QE: What If....

[Mike_F]

Since 2010, The Bank of England injected £375bn of cash into the economy through QE. This was meant to stimulate lending, drive demand and restore shopper confidence but a fair old wedge of it seemed to end up stuck at the top of the system with the banks and bankers.

The sum involved equates to almost £6000 for every man, woman and child in the UK. Had it been shared equally amongst the population surely it would've been much more effective at driving spending and preventing deflation.

Ok, some people would've saved/invested it but others would have spent at least a portion of the cash. Then there would be people like me with a few grand of loans and credit cards who would've wiped out their debt and started contributing more to the economy through increased consumption each and every month.

I know that's a simplistic view but I'd be interested to hear some thoughts on it.

[BillyStubbsTears]

Mike

Bang on.

What you are talking about is the top subject interesting economists at the moment.

Helicopter money.

Printing money and giving it away to be spent, in order to invigorate the economy, spur growth and avoid deflation.

It was originally proposed by Thatcher's favourite economist Milton Friedman. M

That such an idea is considered to be dangerous left-wing nonsense by those in power these days (George Osborne, Wolfgang Schauble, come on down) just shows how far to the Right and away from basic economic theory the debate has gone over the past couple of generations.

We'll see what happens when the approaching recession hits and Govts and Central Banks finally admit that they have no other bullets in their guns.

[big fat yorkshire pudding]

I would invest or save it personally. If it's to be done to encourage spending there's other ways to do it surely?

[Mike_F]

Let's say you and Jenny both got £5800, Andy. Sure you might bank most of it but I bet you'd have a holiday or summat too.

[DearneValleyRover]

It was mooted at the time if everyone's debts were paid off but in return they had to take new loans fo cars/home improvements but at a more realistic affordable level than the previous debts the economy would have been boosted and we wouldn't be in the state we are in now. Yes savers would have suffered but only in the short term. This was from top economists at the time.

[BillyStubbsTears]

BFYP

Yep. And since right now, saving is pointless for the economy as a whole, Helicopter Money can and should be designed to prevent it being saved.

There are plenty of ways to do it. Conventional ones include simply reducing VAT to make prices lower and encourage spending. That would reduce the Govt's income and increase its debt so the printed money is used to pay off the debt.

Less conventional ones include effectively giving vouchers that can only be spent, not saved.

[big fat yorkshire pudding]

Let's say you and Jenny both got £5800, Andy. Sure you might bank most of it but I bet you'd have a holiday or summat too.

I think we'd argue about it but I'm a big saver and investor so my thought would be to do that or pay off some mortgage but that again isn't great for the economy. I take your point that some would probably go that way though and that would work but not all.

Bst that's my point, it would be some other mechanism to make sure it gets spent and gets spent in this country.  Spending is good and saving bad hence the lack of an interest rate but some do like to save that's for sure.

[Bentley Bullet]

Let's say you and Jenny both got £5800, Andy. Sure you might bank most of it but I bet you'd have a holiday or summat too.

I think we'd argue about it but I'm a big saver and investor so my thought would be to do that or pay off some mortgage but that again isn't great for the economy. I take your point that some would probably go that way though and that would work but not all.

Bst that's my point, it would be some other mechanism to make sure it gets spent and gets spent in this country.  Spending is good and saving bad hence the lack of an interest rate but some do like to save that's for sure.

You are Terry Bramall and I claim my 50p! 

[BillyStubbsTears]

BFYP

We're in the Paradox of Thrift territory. It's absolutely right for most of us as individuals to save up and prepare ourselves for a rainy day. But at the moment, if we all do that, it's catastrophic for the overall economy.

It needs a big Grown Up to make us do what is best for us all in the long run. Which is not to save...

[Mike_F]

I did think a tax break could have been another way around it but some tight-arsed Yorkshire Puddings would squirrel away the money saved every week under their mattresses! Some sort of voucher/pre-loaded card scheme would also lead to people spending the £6k voucher and saving three months' wages. You're always going to get some of that but I'd bet that more money would end up ringing through the tills through some kind of distribution to the populace than it has done by giving it to the banks.

[BillyStubbsTears]

Mike

There is serious economic discussion going on about how to stop people saving. It's actually quite easy if there was the political will.

What you do is to have serious negative interest rates on bank accounts. Effectively charge people to save. And that WILL encourage them to spend.

Except, of course, that they could withdraw every penny from the bank and stick the bags of notes under the mattress.

But there's an easy way to stop that. Get rid of cash money. Do away with notes and coins. Have electronic money and electronic purchases as the only method of saving and buying and selling. And then, charge people for holding money and not spending it.

This is NOT a Big Brother idea by the way. It's not a way of squeezing money out of people and into the banks' pockets. It's about smacking people round the face and making them do the right thing for society to stop us spending the next century in a deflationary spiral. Which is not out of the question.

[Sammy Chung was King]

This government wouldn't give you steam off their p..s!.

