As the OP seems to have hit the skids and the thread has become a discussion on Paphitis’ peculiar concept of ‘investments’ .........
DT:
This is fresh cash injected directly into the economy via the bank which is probably one of the most direct ways of impacting an economy.
I would question that statement and many economists would disagree with that perception. I think it demonstrates where banking and economics diverge. In reality QE issued to banks has very little impact on the
REAL economy all it contributes to is primarily the inflation of assets. It comes down to a question of following the money!
As I understand the process, the Central bank recapitalises the banks by increasing their reserves using QE. This allows them to increase lending. They lend by buying bonds from pension funds, hedge funds and other financial institutions. These institutions in turn buy shares from the stock markets as investments.
We have agreed that
IF they use the loan to buy the first issue of a share release, then they
give that amount to the company that issues the shares. The investors then rely on dividends and the anticipation of an increase in the value put on the shares by market traders, to make the money to repay the bond debt/interest and make their profits.
The company that sold the initial issue of shares to these financial institutions benefits, as does the economy as the money is a ‘
gift’ not a loan. However, most of the shares they buy are existing shares, or even overseas investments and thus it has no benefit for the real economy. Likewise, the banks also finance through loans/mortgages, property purchases and, just like shares, only when it is the first purchase of a new property is it of any benefit to the real economy. Subsequent sales only increase asset values ........... i.e. the financial economy.
A recent £70bn QE programme by the BoE went exclusively to the banks, and had very little if any impact on the real economy. All it did was boost share and property values. It didn’t create jobs and it did not increase wealth ........ it only increased asset values.
If, as suggested at the time by many economists, the QE was instead spent directly into the economy it would have had an enormously positive effect by stimulating the real economy. It would have created jobs , thus more people with money to spend, which in turn stimulates more investment in new businesses, creates wealth .......... thus more jobs and more money spent and creates more wealth ..... and so on. All QE did was to increase asset values which takes money OUT of the economy as they are static investments that are not wealth creating.
The only ones that benefit from routing QE through the banks .....
are the banks.
So, by-pass the banks and invest directly in infrastructure and industrial expansion and QE would have a terrific effect economically. The current system merely increases private debt and the gap between the very rich, the middle and working classes and, of course, the poor.
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