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With Mervyn in charge and your savings in a loss making account, is it time to turn to gold?

Following the BoE's announcement that it would be increasing the size of their asset purchase programme by £50bn perhaps more of us should be placing our hard earned money into gold

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Mervyn won't invest your money in gold. Perhaps you should yourself?
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Jan Skoyles
On 15 February 2012 14:28

Last week, to no one’s surprise, the Bank of England announced they would be increasing the size of their asset purchase programme by £50bn. This is equivalent to 22 percent of GDP or £12,500 per household.

Wouldn’t it be nice if we could all just print our own £12,500? Part of me suspects that this would be a whole lot safer for our savings than the Central Bank’s asset purchase programme. The Bank of England has sheepishly admitted that their first round of QE increased inflation by 1.5 percent, with very little obvious positive outcomes elsewhere. So, what good will a third round do?

What about the savers?

The staggering amount of cash injections being carried out are equivalent to £1 in every £5 spent coming from the Bank of England’s money printing. Never before have we seen such levels of money devaluating actions outside of a world war.

According to the Bank of England’s website, one of the main purposes of the Bank is to manage ‘… monetary stability. Monetary stability means stable prices - low inflation - and confidence in the currency.

Is anyone feeling particularly confident and stable about their savings at the moment? This little objective seems to have slipped the Monetary Policy Committee’s (MPC) mind, particularly as the real rate of interest remains negative.

The current rate of inflation, which stands at 3.9 percent, robs savers and investors of £41.8 billion a year. This money is not being stolen by anyone to put into another bank account; no, it is literally obliterated into thin air. It doesn’t exist.

Detlev Schlichter recently described how the British pound has lost more than 90 percent of its purchasing power since 1967. This means that nearly three generations of citizens in the UK have struggled to maintain the value of their savings.

It’s not even as if those of us who are just embarking on careers have much of an incentive to start saving in the long term. The Centre for Economic and Business Research predicts that the bank rate will remain at 0.5 percent until at least 2016. We are not sure the economy will last that long and that we won’t see far worse consequences for our monetary system.

More QE? Lower interest rates?

Many commentators and economists were originally for the rounds of quantitative easing and keeping interest rates low, but even for a select number of Keynesians and monetarists this has gone on far too long, as Andrew Lillico, a shadow member of the MPC, pointed out:

“It cannot be right to maintain such a policy for more than an emergency period… How long is it morally defensible to protect those that over-indulged and that made mistakes at the expense of those that were more prudent and restrained? …”

According to the recent annual report from the Bank of International settlements these drawn out low interest rates are delaying and attempting to cushion the blow for an inevitable crisis whilst sowing the seeds for the next one.

Look after the savers

Lord Freud, a Pensions Minister, warned this week that British pensions were no longer ‘The gold standard that they were’. He stated that the generous pensions once enjoyed by older generations were a one off. He made the statement as an admission to rising concerns about the increasing amounts of quantitative easing from the Bank of England.

Historically savings accounts were set up with a philanthropic motive. They were designed to help the poor save small amounts of money, with a good rate of interest as they put money aside for a better quality of living. Now, it seems the poor are the last on the list to be considered with their quality of life in retirement set to decline.

Read more on: Jan Skoyles, gold, Bank of England, Bank of England quantitative easing, quantitative easing, monetary policy committee, inflation, Detlev Schlichter, The Centre for Economics Business Research, Andrew Lilico, Lord Freud pensions, savings in China, Lloyds TSB, and Mervyn King
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