A while ago someone who knows a good deal more than I (indeed than most of us) about global finance explained to me that the way out of the present crisis would be relatively simple as far as governments were concerned, but painful for savers.
We — and I do mean ‘we’ — have accumulated an inconceivable mountain of debt. Most of us understand a million pounds — people win that on the lottery every week. A billion pounds is a bit harder to imagine, but it is a figure regularly bandied about in government budgets, so we are used to it.
Now try to imagine a trillion pounds (which, apparently, is just short of the size of Britain’s national debt). A million pounds is a millionth of a trillion. If you had a trillion pounds and you spent a billion, you’d still have 999 billion left. And a billion is a thousand millions. At which point our brains go on tilt and we cease to think about this as a ‘normal’ figure to worry about.
Of course, governments always have a debt. But there is a reason to worry about this particular debt, because even governments have to repay their debts, but there is a way they can do this which is different from you and me.
My friend tells me that one of the crucial factors in the national economy is that there is no shortage of trees.
What he means is, paper comes from trees, money is just paper, and governments can always print more.
In technical terms, this is called ‘quantitative easing’. But of course it is not quite as simple as the government printing money and thus making money. If it were, governments could print money, give us all some of it, making us richer and happier, and then get voted back in. That, of course, would be silly — and wrong.
When money is printed, it creates more ‘money’ but, in itself, no more ‘wealth’. The aim of quantitative easing is to buy time. But in the meantime, someone has to take up the slack — so who is it?
The answer, says my friend, is savers. Quite simply, they are being made to pay by keeping down interest rates. Hence my eye was caught by an article in the Telegraph this morning headlined ‘Pension annuities in 'freefall' due to money-printing’. The article goes on to explain that,
“Annuities – which are bought with the proceeds of a person’s pension pot when they approach retirement - determine a savers annual income for the remainder of their life. However the value of annuities has plunged by seven per cent in just three months [...] The fall in the value of annuities means that a person retiring with a £50,000 pension pot would be able to buy an annual retirement income of £2,579 today. This compares with an income of £2,778 as recently as July, according a quarterly report from MGM Advantage, an annuity provider.”
However, my suspicion is that at this point some of our sympathies go out of the window. Who has £50,000 in savings? And what’s all this about ‘pots’, quarterly reports and annuity providers? Isn’t this the realm of high finance that got us into this trouble in the first place?
These aren’t, after all, the ‘real poor’ — we’re not talking about single mums on housing estates, or people on benefits, are we?
So someone has a couple of hundred pounds less per year as a result? They’re pensioners, for goodness sake! It’s not like they’re going out on a spending spree.
In any case, if things get really serious, the state will always step in. Indeed, the state will always step in, won’t it — whether it is people on state benefits or pensioners on state pensions?
Of course it will. Provided the money’s there.Please give a full name and location when posting. Comments without this information may be deleted. Recommend: