The Bank needs to put us at ease about its strategy

Liz Brown

If we are to have Zimbawean monetary policy, can we please have their weather as well - we desperately need something to cheer about and as a pensioner and saver(hah!) I don't see many silver clouds

Publius

Well the general deflation we keep hearing about doesn't seem to apply to food - the annual inflation rate for which has gone up from 7.5% in January to 9% in February.

I must say I have serious doubts about QE. I have yet to see explained how it will work in an open, as opposed to a closed, economy. And if inflation does take off, I wonder whether there will be the political will to tackle it, seeing as inflation will be so very convenient politically.

WheresMyVote

As usual, no plans for long term economic recovery just short term measures to prop up the failed stratagies of the current PM and previous Chancellor.

Stephen

The previous level of economic activity was not sustainable - it was built directly upon debt that was not affordable. Surely it follows that we have to adjust to a lower level of activity, one that can be sustained? All these wheezes will only make things worse in the long run, and penalise the prudent saver in favour of the profligate spender.

Jim

The challenge surely is that the inflation this will generate will start to feed into the system in 2010/11. Once that happens we are likely to see interest rates take off, possibly back up to the 15% or so we saw back in the late 80's.

The damage this will do to people with mortgages will be horrific.

A pefect scorched earth booby trap to leave for an incoming Conservative government. Never mind the individual pain and suffering, think of the party political gain this will bring...

I wonder who thought this one up, and whether they sleep soundly at nights...

Lance Grundy

It seems the primary purpose of this so-called ‘QE’ [like that of the other measures announced so far] is ‘to get the banks lending’ – a prescription to cure a credit crisis. This is a debt crisis. Like millions of others I’m burdened down by the debt I accumulated by playing my part in Gordon Brown’s Bacchanalian decade of irresponsibility. QE does nothing to reduce my debt burden or the £1.4 trillion of household debt now being carried by the British people.

QE may make banks more willing to lend, but so what? No matter how many ‘guaranteed’ loan offers from Northern Crock and the rest of Britain’s debauched banks land on my doormat or fall out of my newspaper supplements, peddling more and more debt, I am not going to buy. I don’t want more credit. I want less debt. Enough is enough is what most people seem to be saying. Most of us have got enough debt to last us our lifetimes. We don’t want more.

I find it hard to believe that ‘QE, or any of the other harebrained schemes being peddled by the Labour Party and their desperate friends in the City, will break Britain’s Borrowers Strike.

TrevorsDen

As wheresmyvote says - the question is just how much is this to do with short termism and getting Brown through the next 6 months.

Despite the posters best efforts I have still to see this quantitative easing properly explained.

Can someone explain how to add to the supply of money - by printing it - cannot have anything other than reducing the value of the pound in my pocket.

Well??

RW

Reminds me of the Douglas Addams fantasy about the settlers on a distant planet who decided to adopt tree leaves as their currency, in a spirit of fairness and equality, and all instantly became millionaires - briefly.

Someone tell me I'm dreaming this insane weirdness - the Government and its totally subservient State Bank decreeing that from henceforth, and for purely political reasons, money *will* grow on trees.

Maybe I should put an electrified fence round my garden to keep out bank robbers. There's a fair few million quid out there, you know.

Rhoda Klapp

Inflation is THE PLAN. It takes money from those who own it and gives to those who owe it. The government stands to benefit immensely. It's like a tax, on everyone, unavoidable and universal. They ought to admit it's the plan, but it won't work if they do. Thus they govern by intentional deception. Scum.

john

What deflation exactly are we talking about? If you exclude fuel and houses then there is no deflation at all but quite a scary amount of inflation.

So what will the effect of printing money... er quantitive easing, have on already steep inflation?

councilhousetory

Government issues Gilts, which private sector pay cash for. BoE, then prints cash and buys gilts of private sector. In what way is this not dangerous?

Obnoxio The Clown

A clear strategy? From this government? You're having a giraffe!

Mike

Can someone tell me where this method has actually worked before. I suspect it is just theory

James

I am getting confused - I have two questions I feel I should know the answer to but don't:

1. Why is the BOE bothering to reduce interest rates further. They seem to have moved them beyond the point where they have an impact and it will surely start reducing the deposits that banks are able to attract. Is there any link between low interest rates and quantative easing - do you need near zero rates to begin quantative easing?

