Tuesday, 15 September 2015

Jeremy Corbyn: People's QE is a Load of Shitey Balls

I'm actually quite pleased that Jeremy Corbyn has been elected Labour Leader. It gives me something to vent my spleen at. Miliband just didn't cut it - he was too much of a comedy act to really get some invective going.

Corbyn, on the other hand, is a completely different animal. So I'll happily engage in tearing chunks off his stupid and idiotic policies, one Leftist retardism at a time. First on the list is an economic policy he's been toying with: 'People's' Quantitative Easing.

Quantitative Easing (or QE) is what the Bank of England has been doing since 2010 to stop the economy from sinking. A brief explanation is as follows:
  1. In order to fund the public services we need (and a fair few we arguably don't) the Government levies taxes on us. It collects the tax money (revenue) under threat of imprisonment and spends it on stuff it thinks we need. Most of the time, this revenue isn't actually enough to cover the Government's bills, which leaves us with an annual shortfall (or deficit);
  2. In order to plug this deficit, the Government effectively borrows money. It issues IOUs called gilts (because they used to be issued on gilt-edged paper), where companies and individuals lend the Government money, and it agrees to pay them interest at a fixed rate for a set term, and then pay the money back;
  3. Once someone has lent the Government money, they own the gilt. They can then sell it on to a third party if they want. Depending on the rate of interest, remaining term and outstanding loan, they can fetch a higher price than their face value. Once sold, the third party owns the gilt, and the loan and interest are owed to them. With me so far?
  4. Lots of companies and financial institutions use gilts as low-risk investments, because they generally pay better than just a basic bank account, they're regarded as safe because the Government has never defaulted, and they can be bought and sold reasonably quickly, because there's lots of them and lots of people who want them;
  5. When the Good Old Credit Crisis hit, everyone wanted lots of money out of their banks, and so the banks had to sell lots of gilts in order to release the cash. However, because all the banks wanted to sell, nobody wanted to buy. So liquidity in the gilt market dried up pretty quick, leaving the banks in a really bad situation;
  6. In circumstances like this, you would expect the Government to step in. But the Government couldn't, because it didn't have any spare money. It raised money on the gilt markets, which it was now finding impossible because, as previously discussed, nobody wanted to buy. So they were up shit creek without a paddle as well;
  7. Enter the Bank of England. The Bank of England is basically in control of the Sterling currency. It knows how many pounds actually exist, approximately where they are, and where they are going to. More than that, it can actually create or destroy currency, which affects how much the pound is worth. If there are more pounds, they are worth less & vice versa;
  8. The Bank of England took one look at the gilt market and screamed 'AARRGGHH!' at the top of its lungs. It immediately decided to create 200 billion extra pounds (which in the proper vernacular, constitutes a Fuckload) and started buying up gilts. This provided the much-needed liquidity to prevent the banks (and the Government) from collapsing;
  9. The price of this has been above-average inflation. The worth of a pound is, very roughly, the size of the economy divided by the number of pounds in existence. Given that the economy shrank, and the number of pounds grew, when you divide a smaller number by a bigger number, you get a teensy number. So all the pounds were worth less, so prices were higher;
  10. Obviously all of this is fairly complicated. Various people have coined phrases which attempt to describe what has happened. The most accurate analogy is probably 'printing money'. El Corbyno's preferred description is 'handing over lots of money to the bankers'. 'Bailing out the banks so they don't smash to pieces evaporating our savings' is probably more accurate.
Where does the aforementioned El Corbyno fit in with all this, you may ask? Well, his Wonderful Idea is to change the Bank of England's mandate from just adjusting the money supply to control inflation and ensure financial stability, to letting it engage in further QE, but with the money being invested in projects close to Lefties' hearts, i.e. public spending.

This is a phenomenally shit idea. As discussed, a pretty unpleasant side effect of QE is inflation - the currency is worth less, so prices are higher. This is a particularly nasty consequence for poorer people, because the prices that tend to rise the most are food, energy, fuel, clothes etc. - all those things that you need to survive. Survival generally has a base cost, say about £6,000 a year. If you earn £10,000 a year, about two thirds of your income go on just living. If you earn £100,000 a year, it's only a fraction of your overall income. So to put it bluntly, inflation is a tax which transfers the value of money from the people to the State, and it hits poorer people harder. Ergo, getting the Bank of England to print money to then hand to the Government and spend on shit it thinks we need is effectively a form of punitive taxation on the poorest in society. So morally, it's utterly fucking repugnant.

The next reason that it's a shit idea is that if inflation is consistently above what people would consider tolerable, they won't want to hold their savings in pounds. The interest rate or investment growth they would obtain wouldn't match the rate of devaluation, so they'd be losing money all the time, or at least running a very high risk of it. Rational investors (the 'smart money') don't like taking too much risk, so they would start pulling their money out of the UK, and putting it into countries with more stable currencies. This is called capital flight. And as the rational investors are generally very rich, you lose a lot of capital very fucking quickly.

Now, when you take money out of one country into another, you effectively sell one currency and use the proceeds to buy another. So you'd be selling pounds, therefore increasing the number in circulation... therefore devaluing them further, therefore making inflation higher, making prices higher, and meaning the Bank of England would have to create more money to give to the Government to run public services. You start to get a spiral effect, which under extreme circumstances can lead to hyperinflation. For further details, see Weimar Germany, latter days of the Soviet Union and Zimbabwe. Not a great place to be, as it generally leads to giant piles of dead bodies.

The Government could stop this by imposing capital controls - limits on how much money people can take out of the country, or even out of bank accounts. Can you imagine that? The Government telling you that you can't go on a foreign holiday, or you're only allowed to spend £100 a day?! People generally get extremely fucking pissed off when the Government infringes on their freedom to such a degree.

So you can see how 'People's QE' could, in a very short space of time, lead to entrenched poverty and anarchy. That's why I think it's a really, really, really shit idea, and anyone who even thinks about trying it should probably be beaten. Very hard. In the face. With a brick.