Guess what? Ritchie still doesn’t understand QE

I have argued before, and I will argue again (no doubt) that this type of quantitative easing is aimed solely at providing support to the relatively limited number of people who own financial assets in the EU’s financial markets but that it will not, despite the enormous sums involved, provide any effective support to the real economy, or create jobs and so it will not, even, create the desired inflation for reasons I have discussed here.

In that case the real question is why is money being created and wasted in this way?

1) It’s not being wasted. QE is reversible, recall?

2) It doesn’t support those who own financial assets. It encourages those who own financial assets to move out along the risk curve. That’s what it is for and it does it very well.

43 thoughts on “Guess what? Ritchie still doesn’t understand QE”

  1. ” providing support to the relatively limited number of people who own financial assets in the EU’s financial markets”

    Including the relative few people who have a pension…………

    Or does he think “pension funds” exist in a vacuum as some flavour of evil capitalists out for their own?

  2. Right, so people like me who have pension funds etc don’t own any financial assets?

    Any very few people nowadays have pension funds?

  3. @ Emil
    We who have saved money for our retirement do not count as “people” – we are capitalist running-dogs.
    All the people who matter have unfunded public sector pensions provided by the Courageous State.

  4. @Emil, since he’s Mr. First Order, he sees “pension fund” but doesn’t see you behind it. You’re 2nd order.

    And if challenged, he’ll squirm and say “I meant directly” which makes a mockery of every type of indirect invenstment like a mutual fund.

  5. It’s not just Ritchie though.

    Guido has a clip of last night’s Labour debate. Corbyn baldly States that £375bn (referring to QE) was spent bailing out the banks. Either he is deliberately lying to mislead people (likely) or he doesn’t understand it either (equally likely).

  6. GlenDorran:

    surely a prerequisite for believing Murphy is that you don’t understand what he’s saying any more than he does himself.

  7. Murphy, and Corbyn, are entirely wrong if they think they can depend on the electorate’s lack of specialist knowledge.

    PQE simply fails the sniff test. It’s too good to be true. If it wasn’t, it would have been done before.

    Of course, they have an answer to this. PQE would happen if western governments weren’t entirely captured by the Neoliberal Conspiracy.

    But Ordinary Joe and Joanna aren’t buying.

    1) Is such a massive conspiracy possible? No.
    2) Would politicians really seek to pauperize and generally annoy the 99.99% in order to earn brownie points and maybe a few crumbs from the 0.01%? And no one breaks ranks, not even Dennis Skinner?

    Yeah. Whatever.

  8. Johnnydub:

    Yes, that’s the clip I was referring to above.

    Cooper was on a hiding to nothing. If she tried to explain why Corbyn was wrong and what QE was for then the chimps would just start booing. There is no place for logic or rationality with Jezbollah.

  9. @Jack C,

    “2) Would politicians really seek to pauperize and generally annoy the 99.99% in order to earn brownie points and maybe a few crumbs from the 0.01%? And no one breaks ranks, not even Dennis Skinner?”

    But the swivel-eyed loons do actually believe this. They do see everything as a conspiracy. They do believe such things possible from “reactionaries”. It’s the only way to explain the repeated failures of Marxism-Whateverism, and it’s a nice balm for the concience for the horrific things they would actually do if they got power (and did do where they did get power).

    However, I hope that your Joe and Joanna Ordinaires with a mortgage and 2.4 kids are not dumb enough to fall for that.

  10. abacab,
    Joe and Joanna haven’t fallen for it before, and the 2015 election, as normal, was a sane response to our political class.

    The danger here is that the Cons will be left without an effective opposition. Who will keep the buggers in line then?

  11. @jack, “The danger here is that the Cons will be left without an effective opposition. Who will keep the buggers in line then?”

    Indeed.

  12. But imagine if Corbyn said something like “People’s QE will cause inflation. This inflation will reduce the value of your mortgage debt to near fuck all very quickly”.

    How many people would think “Hmm, sounds OK to me”.

  13. “How many people would think “Hmm, sounds OK to me”.”

    To which the Tories counter “and this also equally applies to your savings and pension”.

  14. @ Jack C

    The electorate may be sane but then Osbourne went and blew that mandate in his budget with insane idea that the price of labour can be fixed!!

