quantitative easing, another fine mess they got us in

I’m trying to accumulate as much knowledge as possible at the moment, I want to try and understand how it all works (everything, literally everything that has an effect on my life) so I can figure out what’s right and what’s wrong and what to do about it, some fella said something like:
‘ in order to defeat your enemy you have to become your enemy’
on reflection that may have been Christian Bale in Batman, but whatever, it works.

I’ve been looking at some economic concepts around the financial crash and started reading up on the utter mindfuck that is Quantitative Easing, partly because the European Central Bank are looking to do it again in Europe, and partly because I’m quite boring.
I thought I’d share what I learnt.  I work in IT / BBQ, I’m not an economist so I may have some things slightly wrong, but I’m pretty sure it’s mostly correct, it is dull, but it’s also important so pay attention because there will be a test!

 

Are you sitting comfortably? I’ll begin; In a recession, like the one that started in 2008 and is still ongoing, people stop spending money and so do businesses (possibly as the result of job losses and uncertainty about the economy, oh and then there’s austerity measures cutting money off for people and lower wages and rising inflation and a whole shit load of other bad stuff) this means that there’s not enough money swishing round the economy so it grinds to a halt.

 

The good people at the Bank of England (BoE) decide we need more money in the economy, so they make some, jut press a button (I imagine it’s big and red and they have two keys to arm it like in you do a nuke) and billions of £ appears in their account (No, we can’t just do the same unfortunately, I’ve yet to ascertain why because the banks are allowed – more on that another time) they then take this new money and purchase assets from private financial institutions like insurance companies, pension funds and our good friends, the banks.

 

Now, before we go any further, an asset in this sense isn’t something tangible like a house or a car as you or I might understand it, it’s essentially debt, the BoE is lending the money at an agreed interest rate over a fixed period of time, (so you buy a 10 year £10,000 bond at 5% interest you get back £500 a year (5% – this is called the yield) and then your £10,000 at the end of the 10 years) this is called a Bond, the bonds the BoE bought from these companies were Government Bonds which is lending the government money (This is where all the talk of government debt and borrowing comes from, government debt is considered bang on, rock solid debt, because (unlike the rest of us) when they can’t pay they just hit the big red button and it pours all over them(As an aside and maybe I’ll cover it another time, this is why European countries, Greece, were fucked because they’ve got a central currency and can’t just print the stuff). Anyway, where were we? Bonds; confusingly the BoE bought government bonds from financial institutions which means that they were buying the government’s debt from another company – it’s a fucked up place the economy!

 

So, the reasoning behind all this is that purchasing these bonds puts extra money into the economy, drives the price of the bonds up (supply and demand) and the yield down so that the financial institutions that received money from the government buy products elsewhere (again, we’re not talking about actual things, we’re talking about debt again or shares) this in turn pushes up prices of all these other assets and their yields down. Why is this important? Well, lower yields means lower borrowing costs, bear with me here..

 

If demand for government bonds rose, this £10,000 bond would increase in price as investors pushed up the market price.
But, the government still pay £500 a year interest until maturity. If the market price of the bond rises to say £20,000, the interest rate (yield) is now 2.5% (50/2000)
Therefore higher demand for bonds leads to lower bond yields.

 

This pushes down the cost of borrowing everywhere because the government can borrow for less, then the corporates can borrow for less and so on until it gets down to you and me with banks lowering their interest rates because their borrowing costs are lower. Still with me? Good.

 

Now, before we marvel at the stupidity of this idea, let’s have a think about all of this, at no point is there anything actually tangible going on here, in order for this to work people have to do what’s expected of them, at no point are there any rules at work here (governing the process I mean, insider trading, financial regulations (ha ha) and the law all still apply) there is nothing at all that forces this process, there is no law or legal agreement that says the banks have to buy anything when the BoE pumps money into them, they can do what they like, economists will tell us that they will do it because that’s what ‘The Market’ does, this abstract construct is basically a bunch of people making decisions based on greed and is responsible for both getting us into the mess we find ourselves in and attempting to get us out. It’s so Laurel and Hardy-esque it’s almost funny, but it’s not funny because people have lost their jobs, homes and in some cases lives because of this belief in the power of the market, and the market does work, but not for you and I, it works for the big financial institutions and those around them

