This is where the brain becomes functionally better through being used. If you have read all two hundred of my posts, then you have had two hundred opportunities to develop your own brain plasticity.
I read a headline a few moments ago, ‘Q.E. is savings’. I laughed, then gave it a few moments thought. Brain plasticity is a wonderful thing. It allowed me to review a half decade of financial research in a few heart beats. I have written about Q.E. before. I am sure the Central Banks are keen to inform you exactly what it is.
Let us start with house prices. Most people could not afford to buy the house that they are currently living in. That sentence should cause you great discomfort but it won’t stir many from their mental slumber due to whatever reasons pop into their head.
Most of those Boomers with a sizeable pension believe in it’s currency valuation with the same lack of critical thought that they believe in the currency valuation of their home.
As Boomers stop paying into pensions and begin to draw them down we hit something of a problem. Who are buying these financial assets? Where is the transfer of value?
A transfer of value is a good way of thinking about wealth. Prices are something of a distraction, as are interest rates. Imagine a young couple working hard and saving harder. The value of their hard work is being stored and this could form the deposit on a home. Future earnings allow the couple to transfer more value and pay off the mortgage. They could then begin transferring value to a pensioner by exchanging the value from their hard work into acquiring the financial assets of the pensioner.
That is a fairy tale. It was how the financial system worked in the old days but not for twenty years. Perhaps not even for fifty years. Perhaps not even for a century. Today, the couple work hard and their excess value is not stored but eagerly consumed by the government / system. Yes, they can save in terms of currency. The number in their mortgage savings account will increase but there is no storage of value. Once they place a deposit on the home, value will be transferred from the couple towards the bank who supplied the mortgage. Do you understand that the bank destroys the currency that goes towards paying down the mortgage debt? No value is destroyed as the initial mortgage loan, supplied by the bank, had no value whatsoever. The currency was typed into existence and then transferred to the home seller. It was just a book keeping entry.
Now what happens when the young cannot actually afford to transfer their excess wealth to retirees who wish to draw down a pension? Remember that the currency itself has no value. Do not follow the money, that is a distraction. Do not focus on numbers either. Train yourself to view wealth properly and observe wealth flows with great care.
Is wealth flowing from the young towards home purchase and financial asset acquisition? Well, remember I stated earlier that most people live in homes that they themselves could not afford to purchase at today's prices? Who do they believe that they will sell to? If home purchasing is incredibly expensive, how much wealth do the home buyers have spare for financial asset purchase?
Now, what keeps the prices of financial assets high when they are being drawn down by retirees but not being bought by the workers? What keeps home prices high if they are unaffordable to most?
I shall explain house prices first. House prices can rise almost indefinitely. 25% deposits are reduced to 20% and then 15% and so on. Tax incentives are offered. Buy to let schemes are introduced as are other scams, I mean schemes. Today, I believe that our UK government is allowing 95% mortgages and guaranteeing the rest. This could drop further to 2% and then perhaps 0% or if that causes concern, offer first time buyers financial incentives. How about this, the government pays the five percent deposit and guarantees the rest of the loan? What about mortgage length, 25 years can increase to 40 years or more. Provided this happens slowly and the uncritically thinking masses are spoon fed ‘reasons’ then all is well until it isn’t.
That said, what is keeping financial asset prices high? Well massive devaluing of currency is helping with that. What was a million pounds worth 20 years ago? At 5% interest it was worth £50,000 a year, which was a very good combined income for a professional couple. What is a million pounds worth today? Perhaps the minimum wage for one person, I don’t really care.
Q.E. is what is maintaining financial asset prices. Central banks are buying whatever their member banks need them to buy to maintain and increase financial asset prices. OK, so where is the flow of value? The central bank merely types currency values into it’s member banks accounts as they transfer ownership of financial assets. Thus this currency, after being skimmed, finds it’s way into retirees accounts. There is no longer an exchange of value. Currency may represent value to the couple trying to buy a home. Currency may represent value to those selling the home. Any currency skimmed by the financial system can be used to acquire assets, goods or services. The rest has no value whatsoever.
What gives financial assets value is the work of those who purchase them. When a central bank acquires financial assets, no such value is exchanged. None. So, where did the value go? A retiree worked and exchanged his excess value for financial assets. Decades later those same financial assets are exchanged for essentially value less central bank currency via the mechanism of Q.E. Well, who gets to borrow and spend central bank currency without any intent to ever repay the principal? The government. That is where the value has gone. I did mention this earlier in this blog post.
How can anyone at a Central Bank answer, honestly, the question, ‘What is Q.E.?’.
What is Q.E.?
It is a continuance of your government taking your savings by stealth.
Those with exceptional brain plasticity will be thinking a great many things, one of which might be that Q.E. is relatively new, so what has changed? Remember the near financial collapse of 2007 / 2008? Well, that collapse is ongoing. Q.E. is a mechanism to extend the collapse. As such, it is a time buying tactic. Giving governments around the world the time to balance budgets and trade. Or the far easier option of carrying on taking our savings.
Anyway, after reading my (nearly) two hundred blog posts and using them to develop your own brain plasticity, you will have the ability to consider this blog post with great care. For those who have failed to grasp the value of my work, let me give you a single sentence summary.
The value of your home and pension is far less than that which the currency valuation suggests because your government has spent it all already.
The definition of the ‘start of hyperinflation’ is when 2% of people start to understand, instinctively perhaps, the obviousness of this blog post.
Proceed entirely at your own risk. Same as always.
'Q.E is savings.' My answer is that this statement is correct.
