As the article points out,it isn’t exactly printing money,no its even lazier than that.They would be buying these securities with money created out of nothing but electronic credits.
This is purely inflationary,anyone who thinks King and Darling will be watching the economy and the inflation statistics to ensure they don’t “overcook” it and create inflation is insane.The effects from this policy won’t be seen for years(hence the lies given to reassure people worried about its inflationary consequences) and by the time the effects are seen it is too late,and much like the property bubble that preceded it,this inflation will not be stopped either, and for exactly the same reasons the property bubble wasn’t - it will make loads of money for the banks and any dissenters will be accused of trying to kill the recovery in the economy.
The ECB will be next.
I can’t see the Germans agreeing to the ECB pursuing a similar path.
How long before hyper-inflation manifests?
That’s really hard to know, but either way you don’t want to be heavily weighted in cash when HI kicks in.
Of course, these Central Banks are assuming that before inflation would be allowed kick in, they will remove the liquidity out of the system, by selling back the bonds or whatever. Still, unchartered waters!
They are insane. The UK is finished.
No,they are experienced central bankers and economists,they know there is a long delay before any stimulus has an effect in the economy,and consequently it is impossible to give this type of reckless stimulus and at the same time have any degree of certainty of its effect on inflation, as by the time you have seen its effects it is too late, there will be a huge inflation problem to deal with,these are the same politicians and bank of England officials that promised the nation that never again would inflation be allowed to rob a generation of their savings.Why would the ECB be any more trustworthy?
Despite the TARP and other liquidity measures (all of them sterilised so far (apart from some jiggery-pokery with state bonds according to baby_tooth)), V has reduced in the US and banks have hoarded cash.
Just thinking about this quantitive easing stuff from a Eurozone perspective, it occured to me that I don’t understand how this works. So a quick question:
When a government with it’s own currency decides to print money, it’s basically doing so backed by sovereign debt, correct? (eg US T-Bills bought up by Fed based on printed money - please correct me if I’ve got this wrong)
So when the ECB decides to increase money supply, what is it based on? Is it a debt shared out between the participating states? On what basis? Who plays the “Treasury” and who is the “Fed” in eurozone? What is the mechanism?
Just because the latest set of inflationary measures haven’t worked only means there will be a period during which even stronger medicine will be concocted to revive the patient.The next stimulus will be vastly greater and more inflationary than the last,and if that doesn’t work…well you know the rest.
Think about it logically, if the UK doesn’t inflate while the USA does, won’t that just hurt the UK economy?
This question applies doubly to the ECB: if the dollar inflates seriously, how can the Germans or anyone else justify a fanatical SS-style anti-inflation hyper-orthodoxy?
Nobody will buy Eurozone exports if the eurozone is the planet’s last bastion of stable prices while the rest of the world is happily inflating to get its economy moving.
Bearing in mind that it is US inflation which will determine the price of oil. If heavy inflation occurs under Obama’s watch, oil will double and treble again and the Saudis won’t give a fig how much the Germans don’t like it.
This would seem to answer your question (published two days ago):
ecb.int/pub/pdf/scpwps/ecbwp1020.pdf (big pdf)
I haven’t read it yet - I’ll give it a go this evening and see what it says.
The point is, the Germans opted out of inflation before. They know how to do it. They can do it again.
Pumping money? Haha, don’t they mean printing!
Interesting to see that Sterling has barely moved despite this announcement.
Precisely,this is called competitive devaluation and means that one country inflates its economy and thence deflates it currency and puts pressure on its competitors to do the same,as you pointed out,how long can the ECB hold out against the UK and the US money printing before it throws the towel in and prints money as well?.
The end result is in theory everyone should end up more or less in the same competitive position relative to one and other. However,the inflation created in the process will reduce the debt burden on those who recklessly borrowed during the boom,hence my theory on all the cannies being bailed out by their respective governments,and the failure of house prices to crash to the ludicrous levels predicted here on this site.
I believe the ECB will begin money printing/asset purchases by the end of the year,by then the ECB interest rate will be probably less than 1% so anyone with a huge over sized mortgage will(if they can keep their job) be laughing.
The only ones not laughing will be those who thought the ECB would not join the boom, bust, reflate game and will then be faced with chasing house prices back up.
Really? You think pay is going to exceed money inflation?
What would be the fucking point? Why don’t we just all give ourselves huge pay rises now and pay off our debts?
Alright,alright,alright,calm down,calm down,Yogi,the system stinks but that doesn’t mean what I predicted isn’t going to happen.As long as the banks remain in control of our governments and economies the same economic policies will ensue.Boom, bust, deflation, inflation.
If as you point out wages will fall due to the recession,and or prices outpace wages it is only a matter of time before wages catch up,otherwise there would never have been an inflationary house price/asset bubble before now,and by my reckoning we have them every eight years or so,this time,due to the sheer size of the bubble,it will take a lot longer to reflate or an even larger stimulus to produce the same recovery in the same time period.
I’m betting on a humongous package that will bungee jump asset prices.
Don’t take this stuff personally.
Eh-eh-eh, mind me trackie…
I don’t see wage inflation coming. Without it there will be no advantage to indebted people from Central Bank induced inflation. In fact, people will be poorer. Imported goods will increase in price (except when they are imported from economies what have also inflated - the relative strengths of the currencies will stay the same.
If everyone is doing it, no-one gains…
If not everyone is doing it, we will see protectionism, no-one gains…
There is no gain.
edit: sorry if I came across personal - it wasn’t my intention.
Have to say that I’m finding it difficult to disagree with this.
Heres a curved ball for ya,but what if they west can convince China/Japan to devalue their currencies vis a vis the wests currencies and then the debt/purchase model can continue,otherwise yes, the relative cost of imported goods from the east is going to rocket,which is in neither sides interest.
Discussions along those lines might have been behind the recent visit by Hilary Clinton to China no?
It won’t be a long term solution to the huge economic imbalances but the US is desperate for a short term fix if nothing else.