I keep wondering about quantitative easing. What is the point? Can somebody tell me, in simple terms what it is supposed to achieve? Please?
If it is to put money into the economy, as some kind of stimulus, then why not just give direct to people (I posted on this here, before).
If it is to bolster the over-stretched banking sector then surely that reduces the value of the currency for those cash-surplus countries (e.g. China) and gives them cause to ponder investing in one that is effectively being devalued with every QE episode?
And just who is fooled by this? The large investors? I don't think so! The stock markets? Surely there is enough liquidity in those, already. Large corporations? They seem to be awash with cash but can't or won't invest because of the lack of direction from the political sphere.
Corporates know that hard times have to come, they know that there is a political and economic shift to the BRICs and THAT is why they are sitting on cash in the 'West'. Why would Walmart, Tesco or Carrefour open new stores in their home territories when the expectation is that the locals will be facing straitened times? Same holds for other businesses and industries.
In my view, if you want to stimulate 'western' economies, governments need to reduce the tax take - leave money in people's pockets so that they can spend - and significantly reduce government spending. Does anyone really believe that small businesses will take-on staff with all of the attendant regulatory burden? Clearly, it just isn't worth it. (Incidentally, it was interesting watching the EUcrats try to 'square the circle' the other day. These people have continuously promoted shorter working hours/weeks and the same folks are telling Greece they should work longer!!).
So unless there is any sound logic to QE, end it and stop putting off the inevitable.
If it is to put money into the economy, as some kind of stimulus, then why not just give direct to people (I posted on this here, before).
If it is to bolster the over-stretched banking sector then surely that reduces the value of the currency for those cash-surplus countries (e.g. China) and gives them cause to ponder investing in one that is effectively being devalued with every QE episode?
And just who is fooled by this? The large investors? I don't think so! The stock markets? Surely there is enough liquidity in those, already. Large corporations? They seem to be awash with cash but can't or won't invest because of the lack of direction from the political sphere.
Corporates know that hard times have to come, they know that there is a political and economic shift to the BRICs and THAT is why they are sitting on cash in the 'West'. Why would Walmart, Tesco or Carrefour open new stores in their home territories when the expectation is that the locals will be facing straitened times? Same holds for other businesses and industries.
In my view, if you want to stimulate 'western' economies, governments need to reduce the tax take - leave money in people's pockets so that they can spend - and significantly reduce government spending. Does anyone really believe that small businesses will take-on staff with all of the attendant regulatory burden? Clearly, it just isn't worth it. (Incidentally, it was interesting watching the EUcrats try to 'square the circle' the other day. These people have continuously promoted shorter working hours/weeks and the same folks are telling Greece they should work longer!!).
So unless there is any sound logic to QE, end it and stop putting off the inevitable.
So your economic beliefs are closely aligned to Hayek and the Austrian School of Economics rather than Keynesian thinking!
ReplyDeleteAre we facing cyclical challenges in which case some stimulus is fair enough or are we facing structural challenges in which case unconventional levers like QE and OMT are merely putting off an inevitable correction?
It's a big dilema for politians to handle because a great correction is likely to be brutal and unpopular with voters or the vested interests of lobbyists.
And what about the law of unforseen consequences with all this distortion going on by use of unconventional monetory policy? Is there another bubble ready to burst soon?
With the presses working overtime just now printing all this new money this could be a good time to buy gold!!!
We live in a world of high energy prices and we know that impacts on economic growth. 11 of the last 12 recessions were caused by high oil prices. Countries that invest in infrastructure that reduce their demand of fossil fuel will benefit. Investments in broadband so people can work more from home, and mass transit systems are all good ideas. Invest in education so we become a knowledge economy too. We can borrow money for virtually nothing now so these are good investments. Investing in housing might win some votes but it's hard to mortgages for people to move in to them it makes little sense.
My economic beliefs follow those of Tom O'Brien! I think Hayek may have pinched some of my ideas before I even had them! Cheek!
DeleteI just don't see (or maybe understand) the point of QE. If it is to stimulate the economy - be more direct - give their money back to the people. If it is to prop-up banks while they try to navigate out of the crisis into which they have steered themselves, then say so and face the political consequences. If it is an under-the counter devaluation, say so.
You are quite right that some of the cuts that need to be made are bordering on being brutal. Cruel to be kind, springs to mind. I do not think though, that they will be unpopular on the wider scale. Most of the working population see that benefits have got out of hand, way out of hand! I think that the electorate (and this applies in countries other than the UK, as well) are intelligent enough to understand the basic economics that we have been living beyond our means.
Buying gold may be an option. There is a good wee company in Scotland that has a gold mine which will come on stream, next year, in which I am modestly investing - beats putting money into bank shares!
I fully agree about investing in 21st Century infrastructure such as broadband and mass transit and especially education - look at somewhere like Singapore and you can see the positive results!
Oh! By the way - Well Done Andy Murray! A fitting finale to a great summer of sport for Great Britain!