  15. Today’s mantra is:

    “Taxation never pays for public services: in effect newly printed money always does that and tax claims it back

    Explained in The Joy of Tax”

    Doesn’t that mean that this forthcoming opus will consist of just one of his haikus for our times? Candidly I am surprised that it is taking so long for him to write it.

    However, I wonder if he is forgetting what he wrote in August last year:

    “The fact is that it’s worth paying for education, health care, care for the elderly and providing decent jobs. They are the foundation of a good society. And that’s worth paying for, and tax is the way to do that”

    So tax does pay for public services.

    It’s all par for the course for the Fat Controller, who wants to boost demand in the economy by hurling billions at solar panels, insulation and double glazing at the same time as raising an additional £120bn of tax money. Who needs coinsistency when you are fat, stupid and obvoxiously pompous?

  16. @ diogenes
    Please withdraw that smear at once.
    The Fat Controller ran a very good railway serrvice opn the island of Sodor and actually worked at solving problems, not creating them.
    It is grossly offensive to compare Murphy to him

  17. Jack C:

    I should have thought there were plenty of people who do have a mortgage but do not have savings (apart from the equity in their house) and pensions. And property prices rise nicely in times of inflation.

    Or have I misunderstood you?

  18. Bloke in Costa Rica

    Yes, property prices might rise but so does the price of bread. If your income is sticky against CPI rises then it can get very painful very quickly.

  19. diogenes

    “Taxation never pays for public services: in effect newly printed money always does that and tax claims it back

    Explained in The Joy of Tax”

    Perhaps he is going to claim to have invented MMT..:)

    (Don’t mock it – he’s got form!)

  20. “I have argued before, and I will argue again (no doubt) that…”

    This beginning is a classic of the obsessive outlook. Mark how often he uses this or a very similar phrase. His ego is so very fragile that he has to erect elaborate defences even before he expounds his doctrine.

    When he and his ideas are discredited, I think he might have a mental breakdown. We shall see.

  21. Do you remember the 1970’s. Jezzer can.

    Inflation high, prices up, wages up, falling pound, higher interest rates.

    Deposit savers screwed, mortgage holders / those in debt watching their liabilities easily depreciated away…

    The sick man of Europe.

    Yes, I know it’s very simplistic, but you can see the appeal if one is targeting the poorer or indebted voter. Of course, the pretence as always will be “we’ll stop if it becomes inflationary” but isn’t that the point of all this, for those on the left.

  22. @ PF
    And, more importantly for his backers, a massive transfer of wealth and income from the wealth-creating private sector to the unionised public sector. Coal miners’ wages were increased twice in one year by an aggregate 82.25%. Those of us in the private sector were limited to something like 4% plus £1 a week while charges imposed on us by the public sector had no limits.

  23. We’ve been talking for a while about how Ritchie’s going to get monstered once Corbyn becomes leader. Until now I’d been assuming it would be by someone on “our”
    side.

    I hadn’t fully twigged that Tom Watson is likely to be Deputy Leader. By all accounts a loathsome, conniving, nasty little shit, possibly the worst in a party full of them and schooled by Gordon Brown. He isn’t going to stand by and let his chance of power be ruined by some no-mark accountant from Norfolk.

    Watson helped knife Tony Blair. He’ll throw Ritchie off the train without a second’s thought, and I wouldn’t be surprised if Corbyn is shorty after him.

  24. Rob reckons Corbyn says
    “This inflation will reduce the value of your mortgage debt to near fuck all very quickly”.
    But hasn’t this been mainstream government economic policy since…since I’ve been around anyway? The mortgage my folks had back in the 60s I could near pay off out of my back pocket beer money. On the basis of current earnings I could work my way down their street buying a house every month or so.
    This has been, by & large, government policy. Managed inflation. So if a little managed inflation is good, a lot of managed inflation must be double-plus-good. And there’s nothing intrinsicly wrong with Corbynomics. Just him that’s doing it.

    I’m not being sarcastic here. I do mean it. The economy’s been massaged for the benefit of particular groups of people. Particular interests. Always has been. It’s a bit rich those people bitchin’ now, because he wants to massage it for other interests.

