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UK 'creating' £75bn cash to pump into economy

  • 06-03-2009 12:24am
    #1
    Mr Benevolent
    Closed Accounts Posts: 12,456 ✭✭✭✭


    Saw this on Sky News today and can't believe no-one here has commented on it. Isn't simply creating money unbelievably dangerous, or am I missing something big here? Won't that send inflation up and make the currency worthless? I'm a bit confused.


Comments

  • #2
    Time Magazine
    Registered Users, Registered Users 2 Posts: 8,452 ✭✭✭Time Magazine


    I don't really believe what I'm about to say, but here's the New-Keynesian approach to it...

    £75bn is not all that much money to a large economy with 60m people and one of the world's largest financial hubs. Let's say it's a 2% increase. So technically everybody should raise their prices by 2%. So that means your morning paper that costs £1 should go to £1.02. But prices are "sticky", they're slow to respond. It's not worth The Times' effort increasing prices by such a small amount, so prices won't change immediately if you increase the money supply by less than a certain threshold. But people can afford more, so that's a little bit of a stimulus.


  • #3
    Sea Sharp
    Registered Users, Registered Users 2 Posts: 2,593 ✭✭✭Sea Sharp


    Plus if there is deflation taking place, the inflation caused by printing money will cancel out.

    If every country does this it will work.


  • #4
    mike65
    Closed Accounts Posts: 88,968 ✭✭✭✭mike65


    Will Hutton was talking about this on RTE radio this morning, he certainly approves.


  • #5
    Flamed Diving
    Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    They have little recourse, given their charter.


  • #6
    Saabdub
    Closed Accounts Posts: 228 ✭✭Saabdub


    That's the upside of retaining a national monetary policy, it gives you options when you're in a crisis.

    Saabdub


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  • #7
    silverharp
    Registered Users, Registered Users 2 Posts: 18,854 ✭✭✭✭silverharp


    They just need to be aware though that thid doesnt increase wealth. It is simply a transfer of wealth from one group to another. The banks get the benefit of the new money as they are the first to receive it , but everyone else has a small bit of net worth shaved off.

    The Head of the Zimbabwe central bank should start doing speaking tours to his collagues around the world:pac:

    A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer



  • #8
    nesf
    Registered Users, Registered Users 2 Posts: 27,644 ✭✭✭✭nesf


    Decent article here in the Economist: http://www.economist.com/world/britain/displaystory.cfm?story_id=13248177


    It mentions the key problem in this. It only works if the banks lend on the money they get given. During Japan's depression it didn't work because the banks held onto the cash as extra reserves instead of loaning it out. In order to prevent this you need to both put liquidity into the system and deal with the dodgy assets that are making the banks too nervous to do business.


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