But the truth is that there are no textbooks for this kind of situation. The Bank of England has never before cut interest rates below 2pc, but this is precisely what it now looks set to do. The Federal Reserve likewise is poised to slash borrowing costs towards zero, while the European Central Bank has finally joined the rate cut bandwagon, slashing borrowing costs by 75 basis points.
The world's great central banks are in uncharted territory. Although Japan experienced deflation - and zero interest rates - in the early 1990s, it failed dismally in its attempts to drag itself out. There is no textbook way of preventing debt deflation taking hold, but in a zero interest rate scenario there are three avenues a central bank can take:
1. Use speeches and statements to indicate that interest rates will stay at zero or thereabouts for an extended period of time.
2. Buy assets, whether this be government debt, corporate bonds or things like houses and mortgage backed securities.
3. Expand the central bank's balance sheet aggressively, another way of injecting money into the economy.
Options two and three both amount to what is known as "quantitative easing" - printing money, getting it into peoples' hands and ensuring that they go out and spend it. It is an attempt to control and target the volume of money flowing around the system rather than its price, and would mark a major step change in central banks' operations.
According to Professor Peter Spencer of the University of York, the best way to do so in the UK is what is known as "under-funding" the fiscal deficit. The Treasury has to raise billions of pounds worth of cash next year. In normal times it would raise this all by issuing government debt. However, if it raises some of the cash merely by getting the Bank to print it and not "sterilising" this by issuing gilts, it is, in effect, injecting extra cash into the banking system and high street.
"When credit is being rationed the interest rate is meaningless," he said. "At the moment we have a fiscal policy which leads to the issue of huge numbers of gilts, which people are prepared to hold. If the government started to under-fund, we would all find ourselves tending to hold money rather than gilts - and money burns a holes in peoples' pockets."
This may have to happen alongside direct purchases of troubled assets or even property. Either way, the Bank's indication today that it would need to consider "further measures" to kick-start bank lending underlines the fact that it is now considering radical new measures.
In doing so they are only following the lead of the Federal Reserve chairman Ben Bernanke. He has now gone some way toward carrying out plans two and three, by both buying securities and expanding the Fed's balance sheet. However, this should hardly come as a surprise. In 2002, as a Fed Governor, Mr Bernanke insisted that "a central bank whose accustomed policy rate has been forced down to zero has more definitely not run out of ammunition."
His "unconventional" options included buying up government bonds and handing out loans to banks at low or zero interest rates, and if all else fails, he added: "The US government has a technology, called a printing press."
It may soon prove the time to use it, on both sides of the Atlantic.
"The US government has a technology, called a printing press."
Ordinary savers have a safe haven, called gold, that can't be debased by the government's "technology"
Short on history Jeff? I am old enough to remember the 70s. Here are some real figures to think about:
1968 - Salary 1,600pa, purchased house (semi) 3,500.
Sold house 1973, 6,700, purchased another (detached)10,000. Salary 3,000pa
Sold house 1977 - 20,000, bought detached 16,000, salary 10,000pa
At one stage interest rates were 8%, inflation RPI(ex houses) - 25%, negative rates minus 17%! I survived - just.
2008? Mean UK earnings 25k, real RPI 16%, interest rates near zero, negative -16%. Houses 170k - some way to go methinks. (www.shadowstats.com)
Deflation - yes in houses/land - but you can't eat houses? It's all a spoof, a spin to lull the uninformed into a false sense of wellbeing as the printing presses magic away the debt burden. The essentials of life will continue their upward price trend as reported by another commentator. You have STAGFLATION at best, DISINTEGRATION at worst.
And those suspecting a conspiracy with the elite's hand on the levers - yep, they sure are, and there is nothing that can be done: UK remains feudal (you still have the relic of the House of Lords?), your rulers just exchanged swords and armour for fractional reserve banking and OTC derivatives.
ALWAYS will "the rich get richer, the serfs get stuffed, that's all you need to know!" It's ever been so, even before Henry VIII!
Thank goodness I have already emigrated to where commonsense still prevails, feudalism never existed, a fine written constitution protects the powerless and engenders mutual respect, and we exercise thrift too!
I wonder where this utopia may be? - mum's the word though - we don't want 60m hungry Anglo Saxons over here spoiling our fun with their PC madness and neoliberal claptrap that has finally finished off a once proud island!
The answer? A revolution, no less, and from the fossil remains of a totally disfunctional society might emerge a State fit for 21st century heros!
Do you actually know what capital projects the UK govt is accelerating in its attempt to provide a fiscal stimulas? �3bn on advancing road charging for motorists! No increase in our infrastructure, no just �3bn on how to tax us more or better!! sorry but if this is what people think is a "good idea" then we are rapidly heading for economic armaggedon.
