Saturday, October 23, 2010

Treasures from the threads - number forty-nine

The comment reproduced below comes in response to an article warning of the horrendous dangers ahead in the US and UK gilt edged securities markets, nowadays more accurately described as mere bonds (perhaps reflecting their present worthlessness?) The article by Jeremy Warner of the Daily Telegraph is linked here and my choice of comment is the following:
27 minutes ago
Personally, I am worried by (a) the fact that as a taxpayer I am liable for the debts of the insolvent banks and (b) the capital loss (for the taxpayer) that will occur when interest rates rise and the government bonds bought by the BoE in QE1 fall in value. I shall continue to reduce my spending to meet the future tax increases that government will impose to meet these liabilities. If there is more QE, therefore, I shall redouble my efforts to spend less because buying more government bonds at current ridiculous prices will only mean I suffer a bigger tax increase in future. If others who have the scope to reduce their spending think like me, QE2 will just inflate the bond bubble more and provoke a recession. If the BoE really wants QE2 to increase demand it should physically print the money (say £100 billion) and distribute it as £10 notes to every family earning less than two-thirds the median wage. Then it would be spent and provide a stimulus. Using QE to boost the price of bonds so as to put money in the pockets of the bankers is not a policy: it's theft.
(Blog editor's emphasis).



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