How QE Damaged the Economy and Housing Market
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- čas přidán 9. 02. 2024
- A look at the impact of quantitative easing on the economy, housing market. Why its main impact was pushing up bonds, share and house values, but did little to improve average incomes.
Were there any better alternatives?
Video Contents
1:18 QE
2:23 Inequality of QE
3:01 Benefit of QE
4:47 Covid and QE
5:14 QE and Inflation
8:26 Alternatives to QE
10:20 Winners and Losers
10:45 QE and Austerity
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ABOUT
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► www.economicshelp.org was founded in 2006 by Tejvan Pettinger, who studied PPE at Oxford University and teaches economics. He has published several economics books, including:
► Cracking Economics. www.economicshelp.org/shop/cr...
► What Would Keynes Do? Amazon amzn.to/2xShqq4
► Economics Without the Boring Bits amzn.to/48T1hA9
This guy is one of the best on the internet. All facts and discussion and not discussing economics in a non partisan way. Very underrated
His content is well backed up with references. I don't agree with him on immigration but his content is excellent.
QE - socialism for the rich
Welfare for the rich, socialism isn't welfare.
@@yellowgreen5229 it is. Welfare is socialism. In a purely capitalistic country there is no welfare, there is no government handouts.
And politicians that have been very successful in predicting which share would go up significantly based on government policy decisions including monetary and fiscal policies.
and then blame everybody
@@user-Wojciech no, on social-democracy there is welfare to make up for the failures cof capitalism, in democratic-socialism welfare is abolished. In a purely capitalist country then you have wage slavery and massive poverty which is why welfare is needed UNDER CAPITALISM .
Capitalists want to call socialism "welfare" to attack socialism, but this is propaganda.
Always more than willing to give the rich bucket fulls of free money, but the moment someone suggests taking some of that extra free money back in tax everyone acts like it’s the most impossible thing in the world and would be grossly unfair even if it was possible
You say there was no inflation until 2020 but ,of course, there was inflation but it was not in CPI. The main point of QE was and is Asset price inflation. This kept the greedy bankers in business , kept the City more than afloat,stock prices soaring,other asset prices soaring. And nobody explained the consequences of QE. For example we were told QE was free money. But now that interest rates have gone up the BoE has to pay £35 billion a year to the commercial banks,the people who caused the problem in the first place, on their deposits ,paying 4%,of £875 billion held as reserves at the BoE.
BoE invents £875 billion for QE and ten years later,now, the UK taxpayer has to pay via the Treasury and the BoE, £35 billion a year to pay to the bankers related directly to the "free money" used to get out of the mess created by the greed and incompetence of the bankers. There should be a whole lot more moral indignation about this.
QE did not invent money or even print "money". And we need to define "money" as it is in our global financial system.
Money is the means to make payments and settle liabilities. But the first thing is that money today is only marginally cash held in bank vaults. Only 3% of all global transactions are made in cash. So, "money" is:
1. A marginal amount of cash in bank vaults;
2. A small amount of Bank Reserves at Central banks; and
3. Credit, which is the vast majority of money in circulation today.
Why? When Tejvan talks about "liquidity" being given to the banks, he's talking about the volume and velocity of money flowing around the global economy. And when we say the Bank of England injected liquidity, it suggests they increased the amount of liquidity British banks could use. How did they do it? By issuing more gilts. Why gilts? Gilts are our government's way of borrowing from the banks, to meet their spending in the years ahead. Because they are backed by the taxes from the UK Economy, they are regarded as a risk-free investment, which once bought can be kept, lent out, or sold. There is a market for Gilts to be used as collateral for loans as liquidity - keeping the wheels of finance moving - or as leverage - to boost returns from investing. By selling more Gilts to the banks, the UK Treasury was in effect transferring to debt of the banks onto the National Debt, which means the taxpayer has taken on the debt of the banks until these Gilts mature. The taxpayer will have to pay interest on those Gilts, and repay the principal once they mature. And how are these payments funded? By taxes of course. So depending on the duration of the Gilts sold, the British taxpayer will be subsidising UK banks for the next 30 years years, or more. This is why Andrew Bailey is selling off the Gilts on the Bank of England's books hands over fist, because British banks have holes in their knickers - sorry, their balance sheets - that they are trying to repair.
