Wealth Begets Wealth

There comes a point when you gain financial freedom which is marked by the ability to purchase without concern for price.  That point is where increasing wealth makes no impact on your quality of life.  Most people will never reach this point however, and the number of people who will is debatable but the most quoted figure is 1% of the population.

When you reach this level of wealth however, despite the fact it is the level at which increasing wealth leaves little to no impact, it is also the level at which increasing wealth is at its easiest.  The old saying "wealth begets wealth" or to put it more crudely "money breeds money" comes into play.  At this level, investment and banking offers the greatest return on the money you invest or deposit.  When you surpass the million mark the amount of interest you can be paid on that money is more than a sizable portion of the population earns in a single year.  Going further still and investing in commodities and other assets whose values appreciate over time you can ensure your wealth never declines.

The Bank of England recently announced its latest round of bond-buying scheme which is intended to stimulate the economy by bolstering liquidity of businesses through direct capital investment in exchange for bonds held against those businesses with an agreed yield - essentially interest.  While the idea of this may sound promising to many business owners or entrepreneurs the reality is far from the supposed incentive.  The companies which receive this capital are almost always very large organisations deemed to be somewhat stable and guaranteed to provide a return, in other words companies that are already making money and are in good health. 

One of the most prominent companies to feature in the Bank of England's latest round of bond-buying is Apple, which is a company that arguably is in no need of capital.  Therein lies the problem with calling this a "stimulus package" and the supposed desired effect.  To stimulate an economy you need to capitalise the smaller and medium businesses that are faltering.  Imagine a 6-lane motorway, where 2 lanes in either direction have stalled entirely and represent small and medium businesses.  The third lane in each direction represents the largest businesses which are flowing freely and passing all the others by on the road.  The stronger the economy the more traffic the motorway can handle, the weaker the economy the closer to a traffic jam you become or an all out crash that prevents traffic entirely.  To increase the traffic the motorway carries you should not pout money into the fast lane that achieves nothing.  You need to address the other 4 lanes and determine why those lanes have stalled; determine if they have broken down, or need extra fuel, or have a puncture they need repairing.

If you are going to try and provide a stimulus to keep the country moving then you need to invest that money in removing the barriers that are slowing down the country.  Large companies find it easiest to attract investment and to gain access to credit, they are not the companies in need of investment from any public body.  This isn't surprising however as the Bank of England, like the Federal Reserve in the USA, isn't actually controlled by the government, and technically isn't even a public body.  They are both technically privately owned and while expected to be politically neutral and altruistic, they don't have any obligation to actually do so.  Knowing this it's actually counter intuitive to think that any government really has control over fiscal policy or economic policy.  The Bank of England will only intervene insofar as to ensure that its private interests are protected.  With that in mind one could argue the only reason Apple is on the list is because of its consistently high share price and perceived market value and the recent tax levy placed upon it by the EU, in other words the Bank of England is essentially footing part of the bill for Apple's tax fine - the question is, how much?