global financial crash yay!

[crackerjack]

Which of course blows wide open all the "experts" the wheel out on the news

Well, not all. But obviously the demands of the 24h rolling news cycle means there is an issue with self-styled experts, just as with blatant astroturf pressure groups like Taxpayers Alliance.

 

[Sectionfive]

The whole way through the bubble here every lunchtime you'd turn on the news and there would an expert from eh....an estate agents bigging things up. Never ever questioned or pulled up on things. Last week some gobshite was on telling us that Ireland will need to build an average of 30,000 new houses per year for the next 15 years to cope with its growing population.

This years census said there are 300,000 vacant house in the country, 1 in 4 in my neck of the woods.

Such is the demand for talking heads on telly people are coming back from the year 2005 to give us advice

 

[Sectionfive]

This is worth a read, quite interesting

http://www.metamute.org/en/content/debt_the_first_five_thousand_years

Anthropologist David Graeber argues that it is only with a general historical understanding of debt and its relationship to violence that we can begin to appreciate our emerging epoch

 

[IdleRich]

Yeah, interesting article but a lot of generalisations and no evidence for the causal links he sugests. To sum up the period 600 to 1500 ad as having a general worldwide trend towards an increase in credit money and link that with, well with anything really seems hugely simplistic.

 

[Sectionfive]

Yeah, now that you say it. Though it does say "What follows is a fragment of a much larger project"

More from Wall St

 

[IdleRich]

I keep reading people on comments boards saying "why does the government do quantitative easing by buying (worthless) assets from banks, couldn't they actually print money and give it to people instead?". I've not seen an answer to this question - anyone got an answer? I heard that the Australian government did something similar once, anyone know anything about that?

 

[Mr. Tea]

Forgive my being an economics ignoramus, but isn't it generally the case that simply printing money leads to runaway inflation? A given unit of currency is worth less than it was, so shops and services put their prices up, but then people no longer have enough money to afford the things they need, so the central bank prints money so people can be paid more, but no extra wealth has actually been created. So this has a devaluing effect on the currency, so it's worth less than it was, so prices go up...

Or are there (in theory, if not in practice) less naive ways of doing this, so as to avoid what happened to Germany in the 1920s?

 

[IdleRich]

Quantitative easing is effectively printing new money without the actual printing bit (the Bank of England creates it electronically and then buys stuff from the banks with it meaning that the banks have more money than they did before and it's money that previously didn't exist) so there seems to be (or has been at some points) some kind of consensus that it's ok up to a point. Though it is inflationary. My question is, given that this kind of consensus exists why should the money go to the banks rather than to people?
I'm not saying that creating new money is a good thing - I've absolutely no idea whether it is or not and I don't think that anyone else really has either - but if we're so set on doing it then why should it be done this way?

 

[Sectionfive]

I think Tea is otm.


http://www.breakingnews.ie/business...ve-easing-programme-523354.html#ixzz1a079R1WX

The Bank of England injected a further £75bn (€86bn) into the UK economy today in a bid to jump-start its flagging recovery.

Its Monetary Policy Committee (MPC) voted to boost its quantitative easing (QE) programme – effectively printing more cash – from £200bn to £275bn despite the risks it poses to the country’s inflation rate.

Meanwhile, it maintained interest rates at 0.5%.

The move – the first change to QE since November 2009 – offers the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.

The Bank of England said it boosted QE because ``tensions in the world economy threaten the UK recovery'' and the slack in the economy is likely to be ``greater and more persistent than previously expected''.

The decision was welcomed by business leaders who have called for help to stimulate the economy after figures revealed that Britain suffered a deeper recession and is recovering more slowly than first thought.

A report by the Bank into the effect of QE on the economy previously found that the stimulus measure provided a “significant” benefit to growth and helped GDP increase by around 1.5% and 2%. This was equivalent to dropping interest rates by between 1.5% and 3%, the Bank found.

 

[you]

ah good - so now they will have more electronic quid to spend on fictional bonds in short selling

 

[IdleRich]

"I think Tea is otm."

Well, up to a point, in that what he said may have been correct but it didn't address the question I was asking, which was - If we are going to create money, then why give it to the banks?

 

[baboon2004]

I dont' fully understand this, but:

"The central bank buys assets - usually financial assets such as government and corporate bonds - using money it has simply created out of thin air.

The institutions selling those assets (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply. "

So it doesn't have to be banks, but usually is....

http://news.bbc.co.uk/1/hi/business/7924506.stm

 

[Sectionfive]

I suppose the simple answer is the money is going to people alright but not 'the people'. The bullshit money has to go into the banks to prop all the bullshit up.

 

[computer_rock]

I suppose the simple answer is the money is going to people alright but not 'the people'. The bullshit money has to go into the banks to prop all the bullshit up.

Is this right?

Because it would explain why the banks need to be involved at all. I mean what's the difference between giving the banks money to lend to private businesses and the government just investing loads of money in public sector infrastructure or something? The former seems a more convoluted way of achieving what is essentially the same thing. I really want someone to explain to me why this isn't another massive neoliberal con.

 

[Sectionfive]

another massive neoliberal con.

This is exactly what it is. The Banks are bust.

Simply,

The big banks lent to every bank that would take it. ie Germany to Greece
Those banks lent to everyone that would take it. New cars, Dodgy mortgages
Millions of people that shouldn't have got near credit and couldn't repay, so neither the little banks or the big banks are getting their money back.

They all leant more then they had so everything from the few pennys in my account to millions belonging to some Swiss investor should be gone, but..

Governments step in, put money in the banks so everything appears rosy.

Big investors, other banks and "the markets" take that money before the shit hits the fan and the cycle goes round and round. Hence gold and other "safe" places to put your money rocketing because you can't leave it in the bank.


