How £75 billion of quantitative easing may result in the government bailing out the banks for an additional £960 billion.
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£75 billion is 3,750,000,000 twenty pound notes or 62.5 per person in the UK.
The Bank of England have just bought a large number of assets and we are paying for it. The BoE print the money and then buy bonds which they then own. The BoE paid the printing costs (10p per note?) but each note they print has far more value than the cost it took to produce. Welcome to the fiat money system where the elite do 10p worth of work and charge us £20 for it.
What a ridiculous name, quantitative easing - clearly designed to try and hide the true nature of what they are doing. Luckily the media are doing a reasonable job of educating people about its meaning. I expect however, that most people will not understand the implications of what it means and may even think:
Printing money, why don't we just do this all the time and we would all be rich!
Quantitative easing would be OK if the government would take the money back out of circulation before it became inflationary. However, given the track record of our government and their lax regulation of the financial sector, do you really believe that they will reduce the money supply in a few years time?
Considering that inflation is the equivalent of taking money directly from your savings (if you have them) then reducing the money supply is like giving it back. I do not believe that our government want to do anything but take our money for their own political gain - look at what they did to pensions. It is my belief that they will not be reducing the money supply when the time is needed, so where does that leave us?
The government is going to print an additional £75 billion pounds. That money will eventually end up in the hand of the high street banks. The high street banks have the ability to use fractional reserve banking in order to stimulate credit. The latest figure for the banks required reserve ratio was 3.1%, that was in 1998 and I seem to remember hearing a rumour that even that dangerously low figure was being reduced a couple of year ago. What does that mean? Well the banks can lend out 32 times more money than they have! If they have just been given £75 billion then they can lend out an additional £2.4 trillion!
The government will of course claim this will not be inflationary. As people are not borrowing money at the moment. This may be true in the short term as the rate at which money moves form one person to another or velocity of money is currently very low. However, eventually they will begin to borrow money again and in several years time, when the economy improves, the velocity of money will increase. This will be the danger time when inflation takes off.
The important bit
The UK GDP is about £2.13 trillion and the government is releasing £2.4 trillion into the economy (when we consider fractional reserve banking) of which 96.9% will be credit. People and businesses already seem to be swimming in debt and so what problem does increasing lending solve? At a time when the economy is going into decline only the very best business will be able to take on debt and turn it into profit. I expect most will take on debt, be provided a lifeline for a short period of time and then die with even larger debts than they had before. As it will be the banks that loose out when a loan goes bad and the taxpayer is bailing out the banks, it looks like the taxpayer will be picking up the bill again. If 40% of the loans go bad then that would mean an additional debt of £960 billion to be picked up by the taxpayer as a result of QE. The end result being the same as if QE had never happened, well almost - with QE we get rampant inflation in a few years and a future huge bailout of the banks along with our declining economy. Wow, what a great plan!
Look out for massive tax rises, huge pension black holes, fewer jobs, lower income, less spending on public services and a severly depreciating pound in the UK in about 3-5 years time. The future of the UK is not looking hopeful.
How much debt per person?
So, for the initial £75 billion, each working person in the UK takes on a debt of £2,500. Add their share of the £900 billion which is £30,000 each, for a grand total of £32,500. Add in my calculation from their share of the countries current national debt for a staggering figure of £68,500! Well, it shouldn't take an average wage earner more than 15-20 years to pay for that; lets get started! I can't wait.
05.03.2009 01:32 - Posted by doahh - Comments: 0 - Economics & politics
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