Quantitive Easing

[suityou01]

BOE buys gilts from pension funds.
Pension funds are awash with cash.
Banks are awash with cash.
Banks "supposed" to lend that cash to the great unwashed.
Great unwashed use cash to spend on the high street, and or invest.

Nice plan guys.

Exceeeeeeeept, doesn't that mean the economy is being stimulated with borrowed money? Surely that's what got us into this mess in the first place? Economy looks good because lots of people spending and buying houses, that can't afford to pay stuff back.

Someone explain "how" the BOE QE measures can actually do any good, vs people living within their means and the prices of stuff sliding to more realistic levels?

[DimPrawn]

It brings back the boom just long enough for the next election to be called.

Simple as. That's all the govt are trying to do. Recreate the credit bubble for a few months.

[DaveB]

BOE buys gilts from pension funds.
Pension funds are awash with cash.
Banks are awash with cash.
Banks "supposed" to lend that cash to the great unwashed.
Great unwashed use cash to spend on the high street, and or invest.

Nice plan guys.

Exceeeeeeeept, doesn't that mean the economy is being stimulated with borrowed money? Surely that's what got us into this mess in the first place? Economy looks good because lots of people spending and buying houses, that can't afford to pay stuff back.

Someone explain "how" the BOE QE measures can actually do any good, vs people living within their means and the prices of stuff sliding to more realistic levels?

Not quite. The money isn't borrowed, it's actual money created by the BoE. They dont physically print it, just add a few zero's to the value of a number somewhere but it has the same effect.

The banks are not going to be lending direct to Joe Public so much as to busniesses, and other banks, that need credit to maintain cashflow and so avoid redundancies and keep paying their employees.

The idea is that this will then restore confidence in cosumers who will start spending again and boost the economy.

Of course this is all speculation, no one know if it will work or not. This is uncharted territory. Here Be Dragons.

[Cyberman]

BOE buys gilts from pension funds.
Pension funds are awash with cash.
Banks are awash with cash.
Banks "supposed" to lend that cash to the great unwashed.
Great unwashed use cash to spend on the high street, and or invest.

Nice plan guys.

Exceeeeeeeept, doesn't that mean the economy is being stimulated with borrowed money? Surely that's what got us into this mess in the first place? Economy looks good because lots of people spending and buying houses, that can't afford to pay stuff back.

Someone explain "how" the BOE QE measures can actually do any good, vs people living within their means and the prices of stuff sliding to more realistic levels?

As soon as the economy picks up, the assets are sold back into the market by HMG, thus recouping the QE funds and removing them from the system.

[suityou01]

Not quite. The money isn't borrowed, it's actual money created by the BoE. They dont physically print it, just add a few zero's to the value of a number somewhere but it has the same effect.

The banks are not going to be lending direct to Joe Public so much as to busniesses, and other banks, that need credit to maintain cashflow and so avoid redundancies and keep paying their employees.

The idea is that this will then restore confidence in cosumers who will start spending again and boost the economy.

Of course this is all speculation, no one know if it will work or not. This is uncharted territory. Here Be Dragons.

To quote Robert Pestolence

The point of the Bank of England's exercise is to increase money in circulation, to ward off the threat of deflation and to stimulate economic activity.
In slightly simplified terms, if the Bank of England today buys a load of gilts from pension funds, those pension funds will put the money on deposit with our banks (the reason I mention pension funds is that the Bank of England tells me it wants the bulk of its purchases to come from non-bank financial institutions, such as pension funds and insurers).
Two things should then follow. The liquidity of our banks should improve - and with any luck they would then lend some of that cash to businesses or households, who would then do a bit of useful spending or investing.

[PM-Junkie]

Be very aware though, if this does work, it is basically papering over the cracks and not fixing the systemic problems. So the economy ill come to a grinding halt again in 8-10 years time, and next time it will be even worse because the cupboard will be even more bare.

In all seriousness, I strongly suggest getting to a position where, in 10 years time, you are financially independent and don't need to work if you don't want to, or can't. Then you can be sitting on a beach somewhere when the economy goes tits up again and say "oh, has it?".

The smart cookies currently have 5 year plans that they are working to.

[Pickle2]

This is uncharted territory. Here Be Dragons.

Nonsense, the japs starting doing it in 2001.

http://www.frbsf.org/publications/ec...el2001-31.html

It hasnt really worked though.

[Cyberman]

Be very aware though, if this does work, it is basically papering over the cracks and not fixing the systemic problems. So the economy ill come to a grinding halt again in 8-10 years time, and next time it will be even worse because the cupboard will be even more bare.

In all seriousness, I strongly suggest getting to a position where, in 10 years time, you are financially independent and don't need to work if you don't want to, or can't. Then you can be sitting on a beach somewhere when the economy goes tits up again and say "oh, has it?".

The smart cookies currently have 5 year plans that they are working to.

The smart cookies started planning in earnest around 1997 !!! SMUG