Wednesday, 21 November 2012

QE & FLS: Rubbing our noses in it

From City AM:

Under QE the Bank prints money to buy government debt, to push down interest rates. This is meant to stimulate the economy, but it also drives up inflation. In addition, QE has been criticised as it reduces the value of the annuity retirees can buy with their pension pots, attracting the ire of the older generation.(1)

Weale yesterday defended the policy, arguing that young people have been particularly badly hit by the downturn(2) and so need support from the central bank.(3) In particular he noted that almost 10 per cent of young men have been unemployed for more than six months, compared with just over three per cent for men aged 31 to 64.

As a result he feels hitting the old with QE has been justified because it helps the young.(4)


1) The first paragraph is a fair summary, apart from the bit about QE being intended to "stimulate the economy", there is absolutely no reason to assume that it will achieve anything of the sort, like just about everything else the UK government has been doing for the last five years, it's about propping up banks and house prices.

2) Yes, just about everything the government is doing - propping up rents and house prices, taking away benefits, hiking tuition fees, increasing taxes on labour which destroys jobs and makes it disproportionately harder to get a job in the first place, massive deficit spending etc - is designed to fob off as much of the burden onto the young and future generations, so the end result is hardly surprising.

3) The central bank is part of the government, if it wanted to "support" the young , it would be doing pretty much the opposite of what it is actually doing (see long list in 2).

4) Woah! False choice there! This is not a question of sharing a dwindling cake between the under-40s and the over-65s, what's happening here is that the usual suspects are f-ing over both groups simultaneously, the only winners here are the bankers, insurance companies and landowners.

Just to illustrate the point, also from City AM:

MORTGAGE lending climbed to an 11-month high in October, according to data out yesterday, as the Funding for Lending Scheme (FLS) entered its third full month of activity...

Mark Harris, boss of SPF Private Clients, a mortgage broker, said he expected the mortgage market to ease further and further over the coming year. "This bodes well for next year – as lenders saturate the low loan-to-value (LTV) market with a plethora of rock-bottom rates, they will be forced to turn to the higher LTV bracket," he predicted.


The FLS is out of the same stable as QE, it's about reducing interest rates for the benefit of the already wealthy and the Baby Boomers. Apart from the fact that easy credit and high house prices are what got us into this mess in the first place, the only people to benefit from FLS are people who are selling land (because they can sell them for higher prices) and people with a lot of equity who can double on their mortgages and expand their BTL empires.

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