Thursday, March 05, 2009

Printing Money is the Economics of Robert Mugabe

Nothing, and I mean nothing, will ever convince me that printing money is the solution to our problems. There is absolutely no guarantee that the £75 billion quantitative easing will improve liquidity in the economy, and the big danger is that in the long term it could lead to an inflationary problem. No one has ever shown, to my knowledge, any instance where printing money has led to anything but a worsening economic situation. You can bet your bottom Deutschemark that the Germans will do all they can to prevent the European Central Bank from following suit. And they have very good reason.

What we are experiencing is Mugabanomics. And it can only end in tears.

The way to get confidence back into our economy is not to print money, but to encourage the return of sound money. This move has delayed that by a very long term. I'm horrified that Conservative politicians haven't spoken out against this potentially disastrous move. In fact, no one has. It's about time someone did.

UPDATE: A political friend of mine rang me this morning and defined quantitative easing as "what Nicholas Soames does at 7am each morning". Best not to think about it too much.

47 comments:

Dungeekin said...

'BREAKING NEWS: City Hit by Massive Power Cut'

The City of London was this morning hit by a massive power cut, blacking out most of the Square Mile's financial institutions and leaving bankers and traders unable to work.

The power cut is believed to have been caused by every single one of the Bank of England's printing presses going into overdrive simultaneously.

Under the BoE's new Quantitive Easing policy, all the new banknotes created will have an extra zero added - the £5 becoming £50, the £10 becoming £100 and so on. A spokesman for the Monetary Policy Committee said that they were introducing the new policy 'based on the successes of Quantitive Easing in Zimbabwe'.

The power cut in the City has so far caused no major problems, given that the banks and the Stock Exchange are all too screwed and skint actually to do anything. The only personnel affected are those currently counting Sir Fred Goodwin's monthly pension payout.

Tory Boy said...

Iain, I absolutely agree with you. This is the economics of madness. The problem with Quantitative Easing is that no-one knows what amount of money is required and what effect it will have. This is not going to work. It is mortgaging me as a taxpayer for years to come. As a Conservative, I am disgusted and horrified that my party has not spoken out against this.

no longer anonymous said...

http://www.amazon.co.uk/Meltdown-Free-Market-Collapsed-Economy-Government/dp/1596985879/ref=sr_1_1?ie=UTF8&s=books&qid=1236291280&sr=8-1

An analysis of the financial collapse from genuine free marketeers who have no time for Keynesianism or the softcoare monetarists.

The Mises Institute (http://www.mises.org/) is the place to go for uncompromising free-market arguments.

Alas many monetarists (who claim to be free-marketeers) are fans of this Keynesian money-printing scheme.

Jeff said...

That's a shockingly simplistic approach you're taking there Iain.

Zimbabwe has inflation going through the roof. We are entering deflation and are swapping the money for assets.

It's an entirely different situation. More money in the system makes sense and there is the added bonus that we can relatively quickly swap the money back for assets again and we're back to where we were. Osbourne seems in favour.

All in all, worth a pop.

Ted Foan said...

I heard George Osborne on WATO saying this was a very risky strategy -or words to that effect.

Iain Dale said...

Worth a pop? Are you deranged? This is the whole of our economy we're talking about here, and you think it is worth taking this huge risk for - on a policy which has to my knowledge never been shown to work anywhere else. Honestly.

And why has Zimbabwe got high inflation? There are several reasons - and one of them is because they have printed money.

Oliver Drew said...

I think it is insane based on the ramifications if it goes wrong - and pretty much everything this government touches at the moment goes wrong.

One quick question though - can the bank of England take this money back out of the economy at a later date if it wishes?

Oliver Drew said...

There you have it. The Conservative on the panel (I think he was the Shadow International Development Secretary) has confirmed that it has Conservative Party support.

Total insanity

bobthedog said...

Its why Osborne is viewed as weak, he just doesnt carry his comments properly. Cameron should dump him and find someone who can actually carry the gravitas that shadow chancellor should carry. This government is getting away with disastrous policies with no realistic opposition.

Cato said...

I have said repeatedly that spending money you don't have is stupid.

