Experimenting with your Savings
The last year has been pretty awful for savers. The collapse in share prices and, in particular bank shares, has devastated the value of anyone’s savings in stocks and shares. Those who kept their capital in the bank or building society will have been hit hard by the reduction in interest rates to an historic low. They can comfort themselves, however, that they still have the cash which has held its value with relatively low inflation, but for how much longer?
The Bank of England has begun to engage in something known by the sinister euphemism ‘quantitative easing’. In short this is the equivalent of printing money to buy assets from banks and corporations so as to pump cash into the economy and relieve the effects of the recession. I am deeply uneasy about this Mugabe style magic money solution to our economic difficulties. . I have always believed in the quantity theory of money: the more you have of it, relative to a fixed quantity of goods and services, the more the value of the money will decline, and the prices of the goods and services will rise. I do not underestimate the depth of the recession and the problems that we face with unemployment rising faster in the New Forest in recent months than almost anywhere else. The notion that we may do any good, however, with a little dose of inflation is very short sighted indeed. Inflation destroys savings faster than anything else. In living memory it has led to social disorder and fascism.
Of course, there are perfectly sensible economists with a good track record who take a different view about quantitative easing, but what I find quite extraordinary is that this process is proceeding without any debate in parliament or parliamentary scrutiny at all.
Of course, the people who do benefit from inflation are those who have borrowed heavily, like a government about to double its national debt to one trillion pounds, because by eroding the value of money, the real value of what they will have to repay is much reduced. You can see why they might be tempted by a little quantitative easing.
This is an enormous risk, a huge experiment, and we are the guinea pigs. |
