Wednesday 17 December 2008

Quantitative and qualitative easing

I fear that surreptitious quantitative easing has been with us for decades and is the root cause of our present global problem.
Private and commercial property valuations have allowed both individuals and institutions to print their own money without any underlying justification.
Funding by banks at 125% was perfectly logical in line with property price inflation expectations. The ‘opiate of the masses’ has been the ‘home is my castle’ nonsense encouraged by successive governments. This allowed financial institutions to bundle debt based on fragile temporal valuations in ever larger instruments and funded an unjustified gravy train for the individual who, directly and indirectly, will have to pay the piper – apologies for the metaphors.
Borrowing is necessary and good for an economy, but it does need to be securely based on redeemable assets, if only future (productive rather than inflationary) earnings. Qualitative easing aught to be a way out of our present predicament, but it seems the intended beneficiaries are more likely to be politically rather than economically motivated. Peer Steinbruch is quite correct to remember that asset creation must be based on savings and physical production. I sympathise with his brusque dismissal of the 2.5% VAT reduction as a non-starter and time will prove him right.
It would be nice, if wishful thinking, if Britain joined the EURO and we could save the £15bn annual exchange rate costs which only benefit our illustrious financial institutions. Many British goods are price anyway at parity and have been for years. Sadly introverted nationalistic political disinformation will win the day.