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.
Investors are the experts when it comes to predicting the future but can still be taken by surprise by political events. Brexit wasn’t exactly a surprise but many investors hoped the remain side would win. We now have the triggering of article 50 to look forward to which could trash the markets yet again.
Yesterday the Bank of England announced a QE boost with another 60 billion of quantitative easing and a cut in the base rate to 0.5%. There will be no prizes for guessing who will benefit from this boost. The stock market surged by 1.5% yesterday and the trend continues today. The base rate cut will see mortgages cheaper and so stoke the London housing bubble a little more while there is stifling of the supply side.
To say the London stock market is a volatile market would be an understatement. Next week’s referendum has not only caused uncertainty it has caused panic. What can small investors do? (more…)
It’s difficult these days to even define what money is. It can be coins in our pockets, notes in purses and wallets or numbers on bank account statements. Money can be just bits in a computer or tokens of any kind.
On a Sunday I just write whatever comes into my head for my WordPress blog and then try to write something more considered for a zillion ideas. My ramblings on WordPress seem very popular though and so why do lots of research when I don’t need too? The simple answers are often the best in life. We can sometimes look for answers that are too complicated.
We tend to think money is wealth, but it’s not; it’s just a unit of exchange for exchanging wealth. The wealth is the stuff we produce; goods and services. Some things like property will appear to go up in value. The sun appears to rise in the morning, but we know that the sun doesn’t go around the earth. The earth appears flat, but we know it’s not. Money seems to keep it’s value, but it doesn’t really, it goes down in value when central banks increase the money supply. Everyone who has money then loses out and people who have wealth in oil, gold or some other commodities like property, will gain.
If you burn paper money, do you destroy it? The answer is technically, no. The value of money is all about supply and demand and so if you burn a 50 pounds note, a 50 dollar note or a 50 Euro note; you are decreasing demand and making all the rest of the money in circulation more valuable. You may be destroying one note, but you aren’t destroying overall value! The Bank of England is currently doing the opposite, creating rather than destroying money but in doing so they are increasing demand and so making the money already in circulation less valuable. (more…)