Quantitive Easing = Printing Money

[Mike]

Guardian Report about money printing to get us out of debt. Oh dear. These same economists who got us all into this mess are going to try and print their way out of it.

This brings a conversation I had with Rob into sharp relief - he advocated printing money. . . I didn't. We will see if he is right. If my betting on apple product release dates is anything to go by he will be right.

[mr_e]

Well, they don't quite print money, but do the next best thing: buy back bonds and gilts for cold, hard cash.

Getting the banks to lend this on to people is another matter entirely.

[johnriley1uk]

I always knew the monetray system did not add up, and this is one more thing that puts that into sharp relief. Printing money will cause what it always has caused - rampant inflation.

If you increase the supply of anything then you devalue the price of each individual item.

Money is an illusion and we're now finding that out.

[mr_e]

I think the point of this exercise is to keep some inflation: the latest RPI is 0.1%, which is no doubt leading to worries of deflation.

One of the issues that needs to (but won't fully) be tackled is the bonus system that rewards short-term profiteering whilst ignoring the boom-bust cycle this creates.

I hope the money is my pocket isn't an illusion! It's value is another matter entirely.

[johnriley1uk]

This might be a really dumb question, but what's so bad about deflation? Everything could cost less every year and we could all negotiate our salary reductions accordingly. We'd be no better off or worse off either.

[Mike]

In effect it appear to be printing money. The Bank of England is not spending its assets on purchasing Government Debt it is actually using paper to back the debt. . . don't forget the principle of the Bank of England was founded is that there is gold to back up every note in circulation. When that went out of the window we had a problem. It all revolves around the idea that more money is good. Actually if you have finite amount then everything holds a good value but lets be honest - its more boring

[Mike]

IMF Research shows that the UK has spent nearly 20% of the GDP on bank bailouts. The US of A has spent about 7% by comparison and Norway is trailing at 14% in second place.

Bugger. Architecture must be screwed now. I guess I am going to have to work even harder to keep my job!

[mr_e]

Deflation isn't a worry unless it's sustained, then it risks lowering demand for non-essential goods and services. Given we're already in a recession, that wouldn't help matters. The RPI's still positive (just), so we're not amidst the whole deflation thing just yet.

That IMF report speaks sense in it's conclusions about the cause of the problems, although hindsight is always useful. Let's hope the bank's asset values increase a bit so we taxpayers aren't shafted again.