So basically we have monetisation coming. Wow, am I glad that I have dumped most of my Sterling. Not only do I get get paid virtually nothing on my savings due to interest rate cuts, but the money I have is being devalued due to an increase in money supply.
Well, what a great world we live in. All I can say is, buy gold and leave the UK. I have done both things. Pathetic, utterly pathetic!
Is it any more honest for the government to print money than it would be for us each individually?
Check out Zimbabwe for advanced stages of the printing press solution to not tackling the issues facing a nation state.
A long way off? Perhaps - but are we producing anything anyone abroad holding all the money we may print can buy? If not then our money will go down in purchasing value. Everyone is not in the same boat so the argument other currencies will also weaken thus maintaining broad parities is not valid.
Philiop is spot on.
What is missing from the options is that the banks just get out of the way; go into hibernation; let interest rates go where they will; let the real players (the bankers and politicians are the manipulators) work it out and come to solutions.
Printing money when the value of Sterling is already tumbling? Sounds like a recipe to add Mugabesque inflation to our apparent economic woes. Brown & co are really clutching at straws ... totally clueless!
Why do we continue to help the banks,which have caused this problem,with their borrow to anybody no matter what policy to ensure they get thier bonuses.They should be now forced to cut their rates as the only people who seem to benefit from the interest rates cuts are the banks.Come on Gordan kick ass like the French
So this is what happens if you don�t get yourself in debt and actually save money. Time to empty my savings accounts and buy something that might actually hold its value, some gold perhaps. I'm sick of the bank making profits on my savings and not give a little back in return.
If they do this its ruin for us all, if they raise rates and let the weakest go to the wall, its ruin for only some. They should raise rates and the survial of the fitest can begin.
Only then will the market start to operate normaly again!
Mr Brown was speaking after lenders defied him on Thursday by failing to pass on the full one percentage point cut, which left the Bank's rate at two per cent - as low as at any time in its 300-year history.
He told GMTV that savers were not being punished by the decision. "What I would be worried about about most is if we had inflation going up and taking away the value of people's savings," he said. "The interest rate going down is necessary to get the economy moving again. If you are a saver the best protection you have is that inflation is kept low."
Savers not being punished eh??
Putting interest rates to zero with inflation still at more than 5% according to the government and probably double that for real people, especially the lower paid and pensioners who spend only on heating and eating. Low interest rates lead to inflation one way or another. They don't eliminate it as Mr.Brown would have us believe. According to my bank manager, nobody wants loans now, neither mortgages nor loans to buy cars, the most common, even at zero interest. I guess the government will just print more money and spend it themselves. If any body believes that that is a way of boosting the economy without causing inflation, it's a pity that they close the Psychiatric hospitals.
The government wants banks to lend, but not to make a profit.
What has happened to enterprise?
Printing money will reduce the standard of living of everybody in the country, through the inevitable inflation. Once the government starts to print money, the attractiveness of it's bonds will reduce, and it will sell fewer and need to print more. This is foolishness.
Anybody who listened to the government a few years ago and started setting aside money for retirement now looks like a complete idiot. YOU HAVE BEEN RIPPED OFF ROYALLY BY THIS GOVERNMENT. HA HA.
Simon, Colin and all you others out there who have (wisely, you thought) put a little money aside over the years in order to compensate for the bad times and supplement meagre pensions; just remember you are not savers at all but "rentiers", in the words of Evans-Pritchard (a much more squalid and sordid noun).
You have been indulging in usurious practice according to the David Goldsbys of this world in expecting a borrower to pay anything at all for the privilege of using your money. Let us all go forth, do our patriotic duty which is to increase the profits of all those over-borrowed companies out there and spend, spend, spend!
Money needs to be created without interest. Spent into the economy not lent into it.
All tax on effort should be seen as theft; a single charge on the uplift in land values (used or unused) should replace all other taxes.
LVT & Monetary reform are the silver bullets.
But it's no use asking the economists who have been deceived for over a century by the universities... It will take a quiet revolution of simple explanation so that even a 5 year old will be appalled by the blindness we now live under.
It seems to me completely plain that we will experience inflation two years or so down the track. Over the last ten years, the government has poured money into the public sector without any reform or increased productivity. I suspect that the core Labour vote is also heavily indebted. Printing money and the subsequent inflation will "solve" our current problems, by transferring net wealth from the prudent to the profligate. The mess we are currently in has been caused by too much easy money, and the government suppose that the solution is more of the same medicine in spades.
This morning, according to Brown, interest rate reductions are not penalising savers. Well, in the parallel universe of our PM that may well be the case but not in the real world. Next he will be telling us that tax rises do not penalise income because the money will be invested in public services?
Still, savers do have votes.
On the bright side, the current problems clearly show that Brown's grasp of financial matters, always tenuous at best, is entirely threadbare.
