Shoring up the economy - where is all the money coming from??

I've been reading a lot into this, and I must say I agree with what the government are doing.

The banking sector in the UK is HUGE. That is why the UK has actually spent pretty much the same on the bailout than the US, and that's pretty spectacular when you consider how much higher their GDP is!

Secondly, most people understand that the cause of this downturn is underspending. People are worried about their future ability to spend due to an impending recession. They reign in their spending and this causes the recession. The cause is NOT that the country is doing badly. General figures for the UK are fairly good compared to say 20-30 years ago.

So, if we can grow confidence, increase public spending etc, this could be a pretty good plan. Some could say we do not have the same problems as say Germany - they rely heavily on exports, mainly of cars. New car sales have dropped drastically. BMW has sent workers home for a few weeks due to over production/less demand. This in turn will make them afraid of losing their jobs and therefore will not be willing to spend. Germany is also already in recession, their GDP dropped by 1% so far, and people their are worried. They also have the problem of sharing currency with a number of other countries with completely different needs. Germany now see the Euro as a problem for them
 
Over Clocker said:
Now I know that much of this is coming from increased borrowing, but why the massive difference between now and previous recessions? Is it that the economy was generally in good shape and borrowing was low so there was greater scope for increasing it, or are there other reasons?
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Politicians have to be optimistic, it's their job. But when they tell you we were in a strong position before all this, they are lying through their teeth. Or at least choosing to ignore systemic weakness caused by Western economies being kept in growth over the last decade thanks, almost entirely, to Eastern savings.

Securitised lending (ie playing pass the parcel with that Western debt) has poisoned the entire global economy, have no doubt about it. This had, and still has, the potential to make the Great Depression look like a mere practise run. So politicians around the world have had no other option but to put a brave face on it and turn on the lending taps. The printing presses will be next, as appetite for that debt at such ridiculously low interest rates dries up. It's only working at the moment because those with money are scared of putting their money into anything else. At least you get your money back from governments... well, usually. Unless you're lending to Russia, or Argentina, or Iceland, or... <insert name of next defaulter>.

Ultimately all the takeovers, bail-outs, tax cuts, and assorted 'lipstick on a pig' policies will saddle us, the taxpayer, with a huge debt to repay. And I mean huge. This has only just begun.

The gamble is that this 'stimulus' will kick start the global economy and buy politicians and bankers time to work how to solve the long term problem... how to get out of this economic cul-de-sac based on people in the West borrowing more and more money from the people in the East, artificially boosting the global economy. That has to be wound down slowly instead of overnight, as looked likely to happen for a while.

It could still happen, because everything is precariously balanced, waiting for the next trauma (and there are plenty lined up in waiting). But as Ben Bernanke has said in the past, the Fed (and all other central banks) stand prepared to print money without limit. That has no other possible outcome other than inflation... and that's the kind of creeping, usually hidden inflation which devalues every pound we earn. You only have to look back at the value of money to see how this 'stealth tax' is used to control economies and push us to the point where you need two wage earners to run a family now instead of the one which was enough in previous generations.

However this new round of inflation may be a good thing. It will mean the huge debts we're starting to clocking up as a nation will shrink in real terms. So if things go as planned, averting global collapse, we will all end up poorer -- either by inflation or taxation -- but the country will survive with debts it can just about cope with.

As someone who's worked hard over the last decade to build up savings to escape this flat, and to have some kind of pension, this is a rather painful time. Those in debt will benefit most from what's happening now. But we're being asked to swallow that bitter pill in order to prop up the status quo.

We live in interesting... if rather insane times.

Andrew McP
 
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Over Clocker said:
Secondly, most people understand that the cause of this downturn is underspending.
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Real wealth comes from savings which are loaned by banks to companies which add to the UK's wealth by adding value to products which can be sold overseas.

Overspending is what got us here. Spending more to get out of it is throwing good money after bad. But sadly there is little choice in the short term, because what's going on at the moment is about survival, not growth.

Andrew McP
 
Andrew

I can see what you are saying, to the OP, the debt will never be paid, just the interest.
The money comes from other nations, the 'other nations' also suffer from a downturn as they have a smaller market to sell to.

People say we are heading to stagnation, but due to sterling weakness the cost of imports will go up leading to pressure on uk costs leading to wages pressure.
 
BigglesPiP said:
More to the point, where has all the money gone?
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The money has gone in credit defaults (bad debts) and will never come back.

To regain the ability to lend money the banks need to borrow money from a solid source, HMG

But an awful lot of money has just disappeared
 
Slam62 said:
The money has gone in credit defaults (bad debts) and will never come back.