  25. “I have argued before, and I will argue again (no doubt) that…”

    As if frequently arguing about something means anything. It just means he is a frequent and repetitive pub bore instead of an occasional or spontaneous one.

  26. “Taxation never pays for public services: in effect newly printed money always does that and tax claims it back

    Explained in The Joy of Tax”

    Isn’t that really semantics, you can print money because you have a future income stream from tax.
    So my house isn’t paid for by my earnings it’s paid from for by a mortgage which I pay for from my earnings, either way same effect for me. Or maybe this is a second order thing he can’t see that a=b=c means a=c

  27. The squirrel has a point about well-managed inflation. It brings back the simple tool of inflating out of a deficit. As an example if inflation is 2%, you freeze tax thresholds and increase public entitlements by 1%, and the public don’t squeal remotely as much as if inflation is zero and you cut entitlements by 1% and trim the tax thresholds.

  28. It’s not so much that Andrew. It’s the transfer of wealth.
    The relatively wealthy always do relatively well out of inflation. Because the money value of assets rises in inverse proportion to the value of the money. And the wealthy have assets.
    The less wealthy have income, which tends to lag inflation. But they have to buy assets from it.
    So there’s a continual transfer of wealth from poorer to richer.

  29. Incidentally, the above version of inflation is called ” The economy is performing well”

    There’s another sort where wages are rising faster than assets. That’s the one where the wealthy people in power bring in incomes policies. Because they don’t like that sort of inflation. Oh, no.

  30. @ bis, Andrew Carey etc.
    Inflation hits the prudent worker far harder than it hits the rich. The decent worker saves for a rainy day in a bank or (preferably) building society and 5 years of Denis Healey wiped out more than half of their savings.
    The rich guy buying property with a mortgage gets a windfall from the monetary debt halving in value while the property maintains its value.

  31. @ secret squirrel
    You do not understand that a modest degree (1-2%) of inflation makes the change in the relative value of different jobs tolerable. Cuts in nominal wages will (almost) always be fiercely resisted – as may be instanced from the first post- WWI Coal Strike when miners refused to see wages cut to 30% above pre-war levels.
    Modest, tolerable, inflation will *not* wipe out the value of mortgages: my actuarial tables say that 2% inflation (the upper level deemed tolerable by the Conservative government when I was young) would reduce the value of the debt by lss than 40% over the life of an endowment or interest-only mortgage. Only those who had mortgages before 1974 got a massive, unreasonable windfall.
    FYI I was told by my local feminist in 1971 that I had to invest in property and she was amazed that, as a bachelor, I could not do so because building societies gave mortages to married men and some single women but not to bachelors. I could have bought a three-bedroom house in a decent area of my home town for less than a year’s gross salary in the mid-seventies, if I had been eligible for a mortgage, and been a millionnaire by now.
    BUT high inflation destroys the economy and society – as seen in Weimar, Zimbabwe, Venezuela…

  32. No John. I don’t believe a 1-2% managed rate of inflation is modest. I don’t believe any managed rate of inflation is modest. That 40% reduction of the value a mortgage debt is stolen from the savers who provided the loan. If inflation is managed, then so’s the theft. How’d you like managed burglaries of your house?
    Personally, I don’t understand why we have inflation.* We become more productive so the value of “stuff” against what we earn for making “stuff” should be in constant gentle decline.
    *I know. House prices. Except, culturally,, you can’t get your heads around the utility of land – what is what is made use of – far from being limited & in short supply – being infinite. If you didn’t all insist on slaving your guts out to stake a claim on a Victorian terraced slum.

  33. @ bloke in spain
    To those of who lived through 1974-9 when the value of money worse than halved in five years (a May 1979 £ was worth 46p in January 1974 money), 1-2% seems like modest inflation.
    Inflation was less than 2% in 1954, 1960, 1963, 1993, allegedly in 1999 and 2001 (when the RPI index was miscalculated), and 2014.
    The 40% was not stolen if the mortgage interest rate reflected the expectation of inflation e.g. 8% gross – rolling up the interst payments at the net of tax rate of 5% would give the lender more money in real terms than he had lent and then he gets the repaymemt of the devalued principal on top.
    I have just told you why we have inflation – it is to permit changes in relative wages without a miners’ strike leading to another General Strike.

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