The Bank of England to Dabble in Quantitative Easing even though it Failed when the Americans Tried It

Posted by PITHOCRATES - February 12th, 2012

Week in Review

It appears that the Americans aren’t the only Keynesians to never say die when it comes to Keynesian policies.  Even though the American’s quantitative easing proved to be a failure it’s not stopping the British from trying (see Bank Of England Due To Announce More QE posted 2/9/2012 on Sky News).

The Bank of England is expected to unleash another multi-billion round of emergency support for the UK economy today…

Analysts believe it will extend its quantitative easing (QE) programme by another £50bn, taking the total to £325bn, in a bid to stave off a double-dip recession…

But further QE could spell bad news for pensioners.

It can fuel inflation, which would mean more gloom for retirees who have already seen the value of their pension pots eroded by the high cost of living and low interest rates…

“The game changer, however, is the euro. If the eurozone cannot come up with a solution to the debt crisis, the impact on the UK will be significant.”

People with debt love inflation.  People with savings hate it.  Anyone who owes money will find it easier to repay that money back when money depreciates and is worth less.  It’s like getting a discount.  If your money is worth 30% less when you repay your debt you save 30% in purchasing power.  The lender, though, loses 30% in purchasing power.  That’s why banks hate inflation.  And why people who borrow from banks love it.  And where do banks get the money to loan?  From a lot of pensioners.  Who have saved for their retirement.  Only to see the purchasing power of their retirement nest egg reduced during periods of inflation.

This is the dark side of inflation.  It’s like another tax.  A high tax.  And one no one can escape.  Especially those living on fixed incomes.  Because as prices rise their fixed incomes buy less.  But governments still like causing inflation.  Because if any of those pensioners bought any government bonds, it will be a lot easier to redeem those government bonds when they’re worth less.  Making it easier to tax, borrow and spend.  By making those least able to afford it pay for their spendthrift ways.

Worse, this quantitative easing (QE) will all be for naught if the Eurozone debt crisis doesn’t quickly go away without anymore bailouts.  Which means this QE will be for naught.  Because the countries in the Eurozone taxed, borrowed and spent their way into this mess in the first place.  And as can be seen governments are hard-pressed to give up their spendthrift ways.

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