Now those of you on here who read political threads may realise I am no fan of Gordon Brown's or the way he is handling the crisis but latest indications are that the next policy to address the recessionCredit crunch will be Quantitive Easing .
I attempt to explain it below for those who may not be aware of how it would work. Whilst I am biased I have tried to be as factual as I can(with a dash of sarcasm to taste)
Quantitive Easing
Ok The government, sorry, I mean The Bank of England(because it's independent of the government )
makes an entry in its books and creates a balance sheet asset and with this new found wealth it buys government bonds back, or maybe, some of those suspect loan packages our rather naieve financial institutions are still sitting on waiting for them to go pop.
This is a master stroke. That way the government puts cash back(well it may not actually be cash it may just be sons of an accounting entry) into the financial sector without resorting to printing financial sector being the public spirited organisations they are will now free up lending as their liquidity ratios will be significantly improved(eased).
Not only will the banks free lending up but at the same time they will have shed sceptic debt and not taken on new shareholders(the taxpayers), therefore dividends and shareprices are not diluted in fact shareprices of beneficiary organisations may well rise(spot a problem here) .... Brilliant for the affected banks …a little like somebody given you a pair of solid gold ladders to climb out of a hole you've dug for yourself and then said ....ahhhh go on then keep the ladders.
Just one small little point …this cash that will suddenly flood the banking system …where has it come from?
Ahhh well you see it starts with…… The Bank of England making an entry
I Suggest they call it the Emperors new Clothes account .
So…its not technically printing money …..and Gordon's not had to borrow it(yet)
In a genetically modified nutshell that’s it so what I would like to know is are we in favour of such a brilliant strategy.
I of course am not ..why …well it’s the government using money it hasn't got to buy assets that potentially have no intrinsic value …now what organisations have been found wanting doing that !
Incidentally if you or I tried doing that it would be called fraud
So It's like printing money without the printing press and the paper but you still lose thevalue of the pound in yer pocket. What's more you save on the ink as well.
Never been in a 100% majority before. :smug:
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In effect this money is fictitious. What isn't ficticious is the way in which the banks get rid of their crap debt to, or have guarantees from the Gov't which is payed for by Joe Public. Maybe just maybe there is enough reason here somewhere to nationalise a few banks OR set up a new national bank, albeit that most of any monies has gone into the maws of the pvt sector banks anyway.
Maybe by having a national bank the govt could initiate lending at low rates to customers with somesort of mortgage swap scheme thus lending money that the banks ain't, and giving the low interest preferentials direct to the mortgaged. Maybe this could stimulate some sort of growth in the finance area? It is time the banks had a good slapping down to size methinks.
Oh it also looks like i might have ro wait a little longer for my bank charges rebate by the looks of it. Not that I waited 4 years for it already.
I don't get where Gordon is coming from I really dont. What the f*ckinhell has he dne with god knows how much his government has had over the last decade and more.
It will be a bit of a bummer if everyone wanted to cash in their new found wealth at the same time seeing as how the money isn't really there :lol2:
I heard this phrase used the other night and I Thank you for the concise explanation niceguys, but what you don't explain is how the friggin hell do we get out of this goddam mess that the oh so greedy financial sector - with the tacit help of the government - got us into. We really are treading dangerous water and the future looks bleak!
I was puzzled by the actions being taken by government to halt the recession. Then I had a think about it.
Its pretty clear that the plan is to control as much of the the economic base as possible. The plan takes two forms, a period of ridiculously low interest rates to enable the government to prop up and buy into the banks and other organisations followed by a period of high ones during which I fully expect the government to bail out those with mortgage problems by buying their homes and allowing them to rent them back. Welcome back nationalised industries and social housing.
This financial easement plan is wholly consistent with such a strategy.
The end result will be a deeply socialist economy despite the abolition of clause 4. If Im wrong Ill buy everybody a pint in 2020.
If the government does'nt have any spare money knocking about, where does all the cash they send abroad whenever theres a war or disaster come from? Shouldn't they just donate that back to us as we paid it in tax and this country is now a disaster?
fact is..we need the banks to start lending money again. The economy will not start with-out a kick. At the moment the banks will not borrow business money, basically with-out a directors 100% guantee on the money. This is a way of lossening up the purse strings.
Mr cameroon is very quiet meanwhile....the only suggestion he had so far was to give savers more interest. FFS we don't people saving right now...we want them spending.
Heres an idea, the government could loan people the deposit to buy a house and delay the repayments. The banks wont give a mortgage without a big deposit, but if the gov't gives them money we all lose out. However if they loan the deposit to new buyers they will get it back in the long term and end the current crisis.
Simple ! Or am i missing something again?
niceguy, i like your simplification of what you say gordon brown/allister darling are proposing to do (quantative easing)increasing the money supply. you have things upside down. that is their prosed response to the reduction in the money supply caused by banks refusing to lend. gordon brown and no elected representative tells the banks what to do. its the other way round and regardless of what supposed political cessation of continuing credit (increase in the money supply)had to stop because the total of capital required to service the interest of derivitives alone had become greater than the gross product of human activity on the planet and the ponzi scheme was up ! under the normal circumstance of regulated fractional reserve lending, the money supply must continue to increase, otherwise, where would the interest come from ? but since deregulation, where fractional reserves were in the regions of 35 - 50 to 1, not just in the cases of commercial banks and hedge funds but chartered banks as well, the size fictiteous value sloshing around in derivitives, siv's, cdo's etc puts 1929 and the 30's in the shade. the correction will be far more greater. any time very soon, a big event. dave
Hi, me again, been trying to teach gulsonroad how to use the forum but he just sent me this pm :
gulsonroad30664 whispers: what does exponential curve mean and how does it relate to interest on fractional reserve lendind ? can you post that...please
Not a clue what it means so look forward to the reply xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx