“Our cities are not over-built – they are under-demolished”
I am with Nigel Wilson on this
“QE was designed by the rich for the rich; it drove up the price of assets rather than creating new ones and there has never been so much money available as today”,
It’s time to spend that cheap money.
The British Pension Industry has decided to match assets and liabilities. It considers it’s liabilities – the pensions it has to pay to the likes of you and me and its assets the money it has to meet those liabilities.
Instead of putting those assets to work building houses for the members of our pension schemes (whether DB or DC) , we choose to buy bonds and gilts, adding to the ever growing mountain of debt but doing little to solve the chronic problems this country suffers from. Slow trains, congested roads, a detoriating health service and a lack of affordable housing.
The money that we invest in gilts and corporate bonds adds to the cheap money washing around unspent. But Nigel Wilson- CEO of Britain’s largest fund manager – L&G – wants to change that. Here he is writing in May’s edition of Prospect.
“Many of us share a vision of a future UK if high-tech, digital, environmentally friendly cities, growing under inspired political leadership ad contributing to a much better-balanced economy. This is within reach. but only if we act now to put plentiful, cheap money to work in productive infrastructure and commerce, delivering the benefits we have seen in London accross the country as a whole”
Since Nigel wrote that, we have had a referendum, a new Prime Minister and a u-turn on economic policy. Perhaps not entirely co-incidentally, the man who provided policy advice to Nigel Wilson is now providing policy advice to Theresa May.
In her speech on Wednesday, May admitted that quantitative easing was not benefit those just getting by. In almost the same language as used by Wilson, she made it clear that in future it would.
At the end of my blog on May’s speech yesterday is a comment by my friend Jan
The most effective way to assist those “just getting by” is to create new homes that they can afford to rent or buy, then they are more likely to be in a position to increase their savings and divert money into pensions. One way to increase that supply of new homes is to build on public land whilst removing the cost of the land from the housing “offer” using a long lease mechanism.
This blog’s for you Jan!
The Bank of England cannot manage the economy with QE, because other major participants in the gilt market are irrational. Pension schemes are reluctant to sell their gilts at any price. The Government is reluctant to issue any. This is an absurd situation.
Pension schemes would be more able to provide their benefits in full from more rewarding assets than gilts. Pension schemes preoccupation with gilts reflects a failure to appropriately define risk. Schemes are busily making investment returns more certain, or their balance sheet more certain, when what they should be doing is making their benefit payments more certain. The first two objectives work against the third.
Given the very low prevailing gilt yields, the Government should be selling gilts as fast as it can in order to invest in things which will boost the UK’s economy. The Government can borrow much more cheaply than anyone else, so it is economically efficient if the Government, rather than any private sector body, finances the major projects on which our future economic growth depends.
I want to see the Government spend large sums on things like these: social housing, high speed internet, multiple small nuclear power stations, road maintenance and new road building.
I don’t want to see the Government spend money on things like these: Hinckley Point (too late, I know, but we’ve just bought a design which is unproven and which, even if it works, we won’t build another); Trident (we can destroy whom we want to destroy with conventional weapons); HS2 (not even so last century, railways stem from the century before that).