Don't we have a hole in the supply side of the economy? For a decade economic activity was misdirected into consumption based on ever rising debt and a housing market bubble. The city also expanded unsustainably due to being released from effective regulation. Now all that's gone and the economy simply doesn't produce enough wealth to sustain things. Don't we have to accept hard times until other parts of the world start expanding so that our industries can grow again? Won't boosts to demand mostly go on imports anyway, and what will happen to the pound - are foreigners still happy to supply us with goods just for the joy of holding sterling?
The reduction in interest rates will do nothing nor will more profligate spending.
Everybody posting is familiar with the general principals of a recession:reduced consumption reduces production which reduces investment which reduces employment which reduces consumption and so on.
Keynes answer was to reverse the spiral by increasing consumption etc.
One way of doing this without cost to the exchequer is though interest rates: the saver receives less interest income; the borrower gets cash in his pocket from lower mortgage rates. Another way is by printing money. Both ways penalise the pensioner.
All of this however is a bit like saying that the best way to sort out a car crash is to put the car into reverse.
And this economy is like a car crash; the banks are the walking wounded. The government has applied a couple of sticking plasters in the form of equity injections but the real problem remains the toxic assets and until this problem is resolved, by either time or the government, the banking system will continue to be fearful of lending.
The mortgage market has collapsed and house prices have fallen and the collateral damage has been profound: House-builders, bathroom and kitchen manufacturers and retailers, manufacturers and retailers of building materials, plumbers, electricians, estate agents, lawyers and so on. This is not to mention the beneficiaries of re-mortgaging facilities: furniture manufacturers and retailers, car manufacturers and retailers and so on. All of these are now in the process of laying off employees
And all of this now contributes to the spiral of recession and ultimately hyper depreciation.
The expansion of the economy resulting from over inflated house values was a bit like building a house on shifting sands. Best thing to do is to go and build elsewhere.
So however clever they try to pretend they are with their fiscal this and their monetary that we all know the answer is not to get back to where we were a year ago and we all fear that in their endeavours to get there, they will make paupers of us all.
The great Weimar hyperinflation was ignited by the printing of money to pay the wages of striking German workers.
"Quantitative easing" as expounded above seems to me to be in the same category.
To repeat the Weimar folly would be a criminal act.
We should let our government and advisers know that we will hold them personally responsible for the ensuing hyperinflation.
Balanced accounting used to be axiomatic The paradigm that budgets need not balance became a new convention - increasing asset values masked insufficient earnings � more money could be borrowed against rising assets or perceived future growth due to ever increasing expansion. Companies that took generations to build were taken over by tiny financial entities using financial smoke and mirrors ( borrow money). The result a financially secure institution morphs into one that has a large and growing debt to service.
Rising costs (not in small part due to increases in taxes and charges), reach a point where maxed out borrowers start to default and the whole system starts to unravel.
It must be emphasized that the over-borrowed are NOT limited to (some) unfortunate house-buyers but include companies, banks, corporations, schools, health trusts, PFI�s, US states and Governments.
Central bank and Government actions have been to prevent bankruptcy of their financial system, not prevent depression or help borrowers, - it gives the banks time to recover their debts and it also does what governments do best, delay (the austerity to come).
Borrowing your way out of debt is ludicrous and printing money even more so (Weimar, Zimbabwe etc).
At what point do the BoE governor and the MPC resign and let someone else have a go?
I am seriously considering pulling all my savings out of the bank. Why should I leave it there to shore up their balance sheet and make them profits while they give me virtually nothing back!!
Although the REALLY big problems were created by interest rates being too LOW as a result of targetting the ludicrous CPI index for five years. GB switched to the CPI to allow the housing bubble to continue inflating. He is an idiot.
Being retired I have seen the value of investments and investment income plummet. I have moved all my deposits into gilts; thus reducing my bank's ability to extend credit to the productive economy. Surely this is another vicious circle, and there is a lack of coherence in policy. This is the context in which economists argue for one nuclear option after another. The economy needs to be rebalanced; how is it to done?
The bottom line is that the massive over-valuation of houses built up over the last 10 years must be corrected; house prices must fall by 50%. And western governments need to own up to the industrial recessions they have had over the last 10 years as they have offshored production to China and India, and repatriate a large part of that production so that western economies start to generate real wealth again. Franticaly trying to postpone the inevitable by bailing out house-buyers with taxpayers money will not solve anything; in fact it makes the problem worse. The statements made over the last few years that house-price growth was the engine of the economy demonstrates the bankruptcy of the policy makers' ideology.
To use a quote
" Would the last person to leave the country turn the light out"
Dear dear... the comments here show a woeful lack of understanding of our global debt based money system...
