austerity and quantitive easing

[Kizmet]

Next is what should be done now - govt spends the money directly rather than giving it to banks. I don't see how they will have any other option in the end, but it goes against what the Tories say they stand for, so they're likely to resist it.

Isn't that what osbourne was on about with government buying bonds in small businesses? Was it osbourne.. I forget.

 

[ViolentPanda]

I've just read the BOE leaflet on QE. They state that QE is primarily an inflation control tool.

As I understand it the Eurozone problems are economic in the sense that every bailout in Greece has failed and another is now needed, Spain and Italy are about to tailspin and German and French banks are going to be hammered by the markets as they are seen as the most exposed by these events. It's also political because no government can control global capital and in that sense that the political class has gone into paralysis about what to do about it.

Semi-paralysis. At least insofar as if they'd decided to spend all the money they've ended up spending back when the "Eurokrise" first manifested, slammed it into a fund that the weaker member states could draw from, things would probably have gone better than the peicemeal "bailout followed by bailout" that has come to pass. That said, what politician is going to risk his place at the high table by saying "look chaps, rather than eke out the dosh and hope for the best, let's put a load of the money given to us by our taxpayers into a massive Eurozone-wide loan fund!"?

 

[ViolentPanda]

The Guardian is running a QE blog now and 2 economists on there have said exactly that - instead of giving the money to banks etc give it to the 'real economy' i.e. us as we won't save it or use it to speculate overseas, we'll spend it!

However there are others saying Bush tried this in the US and it failed.

Bush's govt gave it as a tax concession, so people only really "had" the money when they did their annual tax paperwork and were about (IIRC) $500 better off in terms of their tax liability.

I suspect that the only real way to stimulate the economy across the board would be to issue everyone with a cashable voucher/cheque/bank credit for a fixed sum. That way, at least some of the money would feed back into the economy, even though I suspect that a lot of it would be spent on essentials such as fuel and utilities.

 

[Kizmet]

Or cap prices.

 

[ItWillNeverWork]

I suspect that the only real way to stimulate the economy across the board would be to issue everyone with a cashable voucher/cheque/bank credit for a fixed sum. That way, at least some of the money would feed back into the economy, even though I suspect that a lot of it would be spent on essentials such as fuel and utilities.

I think any left over after spending on essentials would go to paying off debt. What's needed is direct spending by the government on infrastructure etc. We need a Roosevelt.

 

[Kizmet]

We need a government that's good at making money not one good at saving it.

 

[agricola]

We need a government that's good at making money not one good at saving it.

The problem is that this government isnt good at making money or saving it - spending is up when compared with last year, and for all the cuts they are continuing to do much the same things (PFI, expensive capital projects like HS2, "market-based" reforms* across government etc), making no savings and leaving the country still in the shit as a result.

* which should really be even more discredited than QE is, given how universally shite they have been

 

[ViolentPanda]

I think any left over after spending on essentials would go to paying off debt. What's needed is direct spending by the government on infrastructure etc. We need a Roosevelt.

We need a Franklin Delano Roosevelt though, not a Theodore Roosevelt!

 

[ItWillNeverWork]

We need a Franklin Delano Roosevelt though, not a Theodore Roosevelt!

From Wikipedia

In 1886 he [T. Roosevelt] said: "I don't go so far as to think that the only good Indians are dead Indians, but I believe nine out of ten are, and I shouldn't like to inquire too closely into the case of the tenth." He later became much more favorable.

Starting in 1907 eugenicists in many States started the forced sterilization of the sick, unemployed, poor, criminals, prostitutes, and the disabled. Roosevelt said in 1914: "I wish very much that the wrong people could be prevented entirely from breeding; and when the evil nature of these people is sufficiently flagrant, this should be done. Criminals should be sterilized and feeble-minded persons forbidden to leave offspring behind them."

A charming man I'm sure.

 

[elbows]

When this has been tried people have tended to use the money to pay off existing debt or put it into savings. In both cases not helping. However, it can be done (Singapore, I think) by issuing time limited vouchers for consumer goods.

And we did something a bit similar in the UK not so long ago with the temporary VAT cut (which was largely treated with indifference on this forum if I remember correctly) and also there was that scheme for people to get something if they bought a new car but I forgot the details of that one, although I seem to remember that it did actually stimulate things in that sector for a while.

Anyway I like this thread, it is very helpful and informative, amazing how quickly some of these concepts I first learnt about a few years ago had already gone rusty in my brain, and this is a bloody good refresh.

 

[elbows]

Michael Saunders, UK economist at Citi, said the deteriorating outlook for the economy would require the Bank to "do QE on a very big scale". He added: "We expect the cumulative total of QE (now heading to £275bn) will eventually reach £500bn or so. It may go even higher than that."

From the end of http://www.guardian.co.uk/business/2011/oct/06/britain-financial-crisis-quantitative-easing

 

[SaskiaJayne]

So the banks had to be bailed out by the taxpayer because they had been lending money irresponsibly to the world & his wife & those debts went bad...Now, lesson learnt, they are only lending money to people who have a reasonable prospect of paying it back...This presumably does not include businesses that might well go bust & default...But the government wants the bailed out banks to lend to these businesses & they are even talking about underwriting those loans to businesses with taxpayers' money...Confused? I am...

 

[taffboy gwyrdd]

One of the problems with QE at this point is that things are so tense that finance institutions might well just sit on the money. This means that despite the complex way the process could be described, the state has basically just made more money out of thin air to give to banks. As it gets converted into buying real labour and resources down the road it is the serfs who will pay, as per usual (that's us gang).

Obviously, each transaction relating to it will raise a fee for banks and contribute towards bonuses, so it ain't all bad. No shut the fuck up and get back to work.

How much talk has there been from impotent politicians about "getting the banks lending"? (A: A lot)

This is similar to the line about "Training the Afghans so they can run their own country" (10 years and counting)

But I prefer the sub plot in a Brecht play ("Schweyk" I think) where a soldier keeps returning to the exact same signpost to Stalingrad (where he is meant to be, presumably for the great battle) after each surreal incident.

 

[Smokeandsteam]

Watching the news last night the spin from the BOE and Govt is that their decsion means £75bn has been injected into the 'economy' when of course nothing of the sort has taken place. For now they'll get away with it - most people seem to accept 'something' has to be done - but if the growth figures remain dead over the next quarter (and the tailspin across the Eurozone isn't arrested) then it's hard to see what cards the political class has left to play.