How does the banks buying bonds repair their balance sheets? By selling Gilts to the banks, the banks get a tradable asset that they can lend out for a fee to other institutions that need collateral to get loans. Or, they can sell the Gilts outright at a profit, and reinvest that over and over again. It's called Rehypothecation, and banks doing that over and over again is how they really make most of their money. And every bank does this in their own national currency, in the Eurocurrency Markets - the global offshore wholesale interbank lending network that is the location for shadow banking between financial institutions - or in any currency they desire. But there is a downside, and that is everybody is rehypothethicating assets they don't create or own themselves. You deposit £10,000 in the bank. They can't afford just to put it in a vault and wait for you to withdraw it. They keep say, £2k for expenses and lend the remaining lend the remain £8k in the money market, at an interest rate higher than what they are paying you. When you going and say I'd like to withdraw my £10k, please, the money they pay you isn't the same money you deposited. They have either got that £8k paid back to them, or they will borrow it from another bank in their interbank lending network, and then pay £10k back to you.
This toing and froing is fine if the value of the assets are easy to set and the risk of getting it wrong is low. But as the British pension funds found out when Looney Lettuce and Kamikaze Kwami jumped the shark, asset valuations can go down and fast, when markets lose their appetite for risk. If the BoE hadn't stepped in, the whole Pensions industry would have collapsed, but also those babks and brokers holding their Gilts as collateral for liquidity and leverage, would have been flushed down the pan too. Rehypothecation can make every user of a interbank lending network a lot of profit, but it can be the means by which systemic risks spread like Contagion throughout the financial system. It's a two-edged sword, because nominally wereaking more money, but we're doing less investment in the real economy. Instead, that circulating flow of money is being put to inflating asset prices, and speculation. A D central banks can't do much about it, because even after 2008,they still haven't cottoned onto the fact that banks mostly borrow from other banks because it's far cheaper and more profitable to get credit, that to hold cash, or central bank reserves that cannot be invested.
So, the American equivalent of Gilts, US Treasuries (USTs) has shown their has been a sharp reduction in risk appetite since 2021. The Yield Curve for the 10-year US Treasury Bond is negative relative to shorter duration USTs. The Yield reflects the markets' estimation of the risk in holding them to term. The 10-year yield should be higher that those for shorter durations US Treasuries. It's not, which suggests the risk appetite is down, and the cost of collateral, liquidity, and leverage will be higher. The longer that goes on, the more the financial system behaves like an engine with sugar in it. And if not addressed, it is a gradual doom loop. That's what happened to Long Term Capital Management, Lehmam Brothers, Bear Stearns, etc. And we're in a similar situation right now. And there's no fix for it - unless as George Soros suggests - and that these overgrown banks are nationalised. It will happen again as long as we let the banks walk away with our money after they crash yet again.
@@BigHenFor there is always a smart a***e writes in about QE . I taught economics for a living. QE was responsible for lowering interest rates by increasing demand for govt bonds. This raised the price of the bonds. The lower interest rates increased the demand for assets including house and stock prices because it was cheaper to borrow and the cheaper cost of money increased the cost of assets. That is the inflation. It was not the money which caused the inflation directly. It was the money that lowered interest rates.
The BoE invented money to buy gilts owned by the banks and that invented money was held in the BoE reserves of the commercial banks. Inventing gilts was not part of the QE process, inventing money to buy the banks gilts was QE
@@erongi233it’s essentially the government buying it’s own debt isn’t it.
@@mark4lev yes that's exactly what it was. No new issue of new govt debt as suggested.That would have had the opposite of the requirement at that time.
Professor Steve Keen was discussing this ten Years ago. He discussed how little QE made it to the real economy.
A very impressive talent.
True, QE in 2009 went to the people it should never have gone to; the banks, the government should have paid everyone in the UK x amount and let tat pay off debt and it would have solved two problems; lowered peoples debt and saved the banks. instead they just gave the banks huge sums of taxpayers money while the taxpayers had their houses taken from them by people they had saved! I'm afraid that is just sick.
Yep it’s over for the UK, ZIRP and QE was the final nail in the coffin! For whatever reason, the government doesn’t want to fix the housing issue, they just keep importing more and more people whilst keeping house building minimal to non-existent. The next 5-10 years could be a shocker for the UK
The problem is UK economy isn't growing after Brexit and population is aging.