Turning on the printing presses (government issuing credit), is absolutely no different than commercial banks issuing credit, infact I would say it is better, because the taxpayer doesn't have to fund the interest payments of commercial borrowing undertaken by our government.
Banks don't lend money...! they merely create it as debt, and it is destroyed again as you repay it.
Whether its the government, or the banks (under license from the government), simply makes no difference.
If inflation began to rise, issued money could simply be taken back out of circulation, as it is today when commercial loans are repaid.
It's time to learn the 'tango'.
There is a text book. It was written by Von Mises. He said that a credit-based boom will be followed by a crash and that you will never spend your way out of it but you can make it worse. No one is interested in reading this text book because fools like Gordon Brown want to be seen to be doing something and buy votes. Fools like Blanchflower want to make a name for themselves by giving the bigger fools the excuses they need.
It's going to be awful!
The number of things a bankrupt can do is very limited as Brown the incompetant clown will soon find out.
Britain once a stable economy is now a basket case and Brown will soon find out why!.
There are now serious worries that our debt burden is so large it is only a matter of time before we default on our interest payments. Nobody out there who are of sound mind should even consider lending to the UK! if they want a return on their investment. Just see what Brown does to savers he screws them and blows the lot then looks greedily round to see what else he can get his grubby hands on.
1. It was obvious that when this Government went on a spending spree starting some 4 years ago that eventually the printing presses would have to start rolling to cover it (i.e. they pay off their funding out of inflation)or interest rates would rise sharply as the government borrowed ever more, but the problem has now gone worldwide.
2. If you fund public works (to put spending power into the economy as per Keynes and Rooseveldt's New Deal then you have to do it by running the printing presses. Funding it by state borrowing just takes the money out somewhere else and the overall monetary effect is neutral. But printing the money just stores up massive inflation for the future. That's the conundrum. We'll all pay for this whatever.
3. Inflation will wipe out my mortgage (hooray) but it will also wipe out my retirement funds (not so good). But asset deflation could be even worse - loans remain in monetary terms but with no asset cover.
4. No one seems to have commented anywhere at all on the recent Autumn Statement proposal to INCREASE the cost of fuel to businesses (and therefore to put up the costs of everything affected by transport)by increasing the fuel duty (which businesses cannot recover) matched by a reduction in VAT (which they recover anyway). Now how does that make economic sense at a time like this?
I realise from comments posted in here that people do not realise the enormity of the financial problem facing UK. We are just like Iceland, just a bigger version.
All the king�s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The modern Banking Ponzi scheme is built on �fractional reserve� lending, which allows banks to create �credit� (or �debt�) with accounting entries. Banks are now allowed to lend from 10 to 30 times their �reserves,� essentially counterfeiting the money they lend. Over 97 percent of the UK money supply has been created by banks in this way.The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough �money� (or �credit�) to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 � until the whole world has now become mired in debt to the bankers� private money monopoly.
We have reached the tipping point. We have to reform this fiat ( paper ) debt-based money system and replace it with sound ( real ) money system.
People must come to their senses. The modern banking system manufactures money out of nothing.
I trust that in the wake of the cut in bank rate to 2% the banks will drag their feet sufficiently to allow those of us who have saved for our old age a few more pence of interest on our diminishing savings. What with the obliteration of our shares and plummeting of our house values, the ideal advice - given to me by a charity paymaster not long ago - is to spend every penny I possess and throw myself on to the mercy of the state which which has a statutory duty to sustain me. I await that imminent pleasure.
I'm with my namesake Rob S on this one
The Government are stupid. There is no point giving more and more of OUR money to the banks who caused all this trouble in the first place because they are not passing it on.
The problem we have is that the money has stopped moving. It would be way better to give the billions the government is currently giving to the banks directly to the general population instead. With the proviso that we go out and spend it. That way the money circulates and things will start going again.
Go on Gordon, do the fiscally sensible thing and give us all a nice Christmas present. Not some dodgy tax cut, actual hard cash to go out spend and get things moving again.
If the effectiveness of interest rate cuts is limited, as it seems to be at the moment and as it was in Japan for the last decade, why on Earth shouldn't the "nuclear" option be explored? Do you prefer the collapse of industries and massive job losses?
NOTHING Brown and King can do now can quickly reverse the imbalances built up continually over the last decade.
It will take at least 20 years to get back to where we were in 2007.
What did B Liar say - "the greatest Chancellor of the last century". Oh yes, and that there were Weapons of Mass Destruction in Iraq. Wrong on both counts - the Weapon of Mass Destruction was living in 11 Downing Street all along.
The last 11 years, have been presided over by some of the most inept, duplicitous and totally barking mad politicians that this country has ever seen.