 

Let’s get back to QE;

 

We’ve already found out that money is pumped into the system from thin air and that is supposed to stimulate the economy by the money moving through the market, reducing the cost of borrowing, making us borrow and spend more (this could be businesses investing or consumer credit, I believe it was supposed to be businesses primarily, once the banks had some cash they could lend it to businesses) Now, let me ask you this, if, as happened in 2008, you lost a fuck load of money in the financial crash then someone gave you a load of cash hoping you’d go out and spend it in the right way, what would you do? Well, that’s exactly what the banks did, they kept it, they got rid of these assets they had and put cash back on their balance sheets then went and speculated in property, shares and commodities making their investors a bit happier (and richer) the bankers and the hedge fund owners did very well out of it, but for the rest of us? Higher prices in food and property and fuel and bugger all lending to businesses. Now, either the BoE knew that this would happen and were happy for the banks to hold onto this cash, or they didn’t which means they are totally incompetent and shouldn’t be in charge of tying their own shoelaces, never mind the economic stability of a whole fucking country. They decided to let banks (economic crash causers) do what was right.

 

Who appoints these people?

 

Who regulates these people?

 

Whose interests do these people serve because it doesn’t seem to be yours or mine? – actually,  I can answer this one, it’s bankers and hedge fund managers.

 

What are the alternatives?

 

Do we need a central bank?

 

Should everyone be allowed to print money?

 

Should we have public representatives inside the banks to make sure they’re not shafting us?

 

Should economics be mandatory at school?

 

What do you think?

 

All I know is that whatever this is currently is not working.

 

References:
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land ownership – farms

I was asked about farms, this is what I found out…

I got this from http://www.ukagriculture.com/uk_farming.cfm and it says that although there are 300,000 farms at an average of 140 acres / 57 hectares / .56sq km each the number is skewed by the size of farms in Scotland which average over 100 hectares / 247 acre / 1sq km so the actual average size is somewhere around 40 hectares / 98 acres / 0.4sq km. Whichever way you look at it the total active farming land in Britain is around 1.5m sq km. (.57km x 300000). This seems incredibly small when 75% of all surface area in this country is maintained by farmers. Having said that we exported £14bn worth of agriculture, but imported £32Bn.

Something’s wrong somewhere, and if anything, I’m more confused than when I started!


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land ownership, who owns Britain, how and why

Like a  time-poor student trying to get an essay written despite spending all waking moments drinking, sleeping and watching TV,  I’ve trawled the pages of Wikipedia to find out who owns Britain and how they came to own it. It’s not comprehensive by any stretch of the imagination and it is my understanding of everything I’ve read (there is a lot of Latin to go through and even the most diligent writer would get bored having to translate archaic / technical phrases every couple of minutes).

Although this is a little dull it is important and a bit of background on some other information I need to give you.

Ready?

Back in the old, old days before the Normans invaded it is most likely (I don’t know for totally definite, they weren’t very good at record keeping) that the English land law was characterised by ‘enjoyment in common and the absence of private ownership‘ – meaning that everyone had rights on the land and no one owned it, it was there for the common good. After William came over and shot Harold in the eye in 1066 he decided that all of the land belonged to him and he divided it up and gave some to his mates (Lords, or the Aristocracy you might call them) in return for their loyalty / services (this concept is known as Feudalism and the basic unit of land was the ‘Manor’ – as in ‘you come raaand my manor again I’ll cut your jacobs off’) – Le Wills also kept a load for himself . His mates then cut up the land he gave them and gave it out to tenants who had the peasants work on it.

Lords and Tenants had obligations to the crown to pay in return for the land (Feudalism) and the peasants were bound by law to work the land meaning they could not leave the land without the landlords permission. This stuff is all recorded in the Domesday Book 1: Ha ha, we’ve got loads and you haven’t. (My subtitle). There then followed a series of acts in law that further tied up the ownership of land and wrote the thievery into law; taking away any land that used to be common, making sure only sons of Lords could inherit the land (the land that until some bastard took it, belonged to everyone), landlords destroying houses to put sheep farms on and whatever else they fancied doing.

