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I see they are going to throw even more money at the banks again and they are trying to resist ‘printing money’ .. I don’t see how this matters. You get money by earning it or from a pension or whatever. So why does it matter if they print money or not?
Am I missing the point?
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It depends how the money is distributed, Dave. If it is simply pumped directly into the economy then it instantly devalues existing monies – a greater supply means less relative worth and savers are much worse off.
Deflation does become a possibility in this sort of situation, but if it’s managed correctly then we should be able to weather the storm. As far as I am concerned the introduction of ‘new money’ into the economy is part of the cycle. Not withstanding the fact that banks pull money from thin air when they approve a loan, do we think that the money that exists now did so fifty years ago?
Despite many claims to the contrary, we’re not heading for a Zimbabwe-esque seven figure inflation rate. Recessions come, and recessions go, and with the appalling lack of regulation of global financial markets the frequency with which they ‘hit’ is only likely to increase. But they are recoverable, which is something many fail to realise (sometimes the best approach isn’t to try and turn things round in a day).
An immediate General Election should be called for the people to be given their oportunity to express their veiw.
If it is simply pumped directly into the economy then it instantly devalues existing monies – a greater supply means less relative worth and savers are much worse off.
Deflation does become a possibility in this sort of situation, but if it’s managed correctly then we should be able to weather the storm. As far as I am concerned the introduction of ‘new money’ into the economy is part of the cycle. Not withstanding the fact that banks pull money from thin air when they approve a loan, do we think that the money that exists now did so fifty years ago?
Despite many claims to the contrary, we’re not heading for a Zimbabwe-esque seven figure inflation rate. Recessions come, and recessions go,
You obviously have a grounding in economic theory Equitrack so please correct me if I’m wrong, but I was under the impression that the main danger associated with increasing the money supply in the guise of banknotes, which by definition has no intrinsic worth (fiat currency), was inflation not deflation; and if great care isn’t taken with control of the supply, escalating inflation.
It strikes me – as a layman – that increasing the supply of ‘worthless paper’ money at a time of near-zero interest is doubly dangerous as there is absolutely no incentive to save it, leading to a rapid increase in spending, shortage of commodities and hence an inflationary spiral which once underway is as difficult to control as a deflationary spiral. This latter spectre is of course why the government(s) is considering the – in my view – dangerous ploy of ‘printing money’. History should tell them that, as it should the attempt to follow just this path in Japan back in the early ’90s, which admittedly didn’t lead to inflation but it didn’t prevent deflation either.
I wish I could share your apparent unconcern that “recessions come and recessions go” but is this just another recession of the type we’ve become wearily used to over the post-war decades of boom-and-bust? I fear not
Anyway the next strategy to be tried by the government, due to be announced tomorrow, appears to be a scheme where the taxpayer will underwrite the loans given by the banks. No idea if it will work, and I’m sure no one else has, but surely this ‘unique’ plan only adds credence the idea that this is a ‘unique’ recession.
Incidentally, I believe the doctrine of spend, spend, spend espoused by Brown et al to get us out of this recession to be fundamentally wrong as are the methods he’s devised to intice us to spend: it punishes the cautious and rewards the feckless.
down the Swanee it goes, where it flows no one knows
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Just a slip of the virtual tongue, Drone – an over-supply of money does indeed lead to inflation as demand outstrips supply.
So Equitrack, how does this said money get into the economy?
I’m waiting for an answer, because to me it sounds like a load of tripe.
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I didn’t realise I had been cast as your economic adviser, Dave, especially one expected to stand to attention at the click of your fingers.
It’s important to realise that money can’t be introduced to the economy too quickly or inflation rates will soar to cope with the additional demands placed upon businesses. The government needs to manage the flow, if indeed it does take the printing money route, and ensure that banks are sufficiently well financed to allow the economy to stabilise.
Getting money into the economy is, in reality, a fairly simple exercise. Leaving the provision of funds to banks to one side, there are two main avenues for injecting cash – government spending and tax cuts.
The fact is there is no ‘right way forward’ at times like these as each potential solution is accompanied by half-a-dozen likely side effects. The government should be criticised for their handling of the economy over the last ten years (Brown introduced reporting regulations to allow him to write debt off from year to year, making it look as though he had fulfilled his initial promises), but they’re in a lose-lose situation at present.
