There is considerable doubt that QE (Quantitative Easing) is achieving what has been claimed and evidence that it is actually doing immense damage particularly for pensioners. Still is that not par for the course, the transfer of wealth from the ‘poor’ to the wealthy?
Using QE money, the BofE (Bank of England) is reported to have bought about 1/3rd of the entire UK market in conventional gilts. In effect the BofE have been buying up the Government’s old debts to release money back to investors. For them to buy new Government debts? Where is the sense in that? However looked at, it still ends up as even more debt.
In Britain, out of a total money supply of £2,165 billion (March 2011), only £57 billion was not based on debt. i.e. a ratio of 2.6% cash (debt free money) to 97.4% debt.
Debt comes at a price and that price has to be added into everything that it touches. As a consequence the cost of what we buy is far higher than needs be. If an average figure of 5% interest is calculated, then the interest being paid per annum amounts to £105 billion and that figure takes no account of loan arrangement fees and the like which substantially increases the overall figure.
Now it would be foolish to pretend that all debt could be wiped out. It couldn’t be, because loans to finance property ownership, loans for business development plans and loans for other exceptional expenditure will always be needed. However it is the unnecessary loans that could be reduced. That is the new loans being taken out to maintain the money supply as interest and loan repayments are constantly reducing it. Surely it is preferable to strike a balance between necessary debt and debt that could otherwise be avoided?
Returning to the question of QE. Had the QE money now amounting to £325 billion been paid over time as debt free money directly to the Government’s BofE account, then the ratio based on the March 2011 figures would now be 17.9% cash to 82.1% debt, thereby reducing the total reliance upon debt from 97.4% to 82.1% debt. The Government would not have needed to borrow more month after month and some taxation could have been cut, thereby increasing the spending power of the public. Measures that could have worked towards our getting out of financial morass.
It is currently unclear, whether there will be any more QE this year. In case the BofE announces another tranche of QE money, thereby increase still further the assets the BEAPFF (Bank of England Asset Purchase Facility Fund) account will be holding. Sometime in the future those assets will need to be put back onto the market, reversing the claimed benefits flowing from QE. When will the right time be to do that? There is also the further matter of when the Gilts fall due to be redeemed by the Government. Will, the government just issue new Gilts so that they can honour their commitment to redeem the old Gilts on a certain date?
Is it not time to stop playing silly beggars and came up with new thinking on how we can jump off this ridiculous non stop roundabout?
Is debt and still more debt the only words in our financial vocabulary?