To regain the ability to lend money the banks need to borrow money from a solid source, HMG

But an awful lot of money has just disappeared
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Money doesn't disappear, it's reallocated or reassigned. Somebody somewhere has the cash that people spent, it doesn't 'disappear'
 
bigredshark said:
Money doesn't disappear, it's reallocated or reassigned. Somebody somewhere has the cash that people spent, it doesn't 'disappear'
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Ok I see your point but the money went to the people who sold the houses to the sub prime borrowers.

But I admit I have no idea where it's gone.

hmm so the world of money is like the universe, all we have to do is find where it went.

Ok I now know, it went to the people who are lending us money so we can bail ourselves out ... wow!!
 
Public spending will not help the situation...its industry and the job front.. How you gonna spend spend spend with no job ????

We could be in the difficult labour stages of a new begining. Essentially an economic collapse and an end to materialism.
 
bigredshark said:
Money doesn't disappear, it's reallocated or reassigned. Somebody somewhere has the cash that people spent, it doesn't 'disappear'
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Yes it does. Fiat Money is debt. And many billions if not trillions of debt is vanishing as bad debts are being, and continue to be, written off. You could almost say the money created from this bad debt never existed in the first place, it was fictional.

This is why deflation rather than inflation is scaring the **** out central bankers and governments at the moment, money is vanishing. Deflation also makes existing debt harder to service. So we get vicious circle of more bad debts leading to more deflation.

This is precisely the reason that money is chucked out the Treasury door, to prevent or break the cycle. Edit:- I notice the UK VAT rate is being chopped. This is quick and direct way for the government to pump extra money into the economy.

This money to do this of course doesn't exist yet, it is conjured into being as Governemnt debt the next generation will be paying for.

So who is paying for all this? Simple, your grandchildren

Nate
 
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Strife212 said:
I thought quite a lot of it was elaborately made out of nothing which was part of the problem? I could be wrong.
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Not really, it's a complex area because banks lend more money than they have in reserves but they can't create money, if they could the economy would long since have died from hyperinflation...
 
*Moangroan* said:
Public spending will not help the situation...its industry and the job front.. How you gonna spend spend spend with no job ????

We could be in the difficult labour stages of a new begining. Essentially an economic collapse and an end to materialism.
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You don't get it ...... public spending means more better factory order books, more orders for companies, meaning labour required, meaning less job losses meaning people can spend as they have jobs.

You need to see that one leads to the other.
 
*Moangroan* said:
Public spending will not help the situation...its industry and the job front.. How you gonna spend spend spend with no job ????

We could be in the difficult labour stages of a new begining. Essentially an economic collapse and an end to materialism.
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The people who have jobs spend more, which requires companies to produce goods to sell, which requires them to employ people, who then spend more money. How to get people spending enough to kick start that cycle is the question, which fiscal stimulus will work?

The lowering VAT idea is elegant but EU law means it can only drop to 15% and I don't think 2.5% is enough to make a difference, it's £12.50 on a £500 item...
 
Nate--IRL-- said:
Yes it does. Fiat Money is debt. And many billions if not trillions of debt is vanishing as bad debts are being, and continue to be, written off. You could almost say the money created from this bad debt never existed in the first place, it was fictional.

This is why deflation rather than inflation is scaring the **** out central bankers and governments at the moment, money is vanishing. Deflation also makes existing debt harder to service. So we get vicious circle of more bad debts leading to more deflation.

This is precisely the reason that money is chucked out the Treasury door, to prevent or break the cycle. Edit:- I notice the UK VAT rate is being chopped. This is quick and direct way for the government to pump extra money into the economy.

This money to do this of course doesn't exist yet, it is conjured into being as Governemnt debt the next generation will be paying for.

So who is paying for all this? Simple, your grandchildren

Nate
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The money as debt argument all over again, I've explained several times in SC why this is wrong and I really can't understand why people fall for it...
 
bigredshark said:
The people who have jobs spend more, which requires companies to produce goods to sell, which requires them to employ people, who then spend more money. How to get people spending enough to kick start that cycle is the question, which fiscal stimulus will work?

The lowering VAT idea is elegant but EU law means it can only drop to 15% and I don't think 2.5% is enough to make a difference, it's £12.50 on a £500 item...
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You don't actually think the drop in VAT is for consumers do you? This will not be passed on to consumers for more that a few months, the prices will then return to their old price points (this happened in Ireland a few years ago, Vat was put back up the next year) This money is a direct injection of cash to the economy, as VAT is so ubiquitous.

Nate
 
"You either dig it up, or grow it and add value to it, the rest is just moving it around"

And that just about sums up 'value' and 'growth' over the last few years.
 
bigredshark said:
The money as debt argument all over again, I've explained several times in SC why this is wrong and I really can't understand why people fall for it...
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Care to link? I've (sort of) 'fallen for it' (sort of being that I realise the information I've seen was very simplistic in nature), and I'm open to being corrected.
 
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