extreme [troops not arriving when/where needed].

CityUnslicker said...

Visceral - oh dear. That is woolly thinking. Whilst I can agree that QE can be used irresponsibly - hence my pointing at China to use a practical example.

What are you suggesting Vicceral then? The replacement of fiat money - really....wher ewould you go with that idea...back to Gold?

Or are you suggesting now it is a bit broken we break it completely just to see what happens...barking.

Electro-Kevin said...

Anon 19.37

It was also done at a lower cost than the private market could bear. Though admittedly, the railways were worn out through lack of re-investment by the end of the war.

Since privatisation subsidies to the railways have rocketed. Many of us said this was going to be expensive and it is no surprise to see it so.

When the stakes were so high nationalisation was the only option. It ensured that critical timings and delivery targets were met over a large network on a tight budget.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

... also - the nationalised railway could be relied upon to work in the national interest.

Whatever a privately run organisation may be (and I'm not a socialist by any stretch) companies run along those lines are not run patriotically unless it is profitable to do so - usually for purposes of marketing.

Lord Blagger said...

nationalised railway could be relied upon to work in the national interest.


Network rail is nationalised. Is it working in the national interest?

The 2014-15 accounts for Network rail are out.

Page 15

Managing interest and foreign
exchange risk
Network Rail manages its interest and foreign
exchange risk by using derivative financial
instruments (hedges). This is particularly
important for Network Rail because, for
example, a one per cent movement in
interest rates would cause at least £350m
of fluctuation in interest costs.
The group measures its hedges for
accounting purposes at their market value as
required by International Financial Reporting
Standards. A market value is determined by
comparing the original value of the hedges
against the current market rate.
We do not intend to trade these hedges,
but use them to minimise our financial risks.
As long as the hedges are economically
effective (ie, that they offset changes in
the cost of existing and/or future loans),
their value at any point in time should not
be a key focus when assessing the group’s
By qualifying to use hedge accounting rules
we match gains or losses in the market value
of hedges to fluctuations in the hedged item
(ie, the loans). These losses on debt and
derivatives valuations taken through the
income statement were £41m (£304m gain
in 2013/14). In addition, £942m of reduction
in the value of interest rate swaps, used to
control the cost of future borrowings, was
posted to the hedge reserve as statistically
effective cash flow hedges.

In other words, tehy are playing the market and lost 942 million pounds on trading.