Friday, 7 October 2011

Why QE is Bad

So, the Bank of England has announced that it intends to print £75billion and spend it on an assortment of gilts and corporate bonds (IOUs from the Government and companies) to get the economy moving again.

I will explain why this is an absolutely contemptible idea.

The amount of money in the economy is not fixed. It goes up and down every day, with currency exchanges. Sterling can be bought and sold. The more people buy it, the more £s there are, and as such, they are worth less. The less people buy it, the less £s there are, and as such, they are worth more.

Quantitative Easing means that the Bank of England, instead of allowing the normal rules of supply and demand to govern the worth of our currency, will artificially create more of it, therefore making all of the existing currency worth less. This is inflation - the purchasing power of your money decreases.

Inflation is bad. You see, inflation erodes the value of hard currency - and the vast majority of people in this country hold most of their assets in that currency. Their pension funds are denominated in £. Their investments are. Their properties can only be exchanged for £. Their bank accounts hold £.

Tax is a method of transferring wealth from the people to the State. Inflation is far more insidious - it doesn't transfer wealth itself, but it transfers its value. Your wealth remains the same, but what you can actually buy with it doesn't.

The Bank of England. Raiding your assets since 2009.

Of course, you can hedge against inflation. You can invest in a variety of different assets and currencies, or purchase warrants and derivatives. But you need disposable capital to do that. In other words, you need to be rich.

Inflation: the State fucking the little guy over. Again, and again, and again.

What's the alternative? Uh, how about cutting tax? How about really getting public spending under control, instead of allowing it to actually increase in cash terms?