New thinking about the global economy #finance
George Osborne made some interesting comments about quantitative easing and loose monetary policy this week that showed some new thinking:
George Osborne said: “We need to offset the very necessary loose monetary policy and the distributional consequences that it is having. Essentially it makes the rich richer and makes life difficult for ordinary savers.”
“There’s a role for government policy not in stopping that monetary policy which keeps the economy strong but in mitigating its impact. I think all of us who believe in free markets need to work harder to find an answer to the anger that people clearly feel out there.”
This followed on from comments made by the Bank of England’s deputy governor Minouche Shafik that suggested quantitative easing is here to stay. New thinking at the Bank of England seems to favour QE as a permanent tool of monetary policy.
Market forces are still at the forefront of right-wing thinkers like George Osborne. We can see deflation in some areas of the economy such as food prices. Intense competition between supermarkets is driving down food prices but also to some extent leading to poorer quality food. Intense competition often leads to companies cutting corners. We also see intense competition in the oil market and a global glut of oil keeps the price below $50 a barrel. Some oil producers are struggling to stay in business and supermarkets are closing because of intense competition too. Market forces do drive down prices, but is a completely free market with no restraints a good thing when it leads to bankruptcies, closures and job losses?
The rich get richer
As George Osborne says, when more money is printed and demand is stoked up, the rich get richer at the expense of the poor. Property prices soar and rents that are based on property prices soar with them. This loose money is easy to get for mortgages and it isn’t the poor or even the lower middle classes that get the mortgages. It is more likely to be rich buy-to-let landlords.
Printing money inflates asset values and the rich have all the assets. The poor with their few quid in the bank get derisory interest on their cash or no interest at all because money can be simply printed for the rich. Interest rates of 5% which used to be the norm are now a thing of the past so that the rich can ‘leverage’ their property deals.
There is new thinking about how the global economy will develop. Printing money devalues it against other currencies, but not if everyone is at it! The Chinese have devalued the CNY to stimulate their economy and boost exports for years. We can see a lot of Chinese people getting rich out of that and the poor in China paying the price. The great USA printed itself out of trouble following the 2008 crash.
We can change our thinking too
Jeremy Corbyn and the left-wing of British politics is thinking differently too. They want to use quantitative easing to print enough money for investment in housing and quite possibly to nationalise some assets such as railways. We might change our thinking and then a change of government could bring a new paradigm to the British economy.
At the moment, acquiring assets by investing seems to be the way to increase our wealth. New thinking on our part can help us take advantage of trends and be more flexible in our attitude to personal finance. Cuts in interest rates and quantitative easing have a one-off effect on the economy that we can take advantage of. Both, inflate asset values so we can time the acquisition of some assets to coincide with these measures. These one-off boosts to the economy are temporary. The value of gold is boosted for a while but will fall back. A little new thinking on our part might come to the conclusion that we should buy gold when the price is low and dispose of it when the price is boosted by quantitative easing. The same applies to buying shares but the small investor is at a disadvantage and the poor have little chance to acquire any assets.
The world economy is like a game and the dice are loaded in favour of the rich. However, owning some appreciating assets can at least allow us to enjoy some of the extra money being printed by the government.