World facing worst financial crisis in history!!!!Really?

World facing worst financial crisis in history, Bank of England Governor says———————good info

The world is facing the worst financial crisis since at least the 1930s “if   not ever”, the Governor of the Bank of England said last night.  Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy   Committee to put £75billion of newly created money into the economy in a   desperate effort to stave off a new credit crisis and a UK recession.

Economists said the Bank’s decision to resume its quantitative easing [QE], or   asset purchase programme, showed it was increasingly fearful for the   economy, and predicted more such moves ahead.Sir Mervyn said the Bank had been driven by growing signs of a global economic   disaster.

“This is the most serious financial crisis we’ve seen, at least since the   1930s, if not ever. We’re having to deal with very unusual circumstances,   but to act calmly to this and to do the right thing.”Announcing its decision, the Bank said that the eurozone debt crisis was   creating “severe strains in bank funding markets and financial markets”.

The Monetary Policy Committee [MPC] also said that the inflation-driven   “squeeze on households’ real incomes” and the Government’s programme of   spending cuts will “continue to weigh on domestic spending” for some time to   come.

The “deterioration in the outlook” meant more QE was justified, the Bank said.

Financial experts said the committee’s actions would be a “Titanic” disaster   for pensioners, savers and workers approaching retirement. Sir Mervyn   suggested that was a price worth paying to save the economy from recession.

Under QE, the Bank electronically creates new money which it then uses to buy   assets such as government bonds, or gilts, from banks. In theory, the banks   then use the cash they gain to increase their lending to businesses and   individuals.

By increasing the demand for gilts, QE pushes down the interest rate yields   paid to holders of these and other bonds. Critics of the policy say it   pushes up inflation and drives down sterling.

The National Association of Pension Funds yesterday called for urgent talks   with ministers to address the negative impact of lower gilt yields on   pension funds. Joanne Segars, its chief executive, said QE makes it more   expensive for employers to provide pensions and will weaken the funding of   schemes as their deficits increase. “All this will put additional pressure   on employers at a time when they are facing a bleak economic situation,” she   said.

Ros Altman, of Saga, said the latest round of QE was “a Titanic disaster” that   would increase pensioner poverty. As well as fuelling inflation, she said,   falling bond yields would make annuities more expensive, “giving new   retirees much less pension income for their money and leaving them   permanently poorer in retirement”.

The MPC also voted to keep the Bank Rate at its historic low of 0.5 per cent,   another decision that hurts savers. Yesterday, protesters outside the Bank’s   headquarters smashed a giant piggy bank to symbolise the situation of   pensioners and others forced to raid savings to keep up with the rising cost   of living.

Asked about the plight of savers, Sir Mervyn said it was more important to   support the wider economy than to support them. He suggested that savers   would not be helped by deliberately pushing the British economy into   recession. Yesterday’s decision was the first move on QE since 2009, during   the global credit crisis, when the Bank injected £200 billion into the   economy.

Some analysts believe that this round of QE could be less effective than the   previous one, forcing the Bank to create even more money this time.

Michael Saunders of Citigroup, forecast that there could be as much as £225   billion more QE by next year. “I think they will do lots more QE,” he said.   “It’s both that the economy is weak but also that the MPC’s view is that QE   is not a very powerful tool, or rather it takes a large amount of QE to have   much effect on the economy.”

The Bank is supposed to keep inflation near a target of 2 per cent. Inflation   now stands at 4.5 per cent, and the Bank admitted it is likely to hit 5 per   cent as soon as this month. The Bank’s own research shows that as well as   stimulating the economy, QE pushes up prices.

Sir Mervyn insisted that yesterday’s move was still consistent with the 2 per   cent inflation target, saying that the slowing economy means inflation could   actually fall below that mark “by the end of next year or in 2013”.

The Governor insisted that the MPC’s decisions had been the correct response   to events. “The world economy has slowed, America has slowed, China has   slowed, and of course particularly the European economy has slowed,” he   said. “The world has changed and so has the right policy response.”

City traders took heart from the Bank’s move to boost growth, with the FTSE   100 rising 3.7 per cent to 5,29, its biggest two-day gain since 2008.

The Bank’s decision came after mounting political pressure from ministers   worried that Sir Mervyn was not reacting urgently enough to the darkening   global economic outlook.

George Osborne, the Chancellor, welcomed the Bank’s move, saying: “The   evidence shows that it [QE] will help keep interest rates down and boost   demand and that will be a help for British families.”

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