So-called new Labour MP's (most of which have public school education, despite claiming to be "of the people") spending and promoting spending in the most idiotic manner possible, with care or consequence for the future - but of course none of this is "their fault"
The end result, that if unless (New) Labour sic are voted out, we will end up living a life comparable to that seen on the BBC1 Drama - Survivors.
Food, water and energy will be rationed to the masses, as most will be tied to receiving state benefits to some extent. Anarchy will break out, law & disorder will reign and "we" the people will be blamed by the powers that be - time to call an election Gordon... it's not too sorry to say Sorry
I find it amusing that the general opinion is that this is all happening by chance. Irrespective of the disdain internet conspiracy theorists are held in, there appears no doubt that the ECB and BofE are complicit in colluding with Bernanke in pursuing his quantitive easing policy. However, as a previous poster has said, if the banks won't lend and the population is disinclined to borrow, there is a massive increase in deposits in the banks that can only lead to hyperinflation when the banks finally open the floodgates. IF the ordinary posters in the blogosphere can see this, then you can bet your boots that the bankers know this too. THerefore, one can only come to the conclusion that this strategy is pre-planned, in order to consoldate significant global assets in the hands of an elite, and hang the rest.
Gordon's claim to have banished boom and bust are not too dissimilar to the smug central bankers claims that they have controlled inflation for the last decade- infact official 'inflation' has been low because of cheap imports- real inflation has been exploding thanks to the excesses of govt spending and central banks/lending banks fuelling the biggest pyramid scheme in history(housing market!). We are naturally due for a pretty severe hangover- let's not allow this govt and central bank to destroy the recovery with lunatic inflationary policies
It seems government and central banks are increasingly disfunctional and incapable. They should be disbanded. Let's just abolish all these jobs worths. Stop tacking money from people and businesses (since that is where it is needed most). Tear down the state and free up the nation to compete and cooperate to the best of our abilities. Could it really be any worse that what we have got (Zimbabwe without a government would be better than with)?
It's time to remember the forgotten man in the middle of the economic pyramid, as FD Roosevelt almost said. I.e. the middle class savers whom Brown detests.
WTF is going on
1. It was obvious that when this Government went on a spending spree starting some 4 years ago that eventually the printing presses would have to start rolling to cover it (i.e. they pay off their funding out of inflation)or interest rates would rise sharply as the government borrowed ever more, but the problem has now gone worldwide.
2. If you fund public works (to put spending power into the economy as per Keynes and Rooseveldt's New Deal then you have to do it by running the printing presses. Funding it by state borrowing just takes the money out somewhere else and the overall monetary effect is neutral. But printing the money just stores up massive inflation for the future. That's the conundrum. We'll all pay for this whatever.
3. Inflation will wipe out my mortgage (hooray) but it will also wipe out my retirement funds (not so good). But asset deflation could be even worse - loans remain in monetary terms but with no asset cover.
4. No one seems to have commented anywhere at all on the recent Autumn Statement proposal to INCREASE the cost of fuel to businesses (and therefore to put up the costs of everything affected by transport)by increasing the fuel duty (which businesses cannot recover) matched by a reduction in VAT (which they recover anyway). Now how does that make economic sense at a time like this?
A previous comment was to let a major bank fail - but we already did that (Lehman Brothers) in the US and that act is what has brought us now to this sorry state. Unfortunately, I think we have no other option than to allow all the profligate borrowers and spenders to go bust. All the houses that are at risk of repossesion should be repossesed. Central banks should purchase all the sub prime assets into a "bad bank". It will be painful. Millions will be unemployed. The economy will take years to recover. We will have austerity measures for years.
Printing money is not the answer. That only delays the pain - which, when it comes, will be even more severe.
We've had the party - now its time to deal with the hangover. Don't take the pills that prevent it as they only risk heart failure !
So when the printing presses are churning out loads of notes and inflation rockets maybe like in Zimbabwe or 30s Germany they will then have to raise rates significantly. Of course they will have trouble raising them quick enough to compensate and people will still get below inflation pay rises. Those who are on variable rate mortgages at the moment who think they are doing OK with the present cuts will probably be utterly crushed in a year or so when rates go over 10% and more. This is a shambles.
In my opinion the govt want future high inflation [after the next election, of course] to reduce the horrific borrowings which is now its strategy - and to hell with savers, pensioners and all sorts of people on relatively fixed incomes. This is a malign as well as incompetent and corrupt.
Perhaps we can counteract the printing presses by pulling money out of circulation as fast as they print it? There's no cost for putting it under the mattress -- savers are getting nothing for our efforts.
Or, since the government is trying to destroy the value of our money perhaps we should pre-empt it and start bonfires of notes in the streets? I'll pitch in a tenner.
