Posted by Jake on Thursday, August 23, 2012 with 7 comments | Labels: Article, Bank of England, Big Society, Graphs, inequality
The Treasury Select Committee, seemingly one of the less ineffectual organs of our Parliament (though we wait to see whether their bite lives up to their bark), asked the Bank of England to explain the costs and benefits of its programme of Quantitative Easing (printing £375 billion of new money to rescue the economy from the banking crisis).
"the total increase in household wealth stemming from the Bank’s £325 billion of asset purchases up to May 2012 of just over £600 billion... In practice, the benefits from these wealth effects will accrue to those households holding most financial assets."
The Bank helpfully commissioned a survey to show how these financial assets, and the £600billion boost to household wealth, has been distributed:
The survey asked the question:
‘How much do you (or any member of your household) currently have in total, saved up in savings and investments? Include bank /building society savings accounts or bonds, stock and shares, ISAs, Child Trust Funds, NS&I account/bonds and premium bonds. Please exclude any pensions you may have.’
It produced the following result, which shows that half of households actually have no financial assets, and therefore had no share of the £600billion bonanza. The £600billion went “to those households holding most financial assets”.
Report in the BBC - "The Bank of England has defended its policy of quantitative easing, despite admitting that the top 5% of households have benefited the most."
ReplyDeletehttp://www.bbc.co.uk/news/business-19356665
These smaller blogs and graphs are ideal to share on facebook Thanks
ReplyDeleteHow on earth can £325 billion of asset purchases produce an increase in wealth of £600 *billion* - ie almost twice as much as the asset purchases? Have you got your units right in this story?
ReplyDeleteSadly, yes. Assets are worth what people will pay for them. When the supply of assets is greater than the demand, then the price of the assets fall.
DeleteEg house prices go down if there are no buyers, and up if there are buyers. The 'value' of the house exists whether it is sold or not. So in a bouyant market the asset value of the national housing stock is greater.
QE prints money and buys assets, creating an 'conjured up' demand for assets pushing up their prices.
http://en.wikipedia.org/wiki/Valorisation
DeleteA great explanation as to why value is able to increase in the ways it does.
In a fractional reserve banking system the 325 Billion wiil effectively be worth far more. It is distributrd through the system as loan contracts and a bank only has to hold a small percentage to leverage the rest as debt. Each contract has interest written in and so becomes more valuable. It also allows bankers to repeatedly re-loan the money with a fraction of the deposits held for liquitity. The problem just now is the bottom half of households cannot take more debt so the system stalls. People have no equity boom to offset the debt and the market has crystallised. As a result the system is stalkibg while real household incomes are diluted. Clever accounting ensures the money is held by corporations n banks n offset in other ways until the consumers are in a position to borrow. Its a fail of epic proprtions.
ReplyDeleteEvidence to the Public Accounts Committee last week:
ReplyDeletehttp://www.publications.parliament.uk/pa/cm201213/cmselect/cmtreasy/uc902-ii/uc902.pdf
"There has been a very significant redistributional effect that has come through from QE. If you happen to be financially asset-rich, you have done very well from QE. If you are someone who depends on a nominal wage and have not much in the way of financial assets, arguably, you have done worse from QE, to the extent that the fall in the exchange rate anticipated QE and may have been locked in by the impact of subsequent QE. The consequence of that has been that real wages have been hit very hard over the course of the last few years, probably the biggest squeeze we have seen since the 1920s. "