Quantative Easing (QE) and its affect on the irish economy

Scofflaw

realitykeeper wrote: »

... but on a fundamental level the comparison is identical. Quantitative easing involves spending on a massive scale. Immediately prior to Europe`s golden age of exploration, China had embarked on its own mini age of exploration.

Unlike Europe, China overextended itself financially by building ships which were gigantic by the standards of the time. After a few years, China became introspective and went into centuries of decline.

Er, no. What happened was that an inward-looking court faction eclipsed an outward-looking one under the Emperor following the one who had commissioned the voyages.

There was no financial over-extension - the change was a philosophical-political one.

cordially,
Scofflaw

everdead.ie

everdead.ie wrote: »

Hi Folks,

Just thought I'd raise this question again, mostly due to Blackrock being brought on board to flesh out a QE plan as well as Draghi making noises about actually implementing this as inflation plummets.


The talk is that this QE program is going to be targeting private Asset backed securities replacing them with cash in the European banks.

If Irish banks are injected with this cash I wonder which assets would be sold?

Could they sell of non performing assets or tracker mortgages and in turn both increase lending and reduce interest rates as they no longer need performing loans to cover non-performing loans?

So in answer to my op Irish tracker mortgages which account for 70% of the mortgages held by Irish banks can be sold to the ECB but might need a state gaurantee before they would meet ECB requirements.

Personally don't like the idea of a state guaranty on €50B worth of mortgages.

Not to mention injecting 50B into Irish banks would probably be way too much cash to inject into our economy?

Lantus

andrew wrote: »

Quantitative Easing is explained on page 11 here. It does not, as you mention, involve the government deciding that it needs some cash.

Badly communicated money creation in general and QE which are not exactly the same.

The link is largely based on the feds modern money mechanics document.

It quite clearly (although it tries to use flowery language here and there) outlines that money is created through banks providing loans. Essentially they create 'an accounting record' and voila, new money is created. All money created is therefore debt.

The same document also explains that paying off debt is actually money being destroyed. Makes sense as if all money is created by creating more debt, then by paying it off you actually reduce the money supply.

Nuts, but that's the world we live in. Add in interest which ensures that you can never pay back any loan because the money needed to do that on mass has not yet been created yet and you have a system that has failure at its heart.

Think about it. Lets say you are starting from scratch and you create €10 million through loans. You have created 10million, good going. But even at 5% interest that would require more money than you created to pay it back. The only way to combat that is to keep creating more money (debt) so that you create the illusion of 'some' people paying back loans while creating more and more debt on a country, personal and global level.

Lantus

realitykeeper wrote: »

It is true that globally, all debt cannot be repaid. There is however a way for Irish debt to be paid off in theory, even though it would cost more than the central bank has borrowed. Ireland can do this by consistently earning more in international trade, by working harder and spending less than everyone else. In other words by competing.
Unfortunately, the Irish have consistently worked less and spent more than every other country which is why it is the most indebted nation on earth. Every cent of Ireland`s debt will eventually have to be repaid with interest. The next major international recession will be especially interesting where Ireland is concerned, Iceland by comparison is better prepared for the next downturn.

And every country is thinking this. If we leverage some sort of competitive advantage then we can be debt free. There is an insatiable need to ensure that countries obtain natural and other resources and this by default almost guarantees that we all remain in a global state of conflict, fighting each other to gain some sort of perceived state of victory. With modern warfare technology thrown into the mix we have a very dangerous situation where if people take the 'game' too seriously we could end up destroying most of the people and planet we live on.

Nationalism ensures we are willing to throw the lives of our children away to protect 'our way of life' which from a countries view means ensuring we remain competitive in a global market. A great way to control people by bringing them up to believe that they all different and competing against each other.

It would be interesting to live in a world without borders or boundaries where everyone works co-operatively to solve common problems and enhance our lives and everyone on the planet. Not just the top 5-10% at the expense of everyone else.

realitykeeper

Scofflaw wrote: »

There was no financial over-extension - the change was a philosophical-political one.

There was a philosophical-political change but there was also a financial over extension. In fact the financial over extension was the cause of the philosophical-political change.

This holds a clue to what Europe and the US will become when Quantitative Easing fails. Economically, they will become more isolated and they will not trade with the rest of the world because of their unwillingness to compete. Communist style self reliance will replace normal trading activity. Needless to say all this will be accompanied by massive hardships.

Frank Lee Midere

realitykeeper wrote: »

The philosophical-political change was the consequence of financial over extension.

This holds a clue to what Europe and the US will become when Quantitative Easing fails. Economically, they will become more isolated and they will self impose self reliance due to their inability to compete. This will lead to hardship on a scale not seen in living memory.

You sound like you are looking forward to it.

Personally I think a western protectionist market - the EU, USA and Japan could do better than globalisation which is a flop.

Frank Lee Midere

Also I am not sure that QE will work if the US and the UK raise interest rates. Capital will flow to higher interest rates.

Scofflaw

realitykeeper wrote: »

There was a philosophical-political change but there was also a financial over extension. In fact the financial over extension was the cause of the philosophical-political change.

