The approximate position of the British Economy
One of the great questions of our age is “Have the billions handed over to the banks had any affect on the economy?”
Some say “YES”, some say “NO” and others say ” IT’S TOO EARLY TO TELL”
Currently , we appear to be living through what can only be described as a Phony Economy. The Footsie looks much healthier and there is sort of “whistle in the dark” pretend-confidence in the markets. Pundits are talking-up the markets, politicians are beginning to make soothing noises some are even daring to think about non-economics-related topics. It’s all very disconcerting.
Jordan (AKA Katie Price), Afghanistan, The Ashes and now the England Football team have all provided welcome summer distractions for the politicians and have kept the economy off the front pages. But now we are entering Autumn. Maybe it’s not just the seasonal autumn but also the advent of the unwelcome first brown shoots of an economic autumn.
Yesterday the Bank of England reaffirmed that billions in Quantitative Easing will continue to be pumped into the economy. Imagine how you’d feel if you could go up to a cashpoint, press a button and automatically increase the balance in your account. Well, that is exactly the experience that the banks are currently enjoying. Their bottomless-pit-of-a-cashpoint is the Bank of England
But it gets worse.
There has been a lot of comment in the last few months about the banks’ inability or unwillingness to lend money. There have been vague assertions that the banks are using the cash doled out to them by the Government to “tidy up” their Balance Sheets – whatever that means. There have been complaints about the fact that the Government’s agreement to underwrite bank losses has created an atmosphere in which the banks can invest on the Stock Markets without fear. That means that they are able to take even bigger risks than they took leading up to last year’s bank meltdown.
But it gets doubly worse.
What if the cash that has been handed out by the Government is now funding the Investment Banker’s games on the Stock Exchanges. It now appears that there is a strong possibility that the Government is not only “insuring” any bank losses but also providing and paying for the bankers’ gambling chips through the medium of the euphemism that is “Quantitative Easing”.
The really frightening thing is that the Government has no choice – it cannot send the banking system to Gamblers Anonymous. On the contrary, it has to keep feeding its ever-spiralling habit.
Pension and Insurance as well as privately-run funds all invest on the Stock Exchange. It is the sheer volume of their collective transactions which determines Stock prices. Billions of the Government’s (taxpayers’) money is now finding its way into these funds which are then invested on the Stock Market for our benefit.
The circle has been squared. That taxpayer is not only indirectly funding the gambler but also enabling him to fritter-away his pension.
Make no mistake, the so-called “holes” in Pension Funds are being plugged through fund managers having to take bigger and bigger risks in order to recoup their losses.
It is like a Roulette system which relies on you doubling your next bet every time you lose – eventually, you are bound to win. It’s a foolproof system – until you don’t have anough money for that last bet – the one that would have recouped all your losses.
Even if you have a Government-backer standing behind you whisphering “I’ll cover that bet” – there will come a time when your losses are so great that even your backer has to borrow to keep you going.
The gambler and the backer share a common enemy. Time.