Monday, 13 February 2012

Potential for More Doom and Gloom?

Quantitative Easing and the Frugal Household

So once again, the Bank of England (and British Government) saw fit to churn out another £50 BILLION in cash, apparently bringing the total up to £375 BILLION of new money that's recently been (or is currently being) pumped into our failing, some may say spendthrift, economy.

Elsewhere, the US can do similar by way of the Federal Reserve, but what is happening in the Euro Zone, when the likes of Greece needs to impose further austerity measures in order to secure more 'bale-out' funding? Am I to assume that someone, somewhere, simply prints out more Euros?

Austerity measures were apparently imposed on Britain, but I don't know what they were or what they currently are, having witnessed absolutely no improvement in my personal financial circumstances, although the price of fuel (domestic heating and motor) seriously curtails any thoughts of living in a warm home or travelling without a specific need to travel.

Isn't our traditional British method of "QUANTITATIVE EASING" just a posh term for a BALE OUT? I'm no politician, nor am I an economist, but surely if the Bank of England is literally printing new money, we would expect to see some English notes pass through our own hands eventually, here in Scotland? Northern Ireland have their own bank notes, too, so come on guys, let's hear it from you across the water - how many Bank of England notes have passed through your hands over the past couple of years?

Or have I completely misunderstood the concept of how this 'easing' works? Isn't the presumption that it filters down through all the different levels until there's extra money (real money) circulating at consumer level?

What does QE do to the value of the pound? Surely, if the nation's pot of money is being topped up then there has to be a dilution occuring, a trickle of devaluation, meaning that more is, in actual fact, leading to less, over time? As far as I'm aware, devaluation of the GB pound - that's how I see it - occured in 1931, 1967, 1976, 2008 and I've kind of lost track, other than my understanding that it's been watered down by a further £375 BILLION since then. Do we know the percentage dilution?

Tread cautiously, frugal lifers, because somewhere along the line, this has to have a greater impact. Near worthless money in banks is earning close to nothing yet our 'anywhere els' investmets are being watered down continually.

What is the real answer for those of us who have little or no savings and who practically live hand to mouth each week, albeit debt free? Into what should we be investing our time, energy and meagre excesses?

NYK Media
Frugaldom

8 comments:

  1. "Into what should we be investing our time, energy and meagre excesses?"

    And that is the million dollar question, I too would like to know the answer!

    Gill in Canada

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  2. Frugaldom. People aren't making any money in the banks but at least property prices are dropping. Which is great news if you are trying to get a first step on the property ladder and terrible news if you are paying a mortgage.

    I also believe that decimalization devalued the pound.

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  3. You tell me whats going on! Its a bit difficult to get my head round just what they mean by "quantitative easing". I can make out that they are deliberately devaluing our currency "by the back door" in order to make out that Britain owes less than it does to other countries and thats where sparks start flying from my brain.

    As to regarding Britain in terms of it being separate countries - my brain just blows up at the thought. I literally don't understand why Scotland, England, Wales seem to be "flying apart" - as, as far as I'm concerned its all "Britain - end of....". I dont understand why some people in the different parts of the country called Britain are trying to "break us all up". I theeenk...from what I can see...that it would be to England's advantage to say "Thats it then...we'll all act like we are different countries and break up officially then.."...but I still cant get my head round this idea (as a middle-age person...as far as I'm concerned I've grown up with thinking of Scotland/Ireland/Wales/England very much in the same light as different counties of England...so I'm totally puzzled by any "devolution" type talk...and go into "my head hurts" type thinking trying to work out whats going on.

    As for how to keep whatever meagre savings we have safe - that much I'm clearer on. Savers are being "shat on from a great height" - even though we would appear to be 70% of the population compared to 30% debtors and some debtors are in that position due to "their own fault/their own choices". Another thing I find very difficult to get my head round - and I just head off down thinking routes of "Surely the government cant really expect savers to carry the can for everyone else forever - if only because savers are often the generation with time on their hands to fight back (ie retired)". It doesnt make sense to me for any government to shaft savers on behalf of everyone else - when the Baby Boomers are just heading into the "saver agegroup" and I honestly cant see us "going quietly into that dark night" of letting our money (ie the interest we SHOULD have) get stolen off us and handed out to other people. Put the average Baby Boomer into a "saver" category and we are either retired now or will be darn soon - and many of us will still have energy/time/health enough to fight back and we have learnt how to....so I cant see that the Government can shaft savers for very much longer...because there will be too many of us in a position to "fight back" (ie that time/energy/health level needed to do so) and striving to find ways to do just that...

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  4. NYK, I don't know how it is in GB, but in the US, The Federal Reserve prints billions of dollars and buys bonds from the treasury to buy our debt. We haven't seen any of the money. Printing all this money is creating a lot of inflation. I've wondered also where to put money. I think you are already doing what you need to do. You're working on your home, buying livestock and trying to be as frugal as you can and save energy costs. If our money is not worth anything, the only things that will be valuable are those that help us survive.

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  5. The only way to beat inflation and keep the value of your saved money is to invest 50% in the Stock Market and hold 50% in cash and bond funds until you die.

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  6. "Into what should we be investing our time, energy and meagre excesses?"
    Our time and energy needs to be spent preparing ourselves for becoming very much poorer over the coming years. By learning how to be more self reliant, by getting involved in our communities and developing skills that others may need so that we have something to offer.
    As for meagre excesses? I think Lizzie has been correct - in the past- but this is going to be a new 'norm' and your money won't be safe in the stock market or bonds if/when the currency collapses. I think tangible assets will be better. It might be that that packet of kilner jar lids will be worth more to you in 10 years time, than the £5 you could put into the bank today. QE will do nothing but devalue the currency and create serious inflation further down the line.

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  7. Hi there, I believe the principle behind QE is to essentially de-value the currency, which as everyone here is pointing out means that the government thinks our debt will be watered down a little bit. While this is true, and it is also true that it impacts inflation further down the line (although this is actually historically really difficult to prove if you look at the office for national statistics inflation versus QE data - and yes I have done this!) it also should impact on our ability to get foreign investment. In the capitalist model of society (which whether we like it or not we are in) investment is the key thing to get us out of trouble. QE makes foreign investment more likely.

    As for extra banknotes.. I'm sorry to say you won't see any! They don't actually print extra notes (and even if they did it would be split amongst the various printing banks... not just BoE), its all electronic money really!

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