Population ageing most of the EU, China and a raft of other countries.
@@anthonyferris8912
Yes and we have no real manufacturing industry either. You can’t run an economy on a service industry it’s building on wet sand.
About the same level of manufacturing as most leading European states and share similar problems. China, the manufacture to the world, is collapsing.
@@anthonyferris8912
Absolutely wrong there. You’ve no idea at all.
UK's problem is that it follows everything that America does. 😶
Thanks for taking the time to explain this without bias 👍
Awesome. Excellent channel. QE. Gordon Brown and George Osborne followed up this politically and economically in England London Britain. Spot on. Well said.
These are such great videos - keep up the fabulous work!
Excellent Video - Thank you.
Thank you for your insights on Quantative Easing QE.
Another great video 👏 very informative thanks
Everything that happens financially obviously hits the poorest hardest. The few at the top always come out golden.
There are just more of us in the poorer category every year.
If you think putting Labour in will fix anything, you are crazy.
Don’t forget zirp. That caused the rush into assets. Fun fact. Ferrari dino price in 2006 £35k. 2015 £250k. Also before it gets forgotten in the mists of time. Gordon brown destroyed the best private pension industry in Europe and caused the housing btl boom
Thank you.
QE post the 2008 liquidity crisis and QE to pay for unecessary lockdowns are quite different. Post 2008 it was used by central banks to buy garbage illiquidid assets from bust banks to allow them to continue lending. This does not necessarily increase the money supply, hence no inflation but the increased lending and low interest rates created malinvestment (asset price inflation). QE 2020 was used by governments to monetise debt which is very different and they splurged that into the economy (e.g. furlough) whilst suppressing production of goods and services. When the economy reopened there was a supply shock resulting in inflation (too much money chasing too few goods and services). Oil prices were low at the time inflation had already started to result in higher price.
Hi Tejvan, there is an issue with the upload of this video, at various points its skips and goes blurry.
Calling the COVID spending QE seems a bit misleading. During the GFC, the QE was essentially a financial asset swap between the Central and Commercial banks - swapping one form of government money (Gilts) for another form (Reserves). Despite the theories more bank Lending didn't occur because there was no public demand for it. During COVID, the BoE may well have bought up bonds, but these were newly issued by the government as a result of the government stimulus spending into the economy. Due to outdated financial rules which are a hangover from the gold standard, the supposedly independent BoE bought up the exact number of newly issued bonds from the private sector: Treasury creates money > Treasury Issues Bonds equivilent to new money created > Bonds are bought by the primary dealers > BoE buys the bonds up. (This charade could've be prevented by having the BoE buy the bonds directly from treasury. Or we could've gone one better and dispensed with bonds entirely, which appear to be basically a wealth transfer mechanism to the financial sector). So basically, I argue that the QE during COVID was a very different proposition, as it accompanied the more financialy significant activity of massive government spending into a moribund. With regards to the inflation, a large component seems to have been on the supply side, but the effect of the newly created money accruing with the wealthy is discussed at length by Gary Stevenson who recommends the remedy of taxing it back.
Any chance you could do a video on the benefits of the Bradbury Pound and how that would take us out of the current debt trap???
Am I correct in thinking that Japan tried QE years before the UK. If yes did it work for them?
Ah finally. QE was meant to last a short while yet ended up covering over a decade! Made savings pointless, encouraged "growth" through consumption and borrowing. Now needing to be undone by rapid interest rate hikes.
Is damaged not an understatement?
Is quantitative easing money printing?
Rather than rewarding the banks could the later rounds of QE have been used to pay for HS2 for example, including the northern legs?
Greedflation please expose how corps/profits are now causing the economic pain.
Economic investigator Frank G Melbourne Australia is still watching this very informative content cheers Frank 😊
Economics works great for those who have the money or who have access to it. For the rest, not so much. Printing money leads to more inequality. Someone ends up with the money.
- it doesn't get burned on a big bonfire or evaporate into thin air. It's not a solution to anything.
QE demand raised the price of long bonds and reduced long term interest rates. The rich, owners of long bonds, rebalanced their investments by selling bonds, borrowing cheap and buying stocks, houses, and just about everything else causing those prices to rise. There was huge inflation in wages, but due to globalization that happened in China. So the rich had everything they owned go way up in value. Wage earners got some good prices on Chinese goods and governments with huge debts.