It is sickening to watch as a fourtysomething, a predictable train crash in slow motion. The hubris and arrogance of ten years of unbridled optimism. Lie to buy and NINJA mortgages. The unforgettable assertion by a so called expert that �a property crash was as likely as finding crocuses on Mars�. Does he still have a job? Your own economic commentators poured overt the minutiae- how many times were we told that this time it was different. The loans to earnings ratio was one of many exotic excuses when most people with an atom of sense could see that lending at six times earnings and 125% mortgages was going to be a disastrous.
Where are Mr and Mrs E, the retired maths teachers who were filmed dancing together as they concluded the five hundredth purchase of another mid terrace house. The last time I saw them mentioned in print the tally stood at (from memory) 812, the article related to their rejection of an offer from a Russian Oligarch for their entire portfolio. When interviewed their investment strategy was a one way bet.
I could not understand how I had an inferior standard of living (as a professional person after more than twelve years of advanced training) to a plumber, now I see why. Many people have lived a lifestyle which they have regarded as their right, which was completely out of keeping with their educational attainment (outside the Former Soviet Union, that is).
I watched a junior colleague with a 22K salary buy her third house and a very expensive car. The demographics of the Northern Rock queue told an eloquent story. These were people who had worked hard and saved hard whose pensions had been fritted away by the young and profligate who had no understanding that you cant have something for nothing (well perhaps you can if they roll the presses).
I had my fingers badly burnt in the last property crash. Nobody came to my rescue, nor did I expect it. I made a mistake out of greed and stupidity and I paid the consequences.
The people who are set to suffer most from this are the people who are least likely to complain. A stoical generation of thrifty pensioners who have worked hard and saved hard. They can remember the hard times and know that there is normally no such thing as a free lunch. The government seems determined to hand out free lunches to those that wanted everything now.
I am currently in the early chapters of Prof Galbraith�s book on The Great Crash 1929. The echoes are eerily familiar.
Gordon's claim to have banished boom and bust are not too dissimilar to the smug central bankers claims that they have controlled inflation for the last decade- infact official 'inflation' has been low because of cheap imports- real inflation has been exploding thanks to the excesses of govt spending and central banks/lending banks fuelling the biggest pyramid scheme in history(housing market!). We are naturally due for a pretty severe hangover- let's not allow this govt and central bank to destroy the recovery with lunatic inflationary policies
Where is this deflation you 'experts' keep talking about? In my local supermarket prices are still rising and substantially too. Even according to the government figures inflation is rising, it is only the rate of increase in inflation that has fallen, and then not by much. Hyping up the prospect of deflation is being used as a cover to enable 'quantitative easing' or put simply printing loads of money. The effect of this is well known. It will cause massive inflation trashing peoples savings and pensions and the currency but with the advantage for the government and those in debt of making their debts appear less. This is the only reason for printing more money, to help out the profligate government and reckless borrowers and ease the way to ditch Sterling for the Euro.
Take all of your savings out of the banks and buy assets. Gold, silver and land. Anything which keeps its intrinsic value in a period of hyperinflation.
Money needs to be created without interest. Spent into the economy not lent into it.
All tax on effort should be seen as theft; a single charge on the uplift in land values (used or unused) should replace all other taxes.
LVT & Monetary reform are the silver bullets.
But it's no use asking the economists who have been deceived for over a century by the universities... It will take a quiet revolution of simple explanation so that even a 5 year old will be appalled by the blindness we now live under.
Money needs to be created without interest. Spent into the economy not lent into it.
All tax on effort should be seen as theft; a single charge on the uplift in land values (used or unused) should replace all other taxes.
LVT & Monetary reform are the silver bullets.
But it's no use asking the economists who have been deceived for over a century by the universities... It will take a quiet revolution of simple explanation so that even a 5 year old will be appalled by the blindness we now live under.
The 'command' economy is released.Gordon's scroched eartb policy is now in place.
Mugabeonomics. It's come to the UK. Get out - plenty of Zimbabweans thought they knew better.
Look at them now.
It is time for a big public protest in London: Save the pound.
This is not so much devaluing the currency, in terms of its external exchange rate, as debasing it.
Simply printing more paper money or generating new electronic credits being little different in principle from calling in all the gold and silver coinage, and reissuing it at a much reduced fineness.
Henry VIII did a bit of this sophisticated "quantitative easing" in 1544, apparently the first ever debasement of the English coinage:
http://history.wisc.edu/sommerville/123/123%20232%20Henry%20&%20edward.htm
"Neither the French nor the Scottish campaigns produced any long-term gains, yet the expense was enormous. The wars cost about �3 million, and almost bankrupted the crown. Even after selling vast tracts of monastic land and taxing at record-high levels, Henry needed more money.
Until Henry's reign, English currency was made of valuable metals - gold and silver - whose face value was approximately the same as their bullion value. To pay for his wars, Henry decided to mix the silver in his coins with base metal (copper).
