"There is a path out of this challenge. These decisions are in the hands of Europe's leaders; they understand the urgent need to act. There are specific steps they can take right now to prevent the situation from getting worse. One of those steps is taking clear action as soon as possible to inject capital into weak banks."
President Barack Obama, 8 June 2012
"Monetization of government debts is perfectly safe in a liquidity trap. It would solve the need for austerity and allow governments to repair their economies. Unfortunately the global elite want depressions as unemployment lowers wage demands, increases the time debtors owe money to creditors and increases interest rates and their yields.
"It works thus-
"There are two parts to QE. The first part is where the Bank of England uses its privileges as a central bank to magic some money from thin air, buy a truck load of outstanding government debt from banks and credit their reserves with the money it has created.
"This is the part that should be and is designed to be inflationary. Money is created and the banks should in theory be able to leverage the reserve crediting up and stimulate demand in the wider economy with it.
"In the last couple of years the Bank of England has created £325 billion this way. So what has been the effect on the money supply?
http://www.telegraph.co.uk/finance/economics/9242042/Record-collapse-in-UK-money-supply-blamed-on-banks.html
" 'Figures released by the Bank of England on Wednesday showed that the UK's broad money supply, M4, shrank by 5pc in the past year to a new record low.'
"QE obviously isn't working in the way it is intended. The credits given to banks are not finding their way into the real economy. QE is simply not stimulating growth in the money supply in the way it is intended to.
"So what has gone wrong? In short - bankers greed. Banks demand a 15% return on equity to enable them to support their "business model" of spending over half their turnover on pay packets that average £350,000 . This level of return is so high and greedy that banks have no interest at all in lending for mortgages or to small businesses - the returns are too small.
"As credit creation in banks is the only way the UK economy can widen its money supply and credit creation in banks is responsible for 97% of the money supply growth. If banks won't lend then the money supply doesn't grow and our economy shrinks. The money supply must widen by at least 5% pa for any growth (money supply growth averaged 10% pa in the decade before the 2007 crash). That isn't happening so we are in recession.
"The other source of growth is government spending but since Osborne is taking many multiples of £150 billion out from public sector spending this virtually guarantees we enter a depression.
"Is there a silver lining though? Yes - the Bank of England has successfully bought up a third of the government debt that Cameron and Osborne are withering on about without sparking an inflationary spike in the money supply.
"Given that everybody was expecting QE to feed through into growth in the UK money supply there was always planned to be a second part to it.
"The second part of QE is the insane bit. Sitting in the wholly publicly owned Asset Purchase Facility is £325 billion of outstanding government debt. The same debt Cameron says it is critical we eradicate. His plan for it is that in a few years time, the Asset Purchase Facility should sell it back out to the banks we bought it off and then rip up the money the banks give us for it.
"Given the original reserve crediting didn't cause the money supply to widen this is just treasonous and insane. The resale obviously can't be inflationary - the money creation bit from part one happens over 5 years before the reissue of gilts. Reissue will obviously be deflationary as banks will allocate liquidity to buy the gilts instead of using the money for something else. But it cannot be inflationary as there is no money creation at that point. The second part of QE should be abandoned. A sensible government would announce that the money supply is shrinking, that the £325 billion in the Asset Purchase Facility can be safely monetized and that public sector cuts are cancelled and a £175 billion stimulus package can safely be afforded.
"How likely is this? Given how corrupt, incompetent and misleading is the current government to mis explain how the economy works in order to justify selling off the public sector to their friends and funders? The Tories and their backers want high unemployment and household debts to rise as this lowers wage demands and increases corporate profits. They are deliberately engineering a slump in order that the banks who provide 50% of their funding and the donors who can afford the £250,000 dinners with Cameron can slightly increase their profits.
"Business is sitting on £700 billion of retained profits, banks are rich enough to pay an average of £350,000 to their staff. So what does Cameron do? He abolishes the bankers bonus tax, drops the 50p highest tax rate, lowers corporation tax and exempt overseas subsidiaries of multinationals from paying tax. The rest of us get a 5% hike in VAT, trebling of university tuition fees, youth unemployment raised to 20% and once again (as with Thatcher) unemployment."
Payguy2 The Guardian CIF 6 June 2012
