Building the debt of the UK by another £75 Billion is the solution being used by the Bank of England to try and staunch the declining economic situation in the UK.
The Bank of England said it will create an additional £75 Billion of new money in order to boost lending in the UK economy. The move has been announced as the bank cut interest rates to a new record low of 0.5%, though most mortgage holders are unlikely to see the full benefit of this cut.
The move announced Thursday is a desperate bid to lift the UK economy out of recession through the use of "quantitative easing" measures. The money will be used to buy government bonds from commercial banks over the next 3 months. These commercial banks will then use this new money to lend to consumers and businesses, further increasing the level of debt in the economy.
The Chancellor of the Exchequer, Alistair Darling has authorised the Bank of England's Monetary Policy Committee to create up to £150 Billion of new money. This initial £75 billion is therefore likely to be only the first tranche, with a further £75 Billion likely to be injected into the UK economy in the coming months.
What does this mean for you?
In the short term this will probably result in a boost to consumer debt and therefore consumer spending. This will then result in an increase in the money supply in the economy which will result in an upward pressure on inflation over the longer term. The aim of the bank will be to stanch any inflation once the underlying economy has been boosted. This is a very trick thing to achieve because it is about giving to build confidence and then taking it back when everything seems to be better.
As the UK economy continues to suffer, so will all those people that are reliant on savings or a pension for a living. This is because the lower interest rates are good for people in debt, because they have higher spending power, but those saving or living on a pension, this is going to reduce their income both in the short term and the long term.
It is important to remember that the amount of gold, goods, land and people in the UK have not significantly gone up today, but the money in circulation has, therefore there must be a price value adjustment to compensate for the additional cash flow. This is called inflation. The only way to stop inflation is to restrict the money supply through things like higher interest rates and higher taxation.
So is this going to solve the underlying problems?
The idea of quantitative easing is actually new in the UK economy and is different to the simple concept of monetising government debt, which can lead to the hyper inflation as seen in Zimbabwe and Germany of the 1930s. It is therefore unknown territory, but the bottom line is that this will allow the commercial banks to create loans of over £2.5 Trillion through the 3% fractional reserve multiplier currently in place in the UK.
In reality the entire concept of money as debt is the route cause of the economic fiasco that keeps every man, woman and child in the UK in bonded servitude; working to pay back the debts created by the government and banks.
The underlying problem lies with the ability of banks to create money in the UK economy that is not backed by any real assets. The ability to turn debts into balance sheet assets that are then used to "fund" further loans to create more debt, only works in the real world when the loans are secured against real assets with real solid value, such as land, gold, silver, precious stones etc. Government bonds and Bank of England promissory notes are not real assets and should not be counted as such.
The ability to notarise unsecured loan agreements and turn them into "cash equivalents" which are then used to fund multiple other loans, leads to an economic system that has no real value backing it. When the general public becomes aware that their bank doesn't have any real money, they loose confidence, which causes the problems we are seeing today.
If every bank loan was backed by real assets and every pound note in your pocket represented real value in the market place, this entire situation we are facing now would never have happened.
The UK economy is on the edge of collapse and the only real thing that ordinary people can do is to get out of debt and stay out of debt, anything else is likely to leave them the innocent victims of a devastating economic disintegration.