[DearneValleyRover]

BST, the governor of the Bank of England actually stated getting rid of cash money last year to stop another 1920's event occurring. It's inevitable anyway not in the next 5 years but 15 to 20 that money as cash will cease to be.

[idler]

Mike

There is serious economic discussion going on about how to stop people saving. It's actually quite easy if there was the political will.

What you do is to have serious negative interest rates on bank accounts. Effectively charge people to save. And that WILL encourage them to spend.

Except, of course, that they could withdraw every penny from the bank and stick the bags of notes under the mattress.

But there's an easy way to stop that. Get rid of cash money. Do away with notes and coins. Have electronic money and electronic purchases as the only method of saving and buying and selling. And then, charge people for holding money and not spending it.

This is NOT a Big Brother idea by the way. It's not a way of squeezing money out of people and into the banks' pockets. It's about smacking people round the face and making them do the right thing for society to stop us spending the next century in a deflationary spiral. Which is not out of the question.

Billy I worked hard from 1964 until 2015 for my savings. I've earned the right to spend as and when I choose. I spend some and I save some.
Anyone in work these days are looking over their shoulder at redundancy or being laid off. You are advised to have 3-6 months wages saved to tide you over. Losing your job with no savings soon leaves you in a hard place with the price of houses,utilities,food and fuel.
At 67 my money earning days are over but I have no debt and the security of some savings. We have like to of breaks in England during the year and are going to China in May all feeding money into the economy. When I've gone the kids and grandkids are welcome to blow the lot but for now I also enjoy the security of knowing that I have no financial worries.
If interest rates were negative then People would just invest in gold or maybe stocks and shares or even invest abroad. The government would also lose the money going into gilts and bonds.

[The Red Baron]

Like you, idler, I've been very glad I've had money saved up over the last 18 months. I haven't been able to work and really didn't want to have to jump through all the hoops needed to claim benefits (I'd probably have been turned down anyway.) So without that money I'd be sunk.

As most of my work over the last 10 years has been freelance I've been used to keeping money in hand to cover periods out of work. Fortunately until last November these hadn't been very long.

I don't disagree on the general merits of a monetary stimulus - and if George Osborne wished to present me with a cheque for a few grand I'd quite happily spend it pdq. But let's be careful we don't throw out the baby with the bathwater. Saving is a good thing and needs to be encouraged. Perhaps if more people had saved up money to make purchases, rather than taking advantage of "easy" credit, we wouldn't have such a big overhang of personal debt- which is now discouraging us from spending.

[knockers]

Wasn't it in this weeks budget that he said any low paid workers would be given up to £1000 if they saved £5000. Is that not encouraging saving?

[Glyn_Wigley]

There are plenty of ways to do it. Conventional ones include simply reducing VAT to make prices lower and encourage spending. That would reduce the Govt's income and increase its debt so the printed money is used to pay off the debt.

We can't reduce VAT because the theory behind VAT is that eventually all the EU countries will have the same 'harmonised' rate of VAT. As our VAT rate is still one of the lower ones in the EU we are not allowed to reduce the rate of VAT as it will move it away from the harmonised level - coutries can only move their VAT rates towards the harmoised rate, and not away from it, though it is still down to the individual countries themselves when and by how much they do change their VAT rates as allowed.

It is the same principle of the zero-rated goods the UK still has - most of them are not zero-rated by the rest of the EU so once we throw away zero-rating on something we have harmonised with the rest of the EU and we cannot then get it back.

Guess which colour stripe of government has continually raised VAT rates without the possibility of reducing them again, and given away zero-ratings...?

[BillyStubbsTears]

Idler/TRB

I fully appreciate your personal issues. But you have just summed up The Paradox of Thrift.

What you two are doing as individuals makes perfect sense. For you as individuals.

It's also what companies are doing across the globe. Building up reserves. Not investing for future (or current) production. Insuring themselves against hard times. And the consequence of those individual, sensible decisions is catastrophic for us as a collective. It means that potential productive capacity is wasted and we ALL suffer as a result.

The gold issue doesn't work by the way. If gold was a sensible alternative, people would be piling into it NOW because there as so few alternatives to make money. But they haven't. The price has collapsed over the past 4-5 years.

[BillyStubbsTears]

Glyn

Agreed about VAT. But what's required is certainly global or at least regional collective decisions. There is nothing (except collective will) preventing the EU from deciding to lower the harmonised VAT rate.

It's the will that is missing. It will come eventually. The question is, what horrors will we have to experience before the prevailing ethos changes?

[Glyn_Wigley]

The point I was making is that VAT reductions are not in the hands of the UK government alone.

However, despite what the shittier anti-EU rags might try and convince you otherwise, the EU has absolutely no influence on a member state's Excise duties at all. Instead of a VAT reduction the next best thing would probably be a Fuel Duty reduction, as it would directly affect both the disposable income of the domestic user and reduce distribution costs for retail goods with hopefully a knock-on effect on prices.