Finance Friday | Loose money
It’s difficult these days to even define what money is. It can be coins in our pockets, notes in purses and wallets or numbers on bank account statements. Money can be just bits in a computer or tokens of any kind.
Borrow money from a bank to buy a house and they give you a cheque. What do you do with the cheque? It goes straight back to the banking system. Moving money about is now a major industry.
The days of exchanging money for gold at the Bank of England are long gone, if they ever existed. The treasury also issues bonds, basically paper the same as money, but that bears interest. They can be bought and sold on the stock exchange, so are as good as money. Better in fact, because they bear interest. They are in effect, money. Governments around the world have been ‘printing’ money to buy back these interest bearing bonds. This seems wise, because then they don’t have to pay the interest. It isn’t the governments that buy them back though, it’s central banks. In the UK that’s the Bank of England. When the British government says it owes over a trillion pounds, included in that figure is 375 billions that it ‘owes’ to the Bank of England. Confused? So are the politicians and economists, the system has become that complex.
The City of London has grown and grown and so have other financial centres around the world. Bankers earn million pound bonuses and banks pay out hundreds of millions each year to their investment bankers who invest the money from your pension fund. Are pension funds doing well? It seems that many companies have bankrupt pension funds and are scrapping final salary pensions. The only people who will have decent pensions soon will be politicians and top government employees like judges. Even teachers and headmasters are having their pensions cut. So is the finance industry with it’s mega-bonuses doing a good job?
I read an article by an economist this morning who is against ‘loose’ money and quantitative easing. You know the type, he got on his motor cycle and went to find himself and now claims to have found the answers to all the world’s economic problems. God save us from experts.
We have seen governments print lots of money and it tends to go into the property market, if there is a shortage of decent property. Property is desirable, we all want nice homes and it’s seen as a safe investment when access to other investments if difficult and risky. So in order to stop property market bubbles, we need enough housing and easy access to the stock market for all. Then the government can print money. But will that cause a bubble in some other commodity or will the money go into investment in industry, science and commerce? It will only go into investment if the stock market is open to all. At the moment, half the City of London are middlemen on mega-bonuses for doing sod all.
I think you will agree that many of the economic problems that the UK have are caused by the ‘experts’ in the City of London. They want easy money and that monopoly we call the stock market, is closed to many people. A new stock market in Birmingham with no middlemen and direct access by computer would be a step in the right direction. The government needs to consider open access to investment. Should monetary policy be loose? It’s like driving, you don’t drive too slow on the motorway, it’s dangerous and you don’t drive too fast. The government needs to expand the money supply in moderation. Money is used to exchange goods and services, we need to be able to exchange more.
What do you think? Should we try a little common-sense? Please share your thoughts in the comments box.
- Ten bright ideas to make the banking serve the UK – rather than itself (guardian.co.uk)
- U.K. Pension Funds Cut Equity Allocations as Stocks Rally – Bloomberg (bloomberg.com)
- Dean Baker: Moody’s Get Faddish on Public Pensions (huffingtonpost.com)