If you haven't the money then don't spend it. Drastic cuts in Government spending..and I mean drastic..is the only way to return to normality.

Dungeekin said...

@bobthedog:

I have to say, I agree with you.

I know that John Redwood is against - but why aren't the Tories speaking out about this?

Hyperinflation beckons, and it's not going to be fun.

D

Alan Douglas said...

"The way to get confidence back into our economy is" to replace the Prime Minister.

I nominate Gio.

Alan Douglas

And Brown's response to that, the WV : clanargr

Oliver Drew said...

@Dungeekin - they aren't speaking out against because they are supporting the policy according to the Tory on Question Time.

Man in a Shed said...

Newsnight is suggesting that the govt has spend its newly "printed" money on itself.

Maybe there's more to this - perhaps they are having real trouble borrowing any more ?

Apparently no other central bank has done this ( can they really be including the central bank of Zimbabwe here ? Maybe not ]

Bill Quango MP said...

One quick question though - can the bank of England take this money back out of the economy at a later date if it wishes?

Oliver Drew. yes it can very easily. Maggie T did it in the 1980's. Its called 15% interest rates. The problem is, is it causes the complete collapse of the economy.
Prepare to dump tracker and grap fixed.

John Moss said...

Last time I looked CPI was still 3%.

OK, RPI is 0.05%, but that is a far more volatile measure and mainly driven down by the colllapse in mortgage costs. RPIx is still 2% I think?

We are not in deflation, not least because the 30% fall in the value of sterling has kept import prices high, especially those of gas and food.

The shift to money printing is simply a further failure of Labour and its lackeys to recognise that PUBLIC SPENDING IS TOO HIGH! (sorry for shouting, but we have to say this)

We need a cash freeze at least, possibly an 2-3% cash cut in public spending totals.

A "we share your pain" strategy, might include an immediate 5% cut in public sector wages, (above certain level, 10% for the highest earners), in return for a pledge of no redundancies this year. Public sector wage bill is £250bn, 5% cut = £12.5bn - that would be the same as the VAT cut that never was.

Funny that.

Oliver Drew said...

@Bill Quango

Fair enough and thank you for that reply.

I was hoping though for a "yes, they can simply sell the assets they buy and burn the money" or somesuch.

Glad I don't have a mortgage (I rent) and pity those who do.

Thatsnews said...

Well... that's it then, isn't it? No wonder Darling looked pig sick during PMQs yesterday.

Tone made me do it - he's a bad influence said...

Normon Lamont agrees with you Iain.

Saying that in his day, monetary policy was reckoned to have a 12 to 18 month lag. - We have seen base rates cut by 4% in 6 months the most aggressive loosening in history. We should first wait to see if this has worked before poring petrol on the fire.

The Lakelander said...

All you need to know about quantatative easing is explained here

Chris Paul said...

When it comes to economics and monetary policy Iain you appear to be a complete muppet sorry to say. Why do you pronounce in this way?

Quantitative easing and the opposite i.e. quantiative tightening are constants in all our economies. Whoever is in the political ascendancy these things are required from time to time.

Usually they are accomplished with interest rate variations. Because that is not available just now with interest rates at a historic low and negative interest a rather difficult concept, changing the nominal money supply is the way it's done. But it is nominal. It is a standard tool. It is not the same as printing money in the sense that you promote.

Your Mugabe reference here is truly ridiculous. You are making yourself look absurd here. Not like me to be so blunt! But there you go.

The Grim Reaper said...

Frankly, if the Tories aren't able to get Labour out of power now, they simply don't deserve to be a political party?

This is a terrible step which will end in disaster. It has to be stopped.

Victor, NW Kent said...

Looks like a good idea to me. If you have had a bad run of betting why not sign some more IOU's and have one great splurge - all or nothing. The worst that can happen is that you end up sleeping rough and with global warming that may not be so much of a hardship.

Another bonus is that if hyper-inflation comes along Fred Goodwin's pension will be worthless.

WV= Obelition [too good to miss]

DiscoveredJoys said...

I've heard arguments that quantitive easing during a downturn is reasonable, as long as it has been paired with quantitive tightening in the previous upturn. A bit like shock absorbers on a car.

