Effects of Quantitive Easing on......

[Xeno]

Do you think it is possible that inflation will pick up faster if others follow. Demand in commodities, excluding oil, will reach the levels we saw last summer and then we will be no better off.

Do you mean if other countries follow? If so, yes it would have an effect. While our currency would be less devalued, demand would increase, but if the QE elsewhere does what ours does, which is just shore up balance sheets at the moment, it would just fill in a hole.

Regarding oil, when it was at 150, many experts were saying that about 40-60 dollars of that was speculative. Now, we're getting by quite happily at 45 dollars. The speculative part of a bubble usually comes towards the end, so I see oil drifting up gradually over 12-24 months.

The bottom line IMO is, gold and oil should be very good long term investments, and the signs of any returning inflation will be slow and obvious and easy to hedge against

 

[london88]

Its a sad but hopefully truth!

 

[wakka]

What I dont understand about this money creation, is that this money is created out of thin air to buy these corporate bonds. These bonds have to be paid back, with interest!

Where does the money and interest that is paid back go?

 

[Xeno]

What I dont understand about this money creation, is that this money is created out of thin air to buy these corporate bonds. These bonds have to be paid back, with interest!

Where does the money and interest that is paid back go?

The redemption money and interest on the bonds is paid to the bondholder - in this case the Bank Of England. That's not really the point here though. The point is that whoever previously held the bonds now has cash instead of the bonds. This cash is now available to them to lend, invest etc. If they'd got cash for them by selling them to someone who hadn't created the cash, then the money would have come from somewhere else in the economy, and the net amount of money in the economy would not have increased.

If you're worried about the money being paid back coming out of the economy, don't be - in most cases it won't be paid back for many years, in some cases, never, by which time we'll knowthe effects of the QE.

 

[blancspa]

according to Schumpeter we are facing the process of "creative destruction"
according to Keynes monetary policy action is not enough

 

[wakka]

The redemption money and interest on the bonds is paid to the bondholder - in this case the Bank Of England. That's not really the point here though. The point is that whoever previously held the bonds now has cash instead of the bonds. This cash is now available to them to lend, invest etc. If they'd got cash for them by selling them to someone who hadn't created the cash, then the money would have come from somewhere else in the economy, and the net amount of money in the economy would not have increased.

If you're worried about the money being paid back coming out of the economy, don't be - in most cases it won't be paid back for many years, in some cases, never, by which time we'll knowthe effects of the QE.

Right, so theyre not buying newly issued bonds?

 

[Xeno]

Right, so theyre not buying newly issued bonds?

They could be - it makes little difference. Either way the money ends up with a private company and is available to them to spend. If the government decided that an otherwise sound business had cashflow problems and had put expansion plans on hold then buying newly issued bonds from them would be an ideal way of solving the problem.

 

[investcdn]

On the Fed’s quantitative easing: “Forget economic theory and modeling – I can’t see how the U.S. can simply ‘inflate itself’ out of its debt obligations where so much of those debt obligations are held by trading partners.”