Thursday, 9 February 2012

“Printing money is the last resort of desperate governments when all other policies have failed.” George Osborne, January 2009.

Today, the Bank of England announced that it would be injecting £50 billion into the economy printing it... 


It seems that, in the words of Mr Osborne himself, we have a desperate government which has run out of resorts.

That is a shame for the rest of us, as the consequences of quantitative easing, as it is euphemistically known, are quite damaging. And they are particularly damaging to two groups to which Osborne's government might be thought to be sympathetic, if only because they want their votes.

They are the hard pressed, hard working, decent British families up and down the country, that so many of their ministers appear to meet every day (how do they manage it?), and older people on fixed incomes, particularly those about to buy their annuities.

The first group are hit by inflation. If you are hard pressed now, and you are likely to get no pay rise, or  a very small one, you must have been welcoming the reduction in inflation from 5.2% to 4.2%. You'll be getting poorer and poorer for sure. You'll still be able to afford less and less, but with falling inflation, it is, as it were, less, less and less. 

However printing money devalues the currency and the inevitable result of that is that things cost more. So inflation will be on its way back up again.

If you're a pensioner (and thus quite likely to vote), your pension will rise at the rate of inflation... or at least the rate of inflation that the government admits to, which as we know is never anywhere near realistic. 

And the poor are usually hit harder by inflation, particularly if it is, as it has been recently, inflation of the absolute necessities of life: food, gas, electricity. Some estimates have put inflation for the poor at between 12% and 20%.

Pensioners who saved a bit for their old age are cruelly hit, because even if they have the money tucked away in long term, high interest accounts, it is unlikely to be returning anything like the rate of inflation that its owners are suffering. In short they too have less and less each year. They may as well go out and splash the lot on having a good time, and turn to the state for help with rent and council tax.

The people coming up to retirement are finding that their saved pension pot will buy them much smaller pensions. Financial services company Hargreaves Lansdown found that a £100,000 pot would have bought an annual pension of around £7,800 in 2008, but just over 3 years later would only purchase a pension of £5,900. With the state pension at around £5,000, that would give a retiree an income of around £11,000 (less tax and council tax). 

With poverty level in the UK set at around £16,000, that shows the kind of future the average Briton will have in old age. 

But back to Osborne, the Soothsayer of Old London Town, I'm inclined to think that if you are in politics, with even a slim hope of power one day, you should be careful what you criticise and how you criticise it.

What do you say to that, Oh Wise Soothsayer of Old London Town?


  1. tris

    I think you will find £100,000 for £5,900 is on the higher side of annuities you would be very lucky to get that much............and the likelihood it is not linked to rises in inflation.

    Whats your view on the concept of Precarity

  2. Memorandum from Rev Dr Richard Rodgers, Leader, the Common Good Party

    7. This sort of money creation activity by commercial banks gets little attention in the media. I think it is so breathtakingly audacious that speaking of it is embarrassing to men of stature in banking, journalism or politics. There is a tacit conspiracy of silence over it. I believe such activity does exist, however, since this construction makes sense of observable facts, whereas denying the possibility of such activity leaves us with a set of observations which baffle most people.

    8. Over the last ten years or so the approximate 14% pa growth of M4 money supply has far outstripped to approximate 2% growth in GDP. I realise that this discrepancy is partly explicable by "open market" operations of the Bank of England and purchases of British real estate by foreign nationals. But even allowing for such factors it seems to me to show that someone is creating a lot of money that doesn't correspond to any real growth in the economy. I think a big part of the answer is this spurious "creation of money out of nothing" by banks.

    Democracy is our problem because we don't have it at present.

  3. In a short message, a précis if you will... It's on the rise. It creates uncertainly, stress, dissatisfaction, sense of not belonging in people's lives, families' lives.

    It means lack of loyalty to organisations, to clients or customers, students...who ever is in receipt of the service or product.

    It means lack of loyalty to the organisation that employes you on a part time, temporary contractual basis and can dump you with alacrity

    In academe, I should think that, underpaid as they are, they probably don't teach as well, because they don't know whether they will have to repeat the course the next year. They will never get better at delivery if they only do it once.

    And whatever anyone says (Thatcher for example)_ you gets what you pays for. And if you pays peanuts... you gets monkeys!

    It's short termism. It leaves everyone dissatisfied.

    Yes, probably it is an unreasonably high estimate. Poverty for the old is once again the norm in the UK.

    I was told that in the early 1990s a fund of £100,000 would buy you £16,000...

    It's not going to be worth the square root of jack in 10 years time.

  4. How economic inequality harms societies

    Pinched from Bella which shows the problem we have in our system.

  5. Oh yeah CH, as I've said many a time, there is only the vaguest smidgen of democracy in our system.

    There is the illusion of elections, but an illusion is all it really is.

  6. Thanks for posting that link to the TED lecture. Very listen-able, and of course, it confirms what other studies have shown.

    I think an interesting point to come out of it was that fact that Sweden and Japan, such totally different cultures, have the same level of equality despite their differences... because in whichever way, there is a low level of difference between rich and poor.

    Scotland needs to be aware of this, but the difference between rich and poor on our country is small compared with certain parts of England.

    Possibly these are the parts of England that suffered so much last summer.

    Cameron won't have helped the situation with the extremes in the sentencing between noble lords who stole hundreds of thousands of pounds and little lads who stole 2 bottles of water.

    Us and them is the problem, and the UK (and by that I assume England, as that was where his data originated, is high on the list of countries which show the biggest differences between the haves and have nots. With inherent snobbery, that makes the situation worse.

    Possibly the Olympics people need to look carefully about how they respect Londoners' rights during next summers extravaganza.

  7. Remember that thanks to the fractional reserve system (and through this that most money is created by the private banks) the real amount that will be injected into the system will be ten times this at a minimum. By the time the £50 billion of new money goes through the system it will be about half a trillion at a minimum.

    This is why the money in the average person's pocket becomes worth less and the prices are going up. The money is worth less each time.

    In this manner the inflation and money creation is a stealth tax as it increases their share of the pie (for free(!) and for nothing in return!) and so decreases yours and everyone else's.