There has been much in the news of late, and the extent to which it impacts us is as yet very unclear. QE2
Take first off the quantative easing being undertaken by the Federal Reseve in the US - dubbed QE2. It has been said by many commentators that this may become two trillion dollars over the next 12-18 months, injected into the US economy by effectively printing more!
Some commentators have described it as a race to the bottom as a number of countries around the world seek to devalue their currencies to create a more competitive export market. This in itself causes a number of issues:
- The US dollar is used on the worldd stage, with many prices being set in it such as Oil
- The race to the bottom is likely to drive up inflation, which will put up the prices of things faster than our income will increase (so we will be made poorer as we race to even stand still to maintain our current financial position)
- Many countries trade with the US, and their exports will suffer
- The Chinese not only peg their currency against the dollar, but they also are the biggest holders of US treasury bonds
In short it may be enough to cause a second wave of a global down turn, after all Japan has pursued this strategy for a while, and 10 years later still finds itself in turmoil.
Impact to you and I is from this is likely to be increased inflation, and more job losses as our exports fall.
With 300,000 empty homes, the bubble has certainly burst for Ireland. So what's the impact to us, surely the EU will bail them out?
I has been estimated that our banks have lent in the region of 100bn to Ireland, added to which 18% of the UK's exports go to Ireland. It idoes not take a lot then to realise that if Ireland fail, we at best are going to come off badly. So much so that the Government have offered billions in loans to Ireland, at a time when we are making cuts from our own spending budget.
Whilst this is a necessary step, the money has got to come from somewhere, and in all likelihood we are going to have to borrow it to lend it out! It like you taking out a bank loan and then lending it to your gung-ho risky cousin that has shown they cannot handle their money, in order to prevent them moving in with you...
Extent of Cuts
More has been emerging daily on the extent of the impact caused by the cuts. Greater Manchester police have indicated as much as 20% of it's front-line (i.e. police on duty) may have to go in order to keep to a budget. Tuition fees up to around #9k, interest rates increased, meaning a large number of students will not ever pay off the debt from studying!
The way that the NHS is to be funded is to be radically overhauled, which is going to encourage an even greater post code lottery.
The real extent of the cutbacks won't be clear until they have determined how they are going to achieve the budget they have committed to. Watch this space for an eventful spring of 2011.
A Royal Wedding
On a positive note, the recent announcement the Prince William and Kate Middleton are tying the knot will no doubt instill a feel good factor into the nation, which will be necessary to overcome the tightening of belts. Some pundits have estimated that it will raise an extra 600 million for the UK economy, increased tourism and of course all those commerative items.
All this on top of the Diamond Jubilee and the London Olympics in 2012. So it's not all doom and gloom out there, but to make the most out of things we still need to be considering how to protect ourselves from the financial onslaught.