So rather then say training schemes or the govt investing in business start ups. The money goes to the banks because it's not about jobs or people, it's about propping up the bullshit, even if it's just long enough till your pension kicks in and you can pass to the next man and maybe they will confront the actual problem.

That is why nothing has changed since 2008.


That's very simple obviously but that's how I understand it.

 

[Sectionfive]

In the UK, Mervyn King has splashed out £75bn on our very own QE2, which as ocean-going liquidity vessels go is really more of a small tramp-steamer pulling an obese knackered economy behind it. It’s got close to nothing to do with the economy at large, really: just one, last despairing attempt to give our still-shaky banks an opportunity to make some money, hopefully to be spent on sandbags.

http://hat4uk.wordpress.com/2011/10...the-spotlight-offstage-sarkozy-dans-la-merde/

 

[vimothy]

I keep reading people on comments boards saying "why does the government do quantitative easing by buying (worthless) assets from banks, couldn't they actually print money and give it to people instead?". I've not seen an answer to this question - anyone got an answer? I heard that the Australian government did something similar once, anyone know anything about that?

This question is slightly confused in a couple of senses, which I will try to explain, but fundamentally the reason is that the central bank is not in the business of redistributing wealth, and that is what handing out newly printed money would amount to.

The Bank’s QE programme (known as the Asset Purchase Facility or APF) involves the purchase of long maturity high grade debt from the non-bank private sector. So, by design, the central bank is not buying worthless assets and it is not buying them from the banks. It is buying (long maturity) risk free assets (UK government debt), and it is buying them from the big institutional investors that hold them (like pension funds). (If you think about it, it’s obvious that banks are not going to be big lenders to the government, since banks want to earn a spread between their cost of funding and their customers, and the government‘s cost of funding is naturally very low.)

Because the Bank is purchasing assets rather than simply handing out cash (as any people assume), no one involved in the scheme gets any “free money”. Think of an imaginary investor who holds some quantity of gilts (i.e. UK government debt). Their balance sheet might have say £1mn gilts on the asset side and no liabilities, so their net worth is £1mn. The Bank of England then comes to them and buys half of the gilts. Now the investor’s balance sheet has £0.5mn gilts and a £0.5mn deposit at the bank.

So the investor’s net worth is unchanged. The difference is that now they hold an asset—the bank deposit—earning a very low return, which they will hopefully take and use to purchase another bond, which will help to pin down long-term interests rates, which is essentially the goal of QE.

As a rule, the Bank of England wants to leave everyone’s net worth unchanged as a first order effect whenever it carries out a monetary policy operation. It does this by 1, conducting monetary operations via the purchase and sale of assets (which it does every day in the gilt repo market), and 2, only ever purchasing high grade assets that will not make a loss.

Consider the case where the Bank buys crappy assets from some investor as part of its QE programme. Say that it over pays for them, and makes a loss when it tries to sell them bank to the market after the QE programme is unwound. Then the Bank will have to be recapitalised by the Treasury, i.e. by taxpayers, and this constitutes a direct redistribution of wealth from the taxpayer to the investor who sold the assets to the Bank originally.

One way to think of the difference between monetary and fiscal policy is like this. At any one time, the non-government sector holds some quantity of government liabilities. Call this its risk free portfolio, or portfolio of safe assets. This is the national debt, and consists of liabilities of the treasury (gilts of varying maturities, i.e. government debt) and liabilities of the central bank (mostly paper currency and bank reserves, i.e. central bank money). It is the job of fiscal policy to determine the size of this portfolio. And it is the job of monetary policy to determine the composition of this portfolio in terms of how it is split between central bank money and government debt.

 

[IdleRich]

OK, that explains part of what I was misunderstanding in the details perhaps - I had the impression that the government was paying over the odds for the assets but you are telling me that this is in fact not the case. They're paying market price (though obviously the offer) right?
But regarding the more general answer, yeah, the central bank isn't in the business of redistributing wealth - but it is (along with the government) in the business of managing the economy, presumably if that was best done by redistributing wealth and that was within its power then that is a step that could be taken? Maybe that's more of a philosophical question than a financial one but it's relevant because in the second part of the question I was asking -

I heard that the Australian government did something similar once, anyone know anything about that?

Suggests to me (unless I'm misinformed) that whether or not it's within the remit of the central bank it can in fact be done. The question is did it work?
In general what I'm getting at is that I keep reading commentators saying that this could be "targetted better" - does that necessitate a redistribution or are there other options that could be taken? If so what are they?

 

[vimothy]

The Bank pays competitive market prices for the assets, using a reverse double blind type auction bollox. Basically, investors make offers to the Bank and the Bank selects what it considers to be acceptable deals. You can read about the details at the Bank's website here, if you're interested.

One way to get a fiscal effect from monetary policy would be for the Bank to monetise govt debt directly, i.e. for the Bank to buy debt straight from the Treasury, hold it to maturity, and then transfer the principal back to the Treasury. The actual spending of the money would still be carried out by the govt but it would be spending funded by central bank money creation. Martin Wolff has been calling for this recently, IIRC.

Never heard of the Australian thing, so can't help with that, but it doesn't sound to me like the sort of thing a central bank would do.

 

[IdleRich]

Well it doesn't matter if it's the central bank or the government. I'm gonna try and find some information about what occurred but if it has been done it can be done again. My question is, what would the effects be?

"One way to get a fiscal effect from monetary policy would be for the Bank to monetise govt debt directly, i.e. for the Bank to buy debt straight from the Treasury, hold it to maturity, and then transfer the principal back to the Treasury. The actual spending of the money would still be carried out by the govt but it would be spending funded by central bank money creation. Martin Wolff has been calling for this recently, IIRC."

So cutting out the banks? I guess this would be more popular - but would it be better?