Soon the "silver" coinage was so debased that it contained more copper than silver. Henry's subjects derisively called him "Old Coppernose" as the copper in the coins tended to show through first on the high surfaces - e.g. the nose of the portrait.
The debasement of the coinage helped cause rampant inflation, as people demanded proportionally more of the impure coins. The price of imports increased, for foreigners would not accept debased currency.
The economic disruption caused by debasement and inflation continued into the 1560s; it was only in 1562 that the debased coins were fully withdrawn from circulation."
Is there no way that we can stop Brown doing this?
The great Weimar hyperinflation was ignited by the printing of money to pay the wages of striking German workers.
"Quantitative easing" as expounded above seems to me to be in the same category.
To repeat the Weimar folly would be a criminal act.
We should let our government and advisers know that we will hold them personally responsible for the ensuing hyperinflation.
We have the most incompetent (or maybe devious) government in the western world. No one in power has the slightest idea of macroeconomics, or fairness. Why, as a saver over many decades, should I be funding profligate borrowers by having my savings devalued by 'printing money'? And why can't we just call it 'deliberate inflation'? This is an awful situation for the very large financially consertvative proportion of our population and I hope they wake up and shout loudly that they have had enough of this sort of spend and bust approach.
Where are the cheap mortgages now?
The interest rate drop and the bale out of the banks is so they can lend cheaply to houseowners and small businessmaen.
If the banks hog the money to increase profits,which is all they think is their role then they must be nationalised. I would love to see TSB's loans called in, just as they did to me 13 years ago.
Ha! Perfect for Godon Brown. He missmanages the economy, runs up massive debts and then sternly tells us that the best way forward is to get the Old Lady to print loads of money to plug the gap!
Basket case economy here we come!
To the untrained eye this looks remarkably like the Zimbabwe option. Were this to happen I would spend all my savings, borrow as much as I could, and trade in my wallet for a wheelbarrow.
This professor seems to be advocating a moronic solution. If the government simply prints more money, that money becomes worthless (ask Zimbabwe). Inflation goes through the roof and the pound collapses. Idiocy.
Nary a thought or comment is given to that vast constituency of savers who have not succumbed to easy credit. It is they who are now effectively funding the banks, whose spread between lending rates and savings rates is at an all-time high. All the talk is of mortgage and other credit rates - get people to borrow again by bringing them down. Makes sense, the people along with their governments are going to borrow their way out of this crisis. The banks and credit markets are shot, nothing now can stay the ghastly course ahead. The new mantra is thrift, but those who restrained themselves before will now bear the burden of bailing out the reckless. If governments need money, rather than destroying economies (and the responsible thrifty) by effectively printing money, why not issue "Recession Bonds" carrying a decent rate of interest? But no, take just one example of government hypocrisy in the UK - Premium Bonds : let a vast influx of money flow in on the back of the perceived security this year, and then cut the distribution to well under even Bank Rate (there are now just two #25,000 prizes per month!). When are governments going to realise that they cannot shield we the people from the pain of the fallout. The last Sex Pistols concert ended with the words "Ever had the feeling you�ve been cheated?". Well then.
Nary a thought or comment is given to that vast constituency of savers who have not succumbed to easy credit. It is they who are now effectively funding the banks, whose spread between lending rates and savings rates is at an all-time high. All the talk is of mortgage and other credit rates - get people to borrow again by bringing them down. Makes sense, the people along with their governments are going to borrow their way out of this crisis. The banks and credit markets are shot, nothing now can stay the ghastly course ahead. The new mantra is thrift, but those who restrained themselves before will now bear the burden of bailing out the reckless. If governments need money, rather than destroying economies (and the responsible thrifty) by effectively printing money, why not issue "Recession Bonds" carrying a decent rate of interest? But no, take just one example of government hypocrisy in the UK - Premium Bonds : let a vast influx of money flow in on the back of the perceived security this year, and then cut the distribution to well under even Bank Rate (there are now just two #25,000 prizes per month!). When are governments going to realise that they cannot shield we the people from the pain of the fallout. The last Sex Pistols concert ended with the words "Ever had the feeling you�ve been cheated?". Well then.
The "Printing Presses" have been "Sold", just like the "Gold Reserves"! Furthermore there is No Paper", the Chinese have "Bought all the Paper Mill's 15 years ago!"
There's a fourth avenue. Announce that the zero percent rate will only last for a fixed period of time - say 9 months - after which rates would rise. This would encourage potential borrowers to act quickly.
The arrogant, self-delusional idea that even concerted government action, fiscally or monetarily, has any control over the systemic shift of trade balance that we have seen unfold over the last 20 years, is utter nonsense.