Of course you can argue that quantitive easing after a long period of 'virtual' quantitive easing (the credit bubble) is the recipe for a very bumpy ride...

John Redwood has blogged about 'sound money', often.

Jimmy said...

"I heard George Osborne on WATO saying this was a very risky strategy -or words to that effect."

Must be on the right track then.

Jimmy said...

"Your Mugabe reference here is truly ridiculous."

Apparently Zimbabwe's main problem is lax money supply.

Perdix said...

Dungeekin - J Redwood says "it could be part of the answer if ..."

Andreas Paterson said...

Iain, there is a good example of effective use of quantitative easing, it's called Japan. They used the policy from 2001-2004. It had very little inflationary effect and could be considered to have assisted in Japan's recovery.

More over here:
http://citizenandreas.blogspot.com/2009/03/torynomics-fail.html

no longer anonymous said...

"It's an entirely different situation. More money in the system makes sense"

No no no!

We NEED delation to help wipe out all the malinvestments made in the boom. Yes it will be painful but the quicker we get it over and done with the better. Blasting more money into the system will simply delay the inevitable correction and make it more painful.

It is interesting to note everyone forgets the American recession of 1920-21 where the Fed reacted by increasing interest rates. The recession was sharp but short.

Wrinkled Weasel said...

I love it the way people on this thread think they know better.

Like f**k they do.

If any of you knew better you would not be living here or be so terribly poor. All the clever money is long gone, along with a few nice pension schemes.

Printing money is just one bit of anti-matter in a whole galaxy of desperation, engineered by people who are pissing us out of the window.

The next layer of despair will be to watch as the Government fixes the price of basic foodstuffs, making the food industry collapse because they are forced to make bread for 75p and sell it for 50p.

Vicky Ford said...

I am deeply uneasy

http://vickyford.blogspot.com/2009/03/large-quantity-of-unease.html

jeremy said...

Someone says the govnt is spending this new money on itself. Well the Bank will be buying back gilts amongst other bonds. But the real purpose is to influence long-term interest rates - which gilt prices usually determine. When gilt prices rise (market shortage), yield rates fall, i.e. lower interest rates. 'Sell' more gilts and the reverse happens.
Personally, I'm not confident the plan will work. Just because the banks will have more cash won't make the public borrow it and spend. Business needs big spenders not scared, asset stripped taxpayers waiting for next year's massive tax bills.
http://pol-e-tics.blogspot.com

javelin said...

Lenders, borrowers and rate setters are all responsible for this crisis. To only blame the lenders is like blaming celebrity chiefs like Jamie Oliver for the obesity crisis - on the basis that he shouldn't have made the food so delicious

frankowenspaintbrush said...

Iain - you're economically illiterate.

In Zimbabwe and elsewhere, "printing money" (as you characterize QE) causes hyperinflation because the government uses the new money to pay for government commitments - e.g. to pay the salaries of government workers. However, with no new goods and services being in circulation, prices soar.

In QE, the new money is used by the Central Bank to purchase government and private bonds, thus having a real-terms influence on the rest of the Macroeconomy.

By and large, though, I think we all need to move to a place where we can assess QE for what it is - a neutral economic tool, to be assessed simply on the basis of whether it will achieve its stated aim - rather than being reduced to partisan screeching.

BTW - as for evidence, there is some evidence to suggest that the Japanese economic trough over the past decade would have been helped had the Japanese Central Bank used QE.

BrianSJ said...

Iain
You are not economically illiterate. The sheeple who have read the wrong ladybird books on economics will find out the hard way.
I'd like to think there was a good reason why John Redwood's approach is not tory policy, but I can't find one, which is immensely sad.

Guthrum said...

The Libertarian Party came out strongly against as you would expect, but the 'impartial' BBC which is supposed to give both sides of the argument was uniformly uncritical in this move. Parliament was bypassed, and the Tories as ever silent.

It is now begging the question do the Tories have any fresh ideas and dynamic economic Leadership, or is it a case of Buggins turn ?

Oscar Miller said...

Quantitive easing improving liquidity? Sounds like a particularly nasty kind of laxative.

Oscar Miller said...

