ozleicester Posted 13 February 2015 Posted 13 February 2015 Can you explain how the money is given to the rich? The central bank buys assets, usually government bonds, with money it has "printed" - or created electronically these days. It then uses this money to buy bonds from investors such as banks or pension funds using this "new" money, which increases the amount of cash in the financial system, encouraging financial institutions to lend more to businesses and individuals. This in turn should allow them to invest and spend more, hopefully increasing growth. Thats the rough theory, of course what really happens is, the banks and pension funds etc, just reinvest the money, buying more shares and investments and collecting more income, while just a minimal percentage makes it to the people (loaned out to continue the profit grab by the banks, who have been GIVEN this money) If instead they put the 60 billion out onto the streets where the general public at large would actually spend it, ... buying new cars, season tickets, home extensions, going to the pub, holidays, clothes... etc etc. this would make those billions actually create jobs, and therefore create more tax revenue and of course reducing the poverty.
The People's Hero Posted 13 February 2015 Posted 13 February 2015 The central bank buys assets, usually government bonds, with money it has "printed" - or created electronically these days. It then uses this money to buy bonds from investors such as banks or pension funds using this "new" money, which increases the amount of cash in the financial system, encouraging financial institutions to lend more to businesses and individuals. This in turn should allow them to invest and spend more, hopefully increasing growth. Thats the rough theory, of course what really happens is, the banks and pension funds etc, just reinvest the money, buying more shares and investments and collecting more income, while just a minimal percentage makes it to the people (loaned out to continue the profit grab by the banks, who have been GIVEN this money) If instead they put the 60 billion out onto the streets where the general public at large would actually spend it, ... buying new cars, season tickets, home extensions, going to the pub, holidays, clothes... etc etc. this would make those billions actually create jobs, and therefore create more tax revenue and of course reducing the poverty. Except that is actually what does happen
leicsmac Posted 13 February 2015 Posted 13 February 2015 Except that is actually what does happen Really? The banks seem pretty cautious about letting that money out right now.
MooseBreath Posted 13 February 2015 Posted 13 February 2015 The central bank buys assets, usually government bonds, with money it has "printed" - or created electronically these days. It then uses this money to buy bonds from investors such as banks or pension funds using this "new" money, which increases the amount of cash in the financial system, encouraging financial institutions to lend more to businesses and individuals. This in turn should allow them to invest and spend more, hopefully increasing growth. Thats the rough theory, of course what really happens is, the banks and pension funds etc, just reinvest the money, buying more shares and investments and collecting more income, while just a minimal percentage makes it to the people (loaned out to continue the profit grab by the banks, who have been GIVEN this money) If instead they put the 60 billion out onto the streets where the general public at large would actually spend it, ... buying new cars, season tickets, home extensions, going to the pub, holidays, clothes... etc etc. this would make those billions actually create jobs, and therefore create more tax revenue and of course reducing the poverty. You're talking about two different things there. QE money is leant to banks, not just given to them. The equivalent direct to consumer approach would be to give out loans to everyone which would have to be paid back (probably free of interest or very low cost). This would have high administration costs and big risks of bad debt. The Japanese tried a direct to consumer approach in the late 90s. They had a problem where despite income rising, consumer spending was falling because people were afraid to spend. They gave out vouchers to everybody. The result was that people spent the vouchers on things they would have otherwise bought in cash and saved the cash. It didn't make any difference. Maybe a better idea is to set up a government-ran but independent strategic investment arm, whereby QE money is loaned direct to projects, such as infrastructure, or into targetted business sectors. But then you're still relying on trickle down for it to get to the masses. And if you don't believe in that now then I guess you still won't then.
ozleicester Posted 13 February 2015 Posted 13 February 2015 You're talking about two different things there. QE money is leant to banks, not just given to them. The equivalent direct to consumer approach would be to give out loans to everyone which would have to be paid back (probably free of interest or very low cost). This would have high administration costs and big risks of bad debt. The Japanese tried a direct to consumer approach in the late 90s. They had a problem where despite income rising, consumer spending was falling because people were afraid to spend. They gave out vouchers to everybody. The result was that people spent the vouchers on things they would have otherwise bought in cash and saved the cash. It didn't make any difference. Maybe a better idea is to set up a government-ran but independent strategic investment arm, whereby QE money is loaned direct to projects, such as infrastructure, or into targetted business sectors. But then you're still relying on trickle down for it to get to the masses. And if you don't believe in that now then I guess you still won't then. So the bank is (to use your words) GIVEN money, a portion of which they then lend to the suckerpublic with interest. Of course they will tajke out there fees and they will invest a portion of it overseas to ensure they profit even further from this FREE money they have been given. The japanese did try and it did work to some extent, just not as well as they had hoped... but to be fair the trickle down effect has been failing since the 70s so why do we stick with that? Direct investment is a good idea, at least lets give it a try. In Aust during the GFC, the government subsidised solar power and insulation and also a large school building program, we avoided recession (more due to the mining boom in china than anything), but the spend was vital, important and beneficial that got right into the public hands.
Guest MattP Posted 13 February 2015 Posted 13 February 2015 Would you have refused to bail out the banks Oz?
Webbo Posted 13 February 2015 Posted 13 February 2015 The central bank buys assets, usually government bonds, with money it has "printed" - or created electronically these days. It then uses this money to buy bonds from investors such as banks or pension funds using this "new" money, which increases the amount of cash in the financial system, encouraging financial institutions to lend more to businesses and individuals. This in turn should allow them to invest and spend more, hopefully increasing growth. Thats the rough theory, of course what really happens is, the banks and pension funds etc, just reinvest the money, buying more shares and investments and collecting more income, while just a minimal percentage makes it to the people (loaned out to continue the profit grab by the banks, who have been GIVEN this money) If instead they put the 60 billion out onto the streets where the general public at large would actually spend it, ... buying new cars, season tickets, home extensions, going to the pub, holidays, clothes... etc etc. this would make those billions actually create jobs, and therefore create more tax revenue and of course reducing the poverty. So how is that just giving money to the rich.
MooseBreath Posted 13 February 2015 Posted 13 February 2015 So the bank is (to use your words) GIVEN money, a portion of which they then lend to the suckered public with interest. Of course they will tajke out there fees and they will invest a portion of it overseas to ensure they profit even further from this FREE money they have been given. The japanese did try and it did work to some extent, just not as well as they had hoped... but to be fair the trickle down effect has been failing since the 70s so why do we stick with that? Direct investment is a good idea, at least lets give it a try. In Aust during the GFC, the government subsidised solar power and insulation and also a large school building program, we avoided recession (more due to the mining boom in china than anything), but the spend was vital, important and beneficial that got right into the public hands. Well no its borrowed money like I said. The trouble with the government financing projects is that it leaves them even more open to accusations of giving money to their mates than they are now. The idea of using banks is that they can lend it out to anyone for anyone to benefit from instead of just a selected few. If you want an example of that happening just look at mortgage rates in the UK. They're at about their cheapest level ever and legions of homeowners are benefitting as a result, as is the house building industry and all its services. That said I'd like to see a comprehensive study done on recent QE to see its effects before we do anymore. I'm not aware of any such study being done yet though.
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