No more Monopoloy

no_monopoly.jpg

A game of Monopoly would be ruined by Quantitative Easing (QE).  

What would happen is that everyone would begin playing as normal, rushing to buy whatever they landed on and trying to consolidate their position. Along comes QE, by which every player’s original cash pile doubles, and the price of the remaining properties shoots up. Rents don’t change, nor do mortgage values.

Then the bank wants its money back; the only way to get the cash together is to make it in some profitable enterprise that can create real wealth (such as passing ‘Go’). The question is, has enough wealth been created to repay the bank?

Imagine then that you are a trustee of a small charity that owns two properties: the Old Kent Road (brown), and all the orange ones. It upgraded the orange ones when it had a stupendous offer for two stations that it also owned when everyone had been given the QE cash.

Your fellow trustees are been very unhappy at the low level of income being produced, and frustrated by the fact that this ever increasing wealth is not translating into ever increasing spending. When agent told them that they should consider spending less, not more, it was the straw that broke the camel’s back.

What is the point of getting richer if all it means is that you should spend less? This seemed so ridiculous that the trustees sold the stations and started to spend more (with fewer revenue producing assets).

And then the bank announced that it would be recalling its QE money in due course.

At the time of writing not much has changed; people still pass Go and collect £200, but they have no spare cash because as always it goes on rent and hotels.

Your charity is sitting pretty; it can afford to repay the cash (thanks to selling the stations) but isn’t sure yet what to do with its cash. Its favourite squares are Go, Gaol, Free Parking and Go to Gaol; eve being in Gaol is attractive.

All the other squares, including Chance and Community Chest represent different forms of risk to the cash that the charity holds. What do you do? How many times will the players have to pass Go before they have created enough new wealth to repay the bank – whilst still paying all the hotel bills they incur on their travels. No one knows.

 

Trustees should always be prepared for a range of options, even if that costs money in the form of lost returns.