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The Great Depression (NEW CONCEPTS)
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Mick Harper
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In: London
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It is the low interest rates that are the problem. Low interest rates are always a drag on the economy because people who lend always massively outnumber those who borrow.

And of course low interest rates have little effect on economic activity per se since the return on capital for any genuinely new and expansionary activity tends to be either huge or negative -- certainly it makes little difference whether the initial loan was at one per cent or five per cent.
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N R Scott


In: Middlesbrough
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Boreades wrote:
Would I be wrong to regard Quantitative Easing as a valueless sleight-of-hand that changes the "official" currency as well?

QE does change the value of the currency - it devalues it, the more currency in circulation the less value it has. However, it isn't a "sleight-of-hand" because it's happening in plain sight. It's on the evening news every night. The real sleight-of-hand is the fact that money gets constantly created in much the same way as a by-product of the fractional reserve system of banking.

That's why QE hasn't had a noticeable effect in everyday life. When QE started everyone was saying "you can't just pump billions of pounds of fresh money into the economy without creating mass inflation." But those people weren't aware that that's always been happening anyway - only before it was happening because of money lending. The banks stopped lending, so money stopped being created. That's why the government had to start creating it themselves. To keep the system (a system based on a constantly growing economy) running.

When Gordon Brown talked about the real danger being deflation, not inflation, he was right, although people thought he was mental at the time.

To understand the money problem you've got to grasp inflation.

Why do we have more or less constant inflation? ( - people just seem to accept this as if it's the most natural thing in the world)
Why does a Mars Bar cost so much more these days than it did twenty years ago?
Why are today's millionaires all billionaires?
Where's all that extra money actually been coming from?

The government and the Bank of England only started QE a few years ago when the banking crisis hit, that was a first for them, so they weren't creating it.

I always wondered about all this as a child and no-one could ever give me a straight answer. It was only when I came across fractional reserve banking that things started making sense. YouTube or Google it. I'm not saying it's 100% right, but it explains things a damn sight better than Robert Peston.
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Wile E. Coyote


In: Arizona
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W.C. (central bankers) had $5000.00 dollars, in his account.

WC now has $20,000.00 dollars in his account.

He cunningly substituted the $5 for a $20.

I convince you I can do this as I have created a new business model which shows I will catch that pesky Roadrunner.

You have grasped QE.

If you believe this might work, it might.

If you dont believe it, it wont.

You want to believe.

But you have a nagging suspicion that this gamble on Wile's cunning plan might not work. He has had, after all, the odd plunge into the canyon......

Still....you cant come up with anything better can you?

Wile thanks you for your trust and continuing to accept his credit card.

Happy 2013.

It is the least (believe me) I owe you.
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Boreades


In: finity and beyond
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Re "The banks stopped lending, so money stopped being created"

Yes, a friend who used to work for Goldman Sachs explained some of this to me. Most of us dumb public somehow believe that when we borrow money, the money already exists "somewhere". It doesn't, it's creating the debt that creates the money.

Also, if you save any money in a savings account, or bond, or whatever, where does that money go? To one other person? No, thanks to the magic of gearing, they can lend the same amount to 10 or 20 other people. The higher the gearing, the more profit, but also the more risk.

I have occasionally asked "who benefits from inflation?" - but the people I've asked give me a look that's either completely blank (does not compute) or slightly frightened (I'm mad to ask, or it's just too threatening to consider)
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