If we had wanted a solid prudent economy we should have retained a balanced trade volume with China et al by lowering our living standards but no, we borrowed instead to make up the gap and now that chicken has come home to roost.
Global markets are seeking new natural levels which time, and a much reduced standard of living for the indebted ones, will locate.
(Rate cuts do nothing to back-fill the vast existing debt hole. People are just all spent out and trying to sell further into the future to get cash in the present provides only an ever diminishing rate of return now we are in the positive feedback loop of debt, debt and more debt.)
Why dont they all resign?
Why dont they simply let banks FAIL? Instead they are bailed out by the taxpayer,but greedy executives get to keep fat boomtime bonuses,and the man in the street gets the bill.
Double standards,moral hazard?
Close the bank of England.
Let the market decide what type of money it needs!
Well well well. So this is the point to where our housing bubble has lead us. The brink of disaster.... Zero interest rates? What about savers? Crank up the printing press? What about inflation? We're going to destroy sterling for the sake of our politicians who cling to power for it's own sake, and to try to maintain a ponzi pyramid scheme which revolves around property. Shameful. Disgusting.
Gosh, that will put a load of money in people's pockets just in time for the next election. And take it out of our pensions and savings through inflation for the next 10 years. The "Ascent of Money" TV program covered this last week - doesn't anyone in the government watch?
I seem to remember from my history lessons something about a certain German economy in the 1930's printing its way out of and then into trouble. Out of the frying pan into the fire? Time will tell.....
What do you mean we are in unchartered terrority? What about Weimar, 18th century France, or Zimbabwe? Thats where the printing press will head us.
So people trying for years to save to buy a house in this overpriced little country must see their interest given to profligate owner-occupiers who over-stretched themselves financially to reduce their outgoings a little bit. Splendid. Let's just hose the middle-classes who are more likely to vote than the poor renters and savers who can pay for it all
Why buy English bonds if you are going to get paid back in monopoly money? You are going to hit the jackpot of economic incompetence - unemployment, inflation, high taxes, ravaging debts and worthless currency. Congratulions, it takes real talent to be so utterly stupid.
This is some of the worst news I've ever heard and the Gordo is bulling the BoE in to stupid decisions. Stop the rot rase interest rates and protect the pound before this country is totally screwed
Perhaps if central bankers and governments contained themselves from lending when they saw personal saving rates go to zero and then below, we may not have been in such a big mess in the first place.
The fact is people cannot spend when they have no saving and high debts. Governments and banks encouraged nay rewarded spending and penalised saving whilst they both partied.
By deliberate usury or sheer incompetance they have created the very problem they are now trying to solve.
Savers will yet again feel the cold wall with their backs.
A policy of quantative easing, lets call it printing is playing wth fire. We have seen how good governments and banks are at controlling debt - now lets see how good they are at restricting the presses.
Zimbabwe here we come then. Is this really the only solution to keeping our houses unrealistically expenisive and our economy working? I think we need a political and social debate now about what we want to make as a nation to make money. Ever rising house prices do NOT make an economy. I for one am now seriously looking at the emigration route as I can't really see a solution coming from any of the major parties.
Printing more money and giving it to people to spend is not only pretty pathetic, it also won't work.
More inflationary garbage by those who think that you can 'solve' a problem by continuing its cause, in this case cheap and easy debt. I expect better journalism from the Telegraph than this article. Whisky for an alcoholic anyone?
In a debt based money system, when banks don�t lend and/or customers won�t borrow, the money supply contracts. Whatever the BoE choose to do, it must have the effect of slowing/stopping or even reversing this contraction, otherwise things will continue to deteriorate.
The amount of money in circulation needs to be supported, and it frankly doesn�t matter how this is done. Then perhaps after this crisis has eased, we can take a look at monetary reform, and getting ourselves a permanent form of money, rather than money created as debt by commercial banks.
Excuse me but all the pundits have been wrong about the recesssion.Even the Queen asked why nobody saw it coming. What makes anybody think that any of the pudits know the answer now? Printing money all over the world will lead to one thing - hyperinflation in a few years time.
What a surprise - the banks are not passing on the full cut in interest rates and are thumbing their noses at this pathetic government. Of course with all those billions pumped into them why wouldnt they? A leopard doesnt change his spots.
Without the threat of a bank failing there is no incentive for them to do anything. What the government should have done is let the worst offender fail. It could still have stepped in to rescue depositors' money so the thrifty were not punished. But that would have shown the other banks that they were not going to have it easy from the government. As it is the banks are still laughing at us and this useless government.
BoE sat twiddling its thumbs when northern rock fell and when everyone were saying you need to reduce rates. Now, they are taking kneejerk measures dropping the rates heavily when the tell tale signs are all there.
We did not need a BoE to say that rate cuts are needed in this environment.