The one thing that should come from the disasterous dealings with US mortgage lenders is stricter regulation of global financial markets. By selling their sub-prime liabilities on to other companies – including banks and hedge funds – lenders were effectively protecting themselves against heavy losses, but because the word ‘insurance’ didn’t appear in a single piece of literature they were free to trade without regulation (I believe the US de-regulated the area in which the sub-prime lenders have been operating a number of years ago).
When you put everything that has happened in the last three months together, it doesn’t make for pretty reading, but it’s vital that certain events be separated to provide a more accurate picture.
Fair enough Equi .. I think the biggest mistake our Government made was removing house prices from inflation.
"I will not allow house prices to get out of control and put at risk the sustainability of the recovery."
Gordon Brown, 1997 Budget Statement"No more boom and bust"
Gordon Brown, 1997Equitrack is right. We actually need to create a little inflation at the present time. We need demand in the economy badly
But have the goverments inducements been as well targeted ? I thought the VAT cut was clueless myself, for one. It is the emotional impact if thats the right phrase) of the incentive rather than the value that is significant and the VAT one passed everyone by.
This deep recession will be overcome but we will awake into a much more cautious world.
From what I can gather this is ‘smoke and mirrors’ of the highest order.
Neo-Classical Economic theory has it that printing money will cause inflationary pressure. However, (this is how I understand it) the Government intend to overcome this by buying Gilts with the money printed.
So, whereas in the old days governments would print money and simply spend it and cause inflation. New theory has it the government can print money and use it to buy Gilts that they have also printed and then use the money from the Gilts they have sold. The books balance as the National Debt which has been increased by the selling of Gilts has been balanced by new money coming into the economy and equilibrium has been maintained.
What a bunch of *****.
The problem here (again as I see it) is the fundamentally belief that Neo-Classical Economics is a ‘science’ whereby the effects of theory can be accurately predicted with the use of Econometric Models.
I’ve just had a pal on the phone (somewhat lightheartedly) asking the following:
With the interest rates for savers negligible would it be advisable to empty your deposit accounts and ‘bottom fish’ RBS shares at 13p, or are they sinking fast, with the lifeboat of 100% nationalisation the sole saviour?
Just the allowed-again practice of short-selling rearing its ugly head, they’ll rise again tomorrow and sundry charlatans will be quids in, was my reply.
Thank fk I restrict my financial wheeling-and-dealing to the comparitively wholesome horseracing markets
As an ex-employee (albeit one with no particular insight into the overall machine), I’ve been of the opinion that RBS was a sound investment…..so long as you were prepared to play the long game.
Unfortunately, I’ve been saying this at 95p, 72p, 45p and again today at 22p.
I just wonder whether they can recover sufficiently to avoid total nationalisation? The only thing that might save them is that they appear to have inherited so much liability through the ABN Amro take-over, that the Government might not want to own it outright. Hard one to call.
Without the ego-driven purchase of ABN Amro (and we all know which particular ginger maniac was responsible for that), RBS would have been well positioned to ride out the current credit storm – and I still think they have a fundamentally sound, core UK business.
If they can stay afloat long enough to divest themselves of large parts of ABN Amro, or make savings through consolidation (which will be much tougher) then I think anyone buying now could be onto a potrentially lucrative, long-term investment.
The question is: will they survive long enough to do either? As things stand, I’m taking the kind of bath that Franco Pentangelli once enjoyed.
My advice would be to invest in a across the board stock market ISA. The markets will rise again. They always do well before the end of a recession and although there could still be some nasty news to come, its a fair bet they will be recovering well by the end of teh year
What a bunch of *****.
The problem here (again as I see it) is the fundamentally belief that Neo-Classical Economics is a ‘science’ whereby the effects of theory can be accurately predicted with the use of Econometric Models.
LOL .. when in actual fact Econometric Models are simply posh guessing machines.
As an ex-employee (albeit one with no particular insight into the overall machine), I’ve been of the opinion that RBS was a sound investment…..so long as you were prepared to play the long game.
Unfortunately, I’ve been saying this at 95p, 72p, 45p and again today at 22p.
The question is: will they survive long enough to do either? As things stand, I’m taking the kind of bath that Franco Pentangelli once enjoyed.
Well, I’ve been persuaded to part with a lump of torpid cash and throw it at RBS stock, who my chum insists is undervalued at our buy price of ~19p. Not really understanding the financial markets and being a coward I insisted on a stop-loss of 10p.
He’s also bought Bank of Ireland shares at ~60p for the same reason.
So I may well be joining you in that bloody bath GH, though we’re sitting pretty at 22p today. Perhaps I should sell
Thanks for your advice btw
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