2. The article states that when the BOE starts selling off their corporate bonds (bought through QE) this could result in a gilt strike. Why is this? surely the willingness to buy corporate bonds is based on the ability of the companies to service their debt not the government. I don't understand how selling corporate bonds is related to gilts at all.

Apologies if I am being stupid on this - but I'm not an economist and most media outlets explain the easy stuff in tedious detail but fail to explain in enough detail the more complex factors.

Publius

James. I think the gilt strike works like this. With QE, the BOE will start buying government debt (aka gilts) using its click-of-the-mouse "printed" money. This will have the effect of enabling the government to sell as much debt as it wants into the market, since it will have a guaranteed buyer of that debt - namely the BOE.

The effect of this will be to drive down the interest rate on those gilts that the government sells, since the BOE will buy whatever amount of gov't debt it is told to buy, at whatever price, no matter how low that price.

The effect is that no one else will trust the price these gilts are offered to market. Why? Because the government in cahoots with the BOE will have destroyed the proper distance between seller and buyer, and thus no one else will trust that the price reflects the proper value.

So everyone else in the gilt market will stop buying gilts from the gov't because they think the price is artificially low.

I think that is what is mean by this talk of a gilt strike.

C Powell

I'm a saver. Where do I put my savings now given that the pound's value is about to be trashed even further? Euros? Swiss francs? Dollars? Where?

oldtimer

This may be true of someone thinking of buying a house - but not necessarily so. And this is but a small proportion of the population.

For the rest of us, the fact is that the asset price bubble has already burst, the pound has already devalued, pension fund deficits have soared and inflation is the worry if not already the reality (eg food prices).

QE will not persuade me to buy anything - unless I absolutely need to have it and should buy it now before it goes up in price. Otherwise I am saving as much as I can against future inflation and the day my pension fund says "All bets are off!"

Of one thing we can be sure. The so-called experts have no idea if QE will work. My belief is that it will all end in tears - ours. Brown and co will retire with index linked, taxpayer funded comfort blankets.

Augustus

"Only governments can take perfectly good paper, cover it with perfectly good ink, and make the combination worthless."
-Milton Friedman

THX1138

C Powell well any currency that you think is going to devalue further against GBP. Probably looking at 130 GBP to the USD soonish. Also you could think about a gold ETF money to be made both ways on gold if the GBP continues to slide against the USD and the price keeps rising. Asian equities is still good medium/longterm bet.

A few premium bonds up to 30K now and tax free if your number comes up and buy anything now that you need to spend money on in the future, school fees and alike and pay off all your debt.

C Powell

THX1138: Thanks. All debt paid off / have been sensible which is why I'm so bloody furious with the way GB is ruining mine and my childrens' future.

Ray

Augustus - along similar lines, some Russian economist once calculated that the sum value of the raw materials in each Soviet-built car was actually worth more than the finished product was.

I guess that's socialism for you.

THX1138

Ray didn't David Brown at Aston Martin say when asked by a customer if could have the car at cost, Brown that he could but it would cost another £2000 more than list. The British car industry for you.

C Powell good luck I'm in the same boat but that's what I'm doing but at least inflation id flat lineing so that won't be eating away at your saving.

Best advice buy some premium bonds, a gold ETF and stay away from property. I totally agree and it really makes so angry that those of us that have been sensible are getting no savings return to bail out those who went on a consumer feeding frenzy on money they didn't have.

wonderfulforhisage

@C Powell. 3:43
I've been wondering the same thing and have considered Norwegian Krone. I'm no expert but Norway is a small country with large oil reserves. Best I can think of but I haven't had the guts to do it myself.

Anybody who knows about these things any ideas?

Moriarty McButts

Mumrah, I hope you read the comments; especially the first one! Bring that sunshine on - I for one can't wait to slap on the Factor 20 to distract from the greatest economic disaster of my lifetime.

THX1138

"C Powell well any currency that you think is going to devalue further against GBP"

Doh -That should be the other way round but even the experts get it wrong look at Alex's fabulous Jon Stewart clip ripping CNBC a new one.

B Clarke

Gordon McRuin will 'Save the World'. A man with a mission - Mickey Mouse Monopoly cash. Always a danger, but lets just hope that wiser heads prevail and McRuin is told to go and sit in the corner and play with himself!!