“… your sheep, which are naturally mild, and easily kept in order, may be said now to devour men and unpeople, not only villages, but towns; for wherever it is found that the sheep of any soil yield a softer and richer wool than ordinary, there the nobility and gentry, and even those holy men, the abbots not contented with the old rents which their
farms yielded, nor thinking it enough that they, living at their ease, do no good to the public, resolve to do it hurt instead of good. They stop the course of agriculture, destroying houses and towns, reserving only the churches, and enclose grounds that they may lodge their sheep in them.” – Thomas Moore, Utopia 1516

There were a few attempts by the people to change this, most notably the Levellers and my favourites, the Diggers (mostly because the thought of little yellow diggers driven by peasants all over 17th century Britain amuses me). The Diggers believed that the “common people of England” had been robbed of their birthrights and exploited by a foreign ruling-class, wanted economic equality and a return to the ‘golden age’ before Norman invasion.

“Ooooh, all this were fields before those Normans came”

“They still are Marjorie, it’s the 17th Century”

“Yes Wilfred, but they was our fields, not that stinkin’ Lord up at the Manor”

“Grave times Marjorie, turnip?”

“That’s not your turnip anymore Wilf it belongs to the Lord”

“Oh, bugger”

They tried to build communal farms, putting up notices telling everyone they’d be taking over land and that anyone who wanted to join them would be fed and clothed and have beer to drink but the lords weren’t keen and destroyed them.

After feudalism, which ended in 1660 and was replaced by taxes on the land,  land law goes through a few iterations most of which seem to be sorting out squabbles between the landed and then later on enshrining the ownership of land into law.

Fast forward 300 odd years to 1873 and Domesday 2: Stop moaning, peasants is published (It’s actual title is The Return of the Owners of Land – dull) this all came about because the landowners were fed up with the poor moaning about how much land they had.

After two years of research the returns found that 1 million people owned freeholds, about 5% of the population. The ten leading Dukes in the Kingdom owned over 100,000 acres each with the Duke of Sutherland owning 1,350,000 acres. The Duke of Northumberland owned 186,000 acres then (and still owns 132,000 acres). The publication of the report wasn’t exactly what the landed had hoped for as it rather proved the point that they owned all of the land.

That is as far as we can go on the complete picture of land ownership in the UK, there has not been an audit of land in the UK since then, there have been attempts but they have been thwarted by people who do not want the poor (that’s us) to know how much the rich (that’s them) have got.

What we do know, according to Kevin Cahill’s 2002 book: Who Owns Britain and Ireland

Britain is made up of approximately 60 million acres

160,000 families (0.3% of the population) own 37 million acres

Top individual landowners

  • Forestry Commission – 2.8m acres
  • MOD – 750k acres
  • Royal Family – 670 acres
  • National Trust – 550k
  • Insurance companies – 500k acres
  • Utility Companies – 500k acres
  • Duke of Buccleuch 270k acres
  • Dukedom of Atholl 148k acres
  • Duke of Westminster 140k acres
  • Church of England 135k acres

70% of the rest of us, that’s 44.8m people own rougly 3 million acres between us.

Doesn’t seem right, does it?

If you’re still awake after all of that, well done, next time I’ll try and explain exactly why this inequality is bad and why we need to do something about it.

 

References

http://en.wikipedia.org/wiki/Land_tenure

http://en.wikipedia.org/wiki/Feudalism

http://en.wikipedia.org/wiki/Diggers

http://en.wikipedia.org/wiki/Levellers

http://en.wikipedia.org/wiki/Return_of_Owners_of_Land,_1873

http://libcom.org/news/article.php/land-ownership-right-roam-uk-10032006

ttp://www.newstatesman.com/life-and-society/2011/03/million-acres-land-ownership

http://www.domesdaybook.co.uk/life.html

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