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Thursday, 5 November 2009

Quantitative Easing

So, to nobody's surprise, it was announced to day that the Bank of England has decided to spend another £25 billion buying 'old' government bonds, to put the cash into the hands of firms that will use it buy new bonds and maybe a few old shares.
Meanwhile the government is selling the 'new' bonds at an unprecedented rate for peacetime.
The release of at least £200 billion of 'new money' into the economy from the QE programme will inevitably cause inflation of costs and prices at some time in the next few years.
The people who should be most concerned about this 'financial engineering' are those in employment who plan to become pensioners - with company pensions or personal pensions - in the next few years. The value of their 'pension pots' has been eroded massively over the past decade, and the trend of the last  few years for fund trustees to hold bonds has set fund members up for further significant losses. The consensus of commentators has decreed that it will probably never be knowable whether quantitative easing has 'worked' or not, at the macro-economic level: it is certain at the micro-economic level that it will be disastrous for members of pension funds.
It is probable that a majority of members of pension funds who are old enough voted for Thatcher in the 'eighties, and for Blair-Brown in 1997: so did they in so doing earn the misfortune that the succession of governments has brought upon them?

1 comment:

  1. We also have to consider the effect that QE is likely to have on the general rate of inflation and the impact that will have on savings and investments, ie destroy their value. I really don't think gambling further money on the totally unproven QE programme is a risk worth taking. I think by 2012-14 we will be looking at inflation of 10% to 15% unless a way can be found of pulling the £200bn out of the economy very quickly as soon as the inflation rate starts to climb.

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