"In Zimbabwe and elsewhere, "printing money" (as you characterize QE) causes hyperinflation because the government uses the new money to pay for government commitments - e.g. to pay the salaries of government workers."

Surely this is a very good description of what Brown is up to.

curly15 said...

I wonder if they've decided how many noughts to append to our bank notes. Conservatives take note, sitting on the fence only results in spelks up the arse.

cassandra said...

What a fantastic idea, only the great helmsman could dream up such a fabulous cunning plan!
Its the pot of gold at the end of the rainbow, its the magic purse of gold that is always full no matter how much you spend!
Only a sumpreme superbeing could create such genius, we never run out of money because Brown has invented magic money, just watch in awe as Brown creates hundreds of billions in magic money, we will all be rich beyond our wildest dreams, we keep spending and Browns golden goose keeps on laying, who needs manufacturing industries/exports/savings/fiscal discipline/restraint we an all go out and spend the new Browngold and buy everything we can dream of, its like we all just win the lotto every day!
Everyones a winner with magic Brownmoney, I mean what can possibly go wrong? The BoE is a money tree orchard, its the answer to the old desire to turn base metal into gold, what a genius Brown is, why has nobody thought to do this before, perhaps we can all print more cash as and when we need it, need a joliday to the sun? need a new plasma TV or new kitchen? just print off a bundle of cash on the printer and hey presto just like magic we can all have everything we need whenever we want it, no need to work hard and save is there?
Wow! what can possibly go wrong? this cunning plan is sheer genius and the do nothing Tories can only talk about fiscal discipline/hard work/restraint, yuuuuk, who needs old fashioned common sense and prudence when Brown has invented the holy grail of endless free cash!
For thousands of years the finest brains have grappled with and failed to invent magic cash, when brown just comes with it instantly in his gigantic brain.

Vote newlabour for free cash with no strings!

Newmania said...

Quantitative easing and the opposite i.e. quantitative tightening are constants in all our economies. Whoever is in the political ascendancy these things are required from time to time.

This is gibberish. I love the way that people no-one would trust to sit the right way round on toilet seat think they are macro economic gurus

As a macro economic guru I fear thuis is apolitically motivated move designed to defer the worst until after the election and engineer a small boom. Old style politics its efficacy otherwise is small one way or the other.

This is the hard drugs of Policy. Quick hit now and you are stuck with it for years . Yet again Brown borrow from tomorrow to pay for today and I go with my gut

ITS WRONG

Steve Tierney said...

You won't get any argument from me about this. I've been saying it for months.
www.blog.stevetierney.org

MikeyP said...

Time to buy a few shares in Chillingtons, methinks!

David Cox said...

"Britain might find itself emerging quickly from the crisis and straight into a new era of rising inflation. On the day the Bank of England announced plans to pump £75bn into the economy, Mr Cable warned that this expansion could fuel a return to “old-style boom and bust” unless it were handled with extreme caution."
Vince Cable in the FT

Doug said...

we aren't really in deflation at all. Look at the underlying change in prices for RPI and you'll see that prices are still rising for everything except fuel and housing. As soon as housing bottoms out (who knows what oil will do) there will be a massive rise in inflation spurred on by the huge amounts of money being thrown into the system.

trevorsden said...

Various economic commentators are supporting it or at least saying that there is no other option.

Plain fact is we are in uncharted territory - low interest rates ought to start the economy but as banks have no money they are useless.

I wonder why we need interest rate so low if we are going ahead and printing money - surely higher interest rates would head off future inflation.
This is the future problem which we do not know if we will be able to solve - will we grow addicted to inflation?

But I write to point out that Cooper told a porkie on Newsnight last night.

She said 'of course this is being done by the bank of England which is independent'.
Well if she is trying to distance herself from it now - she cannot be confident. But she well knows that the BoE has had to ask the Treasury permission so this is very much a government initiative.

titus-aduxas said...

No, no, no - ZaNu PF politicians are corrupt. They steal from the public purse.
They force everyone into joblessness.
They create a worthless currency.
They have no idea how to run an economy.
They are only in it for themselves.
They don't care one iota for the poor on the streets (having created most of them with their lousy economics).
They promote their cronies into positions of power and wealth.



OH, OK, yes, I see what you mean......