The Guardian reports;
Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn quantitative-easing (QE) programme, under which it has been buying government gilts for cash since early 2009.
The Bank of England calculated that the value of shares and bonds had risen by 26% – or £600bn – as a result of the policy, equivalent to £10,000 for each household in the UK. It added, however, that 40% of the gains went to the richest 5% of households.However, the Bank was also quick to point out that everyone had supposedly gained because without QE, the economy would have been in a deeper mess.
"Without the Bank's asset purchases, most people in the UK would have been worse off," it said in a paper prepared in response to queries from the Commons Treasury committee.
The Bank's strategy has been criticised by groups representing savers and pensioners because of its impact on interest rates, annuity rates and gilt yields, which have all fallen since QE began, but Threadneedle Street was unrepentant.
"Economic growth would have been lower. Unemployment would have been higher. Many more firms would have gone out of business. This would have had a significant detrimental impact on savers and pensioners along with every other group in our society. All assessments of asset purchases must be seen in that light."This last statement is undoubtedly true, but that doesn't mean that it is right. This is the essence of the problem that money printing to try and prop up what became an indefensible situation presents us with. It benefits those that it shouldn't, the con artists and fraudsters as well as the risk takers who lost. It penalizes those that were prudent, who didn't get involved in things they thought were to good to be true. And it tells you something about power and who has it.
A good example of this is UK house prices. Prior to 2007/8 house prices had gone up every year well in advance of official price inflation on the back of loose lending, negligent regulation and the rise of mortgage products that were easy to fiddle. Self-certifcation, designed for the self-employed and fast track mortgages were products which banks decided it was a good thing to not check the income claims of those submitting them. Gordon Brown famously claimed after the financial collapse began in 2008 that the UK was different because unlike the US, we had not participated in products like the so-called "ninja" loans, no income, no job. This was untrue. The UK's equivalent of the ninja loan was self-cert and fast track, it just didn't have the same obvious fancy name and ring to it. By 2007, 47% of mortgages in the UK were either self-cert or fast track, at a time of record mortgage lending and record house prices. You don't need more than a couple of brain cells to rub together to see the real reasons for the UK's unsustainable housing boom prior to the credit crunch.
As for those that say they couldn't see it coming for the UK housing market, this video from the BBC in 2003 gave ample evidence of what was happening (there are 3 parts and slightly long, but worth watching if only to see that back than HBOS and Birmingham Midshires, owned by HBOS, workers knew self-cert fraud was going on). Obviously the UK regulators never watched this programme.
Unfortunately, there is a tendency for people to bury their heads in the sand and post credit crunch, the prop that QE gave to the economy stopped the deleaveraging that had began with a vengeance after the collapse of Lehman's and other banks in the US, but has since lead to other economic anomalies that are more difficult to resolve. The UK banking system would also have collapsed without Government bailouts and BoE money printing intervention. HBOS, RBS and others would have gone under. The economy, starved of credit would have faced depression, house prices in that environment would have collapsed. How could they not as the chances are there would have been mass unemployment far greater than it is now, home owners heavily in debt would have defaulted and anyway, with a banking system in collapse how would anyone get a mortgage?
But let's look at some of those anomalies in relation to the housing market. QE has helped save it from the correction that looked necessary after 2007, but at what cost? The banks, recognising their poor lending criteria and often turning a blind eye to fraud practices prior to 2007, will no longer lend in the same way they did before. Rightly so, but it means that many buyers, especially first time buyers now need 30-40% deposits. House prices haven't collapsed, but sales have. It is obvious why. The generous mortgage market that existed pre-2007 is now dead, yet the vested interests of this market from the BoE and Government, down to the banks and estate agents cannot face the simple fact that it is dead because while the money printing may have halted an economic collapse, it props up and gives a false impression of the health of many markets, especially housing.
This is the price we pay for living in an inflationary money system. Inflation is built into the system, deflation, especially in asset prices, is seen as bad and how else can it be when so much depends on it, like pensions or that new pension for many, bricks and mortar? In this system, all efforts, however fraudulent they may look will be made to defend the indefensible, because all of those with power have been sucked into it and in the UK, politicians won't get elected if they can't get the homeowner vote.
The BoE, charged with fighting price inflation as its main remit, has completely ignored it the last 4-5 years. This is hardly surprising, as they have always tended to say "inflation is expected to be lower in 12-18 months time" therefore, no need to raise IR's. Of course, prior to 2007 they were quick to lower rates as soon as they could whenever price inflation fell. House price inflation has never been a part of CPI or RPI, only mortgage interest repayments are included in the latter, so when you read that housing costs are included, just remember that it doesn't reflect the real cost of housing. If anything it simply fueled HPI further as mortgage interest repayments were kept low as IR's in general were kept low because CPI, the BoE's target inflation index, was kept low by not including those things that were really inflationary in it. A good example of price fixing monetary magic at work. Recent reports suggest that some measure of house price inflation will be included in the future. If so, it's about 20 years too late.
QE has probably added to some price inflation outside of asset prices, but the only reason why we haven't had inflation going to hyper levels is that the new money has been kept out of the hands of the masses. It has gone into the financial system. The economist Steve Keen may talk of a debt jubilee by given money direct to the masses, but helicopter drops or other means of money printing direct to the masses has always lead to hyper-inflation, as prices chase the new money and then jump ahead of it. QE's only chance of working is by limiting the hands it goes to and it is inevitable in this system that the richest get it. Figures suggest that they have tended to hold on to it.
Deep down the problem goes a lot further and much has been exposed since the financial crisis began in 2007/8. The banking system is too big to fail because it has real power, they print money in the form of credit, the central bankers are in the main printers of money in the last resort. Government does not print money, it raises it in the form of taxation and borrowing from the money printers. In such a relationship it should be easy to see where the power lies and why the "markets" are seen as so powerful and why some by default have their power from being too big to be allowed to fail.
In the meantime, priced out first time buyers and those struggling with austerity will continue to be the ones that the system penalizes.
For the average person, I suspect that most of the above is a different and unknown world.
Article source - http://www.guardian.co.uk/business/2012/aug/23/britains-richest-gained-quantative-easing-bank
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