All that QE will end up who owns most assets, and since ultra rich dont get taxed, thats how rich get richer, and poorer gets poorer!
Ron Paul was right. Abolish central banks.
QE protected asset prices
US Govt gave money directly to the people, we gave it to the asset-owning rich (who bought more of our assets).....
All sitting in there banks still earning interest. Soon as boe bring down rates , watch them buy up assets driving up prices . Uk is so rigged for the elite
Yes, the madness of the pandemic has ruined this country for at least another decade
We were just starting to recover from the Great Recession.
Very helpful video but what a despicable story involving despicable people.
So if government bought corporate bonds then force the corporations to buy the bonds back 🤷♂️ unbelievable that the government and Bank is England are not held responsible 😡 who has been fired ? 🤬👉
Money can be created for free, but creating more money doesn't mean products ir services can be created for free
Sounds like goverments and central banks should not have the monoploy over money like state and religion.
I dont think it's the central bank role to decide when and if a recession takes place, let the market decide. Of course our productivity is declining, creative destruction and other market forces are being impeded by the short term view of the politician in charge and the plain ignorance of the elector.
No, mass unemployment would have been better. It would have changed attitudes and greed for pay etc. The trouble with managing stuff to keep things 'nice' is people imagine life only has upsides. They get, and are greedy and expectant. Rather than grateful for a job at all. It would have changed attitudes to living within your means and saving.
Political cowardice and need to be liked led to the 'soft' option.
QE should only be used as a State provided interest rate on savings. As QE damages those people deliberately so it is only right they should get the created money that is devaluing theirs! It still puts it into the economy, just the right way, not all given to the wealthy taken directly from the poorer solvent.
Yes. QE is the definition of the biggest heavy hitting interventionist left wing policy possible. The economy should have been allowed and encouraged to adjust. And billions should have been spent on infrastructure and re-training policy with the goal of moving labour more into technology. Imagine if they gained ground in 2009 - there could be some local tech unicorns that don't skirt every penny of tax and re-patriate back to our overlords across the Atlantic.
i like how people are still expecting their pension, even though my generation are not contributing to it. this is because we dont care.
NIMBYs were most to blame for the house price rises. QE was unavoidable.
Course they were pal. Nothing to do with historically cheap credit and self certified mortgages then. Plus Gordon browns dismantling of the uk private pension system causing ppl to look elsewhere for a return
@@mark4lev Mortgages wouldn’t have been so high if there was enough houses.
@@ERobbins1234 there was enough houses. It’s only because of immigration and the expansion of the welfare state under brown. More single parents needing accommodation etc. btl mortgages came out in 1996, no one batted an eyelid. There was no rental market and no renting culture or tenants
@@mark4lev There wasn’t enough houses, because of NIMBYs.
@@ERobbins1234 impossible to have more houses than immigrants. That’s the point.
QE is no longer an effective tool. It only works when inflation is not a problem. If they do QE now, the expansion of money supply will cause more inflation. With inflation already persistent in the economy no one will want to buy bonds without higher yields. As yields go up, central banks must raise rates. Therefore, the can kicking is over. They can do QE and print trillions more, but this will only lead to higher inflation, higher bond yields, and therefore higher interest rates.
QE is never good
The error with QE was feeding the money directly to the banks who then just mended their own problems instead of feeding it in liquid form into the economy. Far better to have done something at grassroots level, such as eliminating 50% of every outstanding house buyer private mortgage. That would create liquidity out in the population. Staying with the example, a reduced mortgage leads to more cash in pocket for such as buying a car, engaging a builder to do some improvements, going out for a meal or even making savings. Eventually the QE money would percolate up to the banks but a lot would have created relief where it would have had best effect.
Please please please could you attend an elocution lesson so that perhaps you could pronounce the word "quantitative" properly....
QE was needed because of the banking crash caused by reckless behaviour
yep and the bankers won again thank you tax payer
Unwinding QE will leave taxpayers with huge losses
In one word Truss did more damage than any QE, she should be looking after goats somewhere on a hill far away from any politics
Tired of hearing QE 😢
QE helps everyone. There are no alternatives.
haha. so by your logic, just keep printing more magic money and everyone will be rich eventually!
All labour's fault for employing too many nurses and teachers.
Joker
Hi, why is your face that colour? Are you wearing make-up?