This holds a clue to what Europe and the US will become when Quantitative Easing fails. Economically, they will become more isolated and they will not trade with the rest of the world because of their unwillingness to compete. Communist style self reliance will replace normal trading activity. Needless to say all this will be accompanied by massive hardships.

No, the claim that the fleets cost too much was, as these things often are, a political pretext - the Empire went on with enormous spending projects during and after the voyages.

And, realistically, QE and overspending aren't the same thing. In terms of ancient money manipulation, QE is debasement of the coinage - something resorted to by governments when already bankrupt. It's not equivalent to overspending, it's a 'solution' to it.

cordially,
Scofflaw

Rightwing

Frank Lee Midere wrote: »

Also I am not sure that QE will work if the US and the UK raise interest rates. Capital will flow to higher interest rates.

QE is destined for failure. It's putting a bandage over the problem. Works great in the textbooks hence academics like Bernanke are all over it. But the underlying problem is not being treated. If QE was that good Zimbabwe would give it another go. West/Japan will still be able to give it a few more 'gos' until the currency is practically worthless.

Frank Lee Midere

Rightwing wrote: »

QE is destined for failure. It's putting a bandage over the problem. Works great in the textbooks hence academics like Bernanke are all over it. But the underlying problem is not being treated. If QE was that good Zimbabwe would give it another go. West/Japan will still be able to give it a few more 'gos' until the currency is practically worthless.

When everybody's doing it, or at least everybody has low interest rates, all currencies are debased against each other. Which evens out except maybe for currency substitutes like gold.

The boat has sailed on QE when the reserve currency increases interest rates. Monetising an European pension funds assets is fine but nothing will stop them buying any bond they want and that will be a high interest American bond.

realitykeeper

Scofflaw wrote: »

QE is ... not equivalent to overspending, it's a 'solution' to it.

That is the theory. It would be nice if it turned out to be right. I don`t believe it will.

realitykeeper

Frank Lee Midere wrote: »

When everybody's doing it, or at least everybody has low interest rates, all currencies are debased against each other. Which evens out except maybe for currency substitutes like gold.

The boat has sailed on QE when the reserve currency increases interest rates. Monetising an European pension funds assets is fine but nothing will stop them buying any bond they want and that will be a high interest American bond.

It is not correct to say "everyone" is doing QE. It is mostly just the advanced economies like the US, Eurozone, UK and Japan.

You also said you don`t think QE will work if they raise interest rates. The idea behind raising interest rates in the US is an attempt to return to normal economic conditions. The QE tapering plan is also intended to return to a normal economic environment.

I think, the EU and the US do not want to be seen to be doing QE at the same time because the rest of the world is watching this race to the bottom. At least if the US can finish its QE before the EU starts, then they can pretend that they are significantly different as opposed to being tweedle dee and tweedle dum. If the US cannot end QE before the EU starts then this spectacle of a race to devalue the respective currencies will become too obvious and too frenzied to ignore. The consequence will either be a run on the Dollar and the Euro or an unstoppable stock market crash - the FED and the ECB will have to choose which one is least catastrophic.

Frank Lee Midere

realitykeeper wrote: »

It is not correct to say "everyone" is doing QE. It is mostly just the advanced economies like the US, Eurozone, UK and Japan.

You also said you don`t think QE will work if they raise interest rates. The idea behind raising interest rates in the US is an attempt to return to normal economic conditions. The QE tapering plan is also intended to return to a normal economic environment.

I think, the EU and the US do not want to be seen to be doing QE at the same time because the rest of the world is watching this race to the bottom. At least if the US can finish its QE before the EU starts, then they can pretend that they are significantly different as opposed to being tweedle dee and tweedle dum. If the US cannot end QE before the EU starts then this spectacle of a race to devalue the respective currencies will become too obvious and too frenzied to ignore. The consequence will either be a run on the Dollar and the Euro or an unstoppable stock market crash - the FED and the ECB will have to choose which one is least catastrophic.

By everybody I mean all significant economies. You are clearly not understanding the US situation. QE is over and interest rates will increase significantly next year. That's why QE elsewhere is in trouble - if you monetise the assets of European pension funds why wouldn't they buy sterling or UK bonds? The idea is that they buy the bonds of the country running the QE program.

I can't see it working for Europe.

realitykeeper

Frank Lee Midere wrote: »

By everybody I mean all significant economies. You are clearly not understanding the US situation. QE is over and interest rates will increase significantly next year. That's why QE elsewhere is in trouble - if you monetise the assets of European pension funds why wouldn't they buy sterling or UK bonds? The idea is that they buy the bonds of the country running the QE program.

I can't see it working for Europe.

The US will need QE infinity because it is a policy that does not address the fundamental structural problems. At the end of the day people must suffer to pay for the sins of the naughties. QE will postpone the suffering but ultimately it will increase it immeasurably.

Rightwing

realitykeeper wrote: »

The US will need QE infinity because it is a policy that does not address the fundamental structural problems. At the end of the day people must suffer to pay for the sins of the naughties. QE will postpone the suffering but ultimately it will increase it immeasurably.

I fear for the Japanese.

coolshannagh28

All western economies are condemned to this fate as we prefer to rent or borrow our standard of living rather than working and paying for it