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City Am Calls Repayment Of Qe A Load Of ********


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#16 bland unsight

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Posted 12 April 2012 - 08:54 PM

Surely QE was always a wheeze

At the time they could pretend that they weren't monetising the debt. If by some miracle things weren't as bad as they looked in 2008, they could then have sold the gilts back to the market. If things were much, much worse then the thought was presumably that whatever stunts the EU was going to have to pull to get out if its mess would be as nothing compared to a little harmless QE.

As to how or who it helps to monetize the debt or why they think it helps, that's all up for discussion.

QE was the Bank saying, "We are pretty sure that the world financial system is broken so it's every man for himself. Good luck!" We are in a new world and will write new rules, and just like normal in all human endeavour, we will be making it up as we go along.

I pointed out in another thread that the boys at M&G Fixed Interest do like a bit of special pleading. I bet that if you see their financial statements for the last quarter you'll see millions of pounds being pulled out of bonds, driving down their fees because 1.5% of less is less than 1.5% of more.

IMO this is another clue that investors are dividing into two camps, those who think that the UK is going to deal with this debt by paying it off or forgiving it whilst maintaining low inflation and those who think that they are going to inflate it away.

Paying it back is impossible; we've got mortgage lenders capitalising arrears, probably 60% of all CML lenders are already zombified and pretending they aren't. There's every reason to think that 10% of the 1.2 trillion CML loan books is just fiction.

Forgiving it is a political nightmare.
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#17 MongerOfDoom

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Posted 12 April 2012 - 08:55 PM

Gordon?

:ph34r:


No, no, it's not me at all. To prove it, my other ideas are i) a few more aircraft carriers, ii) another Olympics, iii) using the free money to pay the interest on new borrowing to be spent on overseas aid, iv) buying up all the available copies of the Big Red Book of New Labour Sleaze, v) introducing a 10 bedroom LHA rate set at 3% of GDP, and vi) making sure the golden rule is never broken again.

#18 long time lurking

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Posted 12 April 2012 - 08:59 PM

. Do taxpayers really need to be paying interest to the Bank on the gilts that it holds? A cancellation would cut the UKs debt to GDP ratio from 63 per cent to 41 per cent, and slash the interest bill on gilts from 50bn to 32bn per year. The Bank holds these gilts on behalf of the Treasury, so the Treasury is paying interest to itself (and regardless of definitional niceties, the fact is that the state is borrowing from itself).


Will never happen the BOE is privately owned doing the above would seriously affect the living standards of the owner`s of the BOE

The treasury borrows from the BOE and pays interest to them just like we would do if we borrowed from HSBC

#19 DungBeetle

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Posted 12 April 2012 - 09:03 PM

Not a legal move. We're in the EU and can't pull a fast one like that. Sure, we can devalue the , but that's a different story, already done.


We never signed that agreement, there are no rules stopping us doing this.

#20 DungBeetle

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Posted 12 April 2012 - 09:05 PM

Will never happen the BOE is privately owned doing the above would seriously affect the living standards of the owner`s of the BOE

The treasury borrows from the BOE and pays interest to them just like we would do if we borrowed from HSBC


What a load of conspiratorial nonsense.

#21 zugzwang

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Posted 12 April 2012 - 09:30 PM

Here's my 2p.

(Caution advised, I am NOT a banker.)
The only reason we haven't seen Weimar-type inflation thus far is because the QE cash has been largely confined to the banking system. The commercial banks have returned much of it to the BoE whence it originated, where it earns a notional 0.5% on deposit.

The commercial banks are profit-seeking enterprises. Since the original QE cash showed up as a liability on their balance sheets (transaction deposit?) they were obliged to generate assets on the other side of the ledger, or risk failure. They also expect QE to be reversed.

As the BoE reverses QE, so the commercial banks will draw down their deposits with the Bank and exchange them for the superior yield of 'risk-less' gilts. ~3.0% on the 20 yr ain't much but it's way better than 0.5%.

If the BoE doesn't reverse QE then the banks will go in search of yield elsewhere, releasing up to 325bn of new money into the economy proper. This has the potential to be wildly inflationary, to say the least.

zugzwang (n.) a situation where every possible move or decision is a bad one, or one that will result in damage or loss.

 

It's not a recovery, it's a relapse.


#22 easy2012

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Posted 12 April 2012 - 09:56 PM

Naive article - v. similar to one by the Bond Vigilantes the other day.

Illegal under EU rules.

Any profits/losses are the Treasury's anyway.

Might as well just wait until maturity to avoid any accusations of debt monetisation and just spin it out.


(don't forget 300bn of printing buys a hell of a lot more bonds than 300bn if the money keeps being recycled to buy more and more bonds - but no more than 300bn at a time)


Can't BoE setup a SPV to hold all the UK Gov debt and then the Treasury acquire the SPV at half price or whatever and then cancel the debt so that the BoE can continue to pretend that it is independent from the Treasury (and does that get round EU law ? )

Actually, Ben was asked this question in the past, and he said then "the currency will not be backed by the bonds".....
LOL.

#23 Sour Mash

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Posted 12 April 2012 - 09:56 PM

Well this is exactly what I keep saying has happened when people claim that the Government has printed money and given it to the evil banksters

The government has printed money and given it to itself via the banks who have taken a cut

the problem is government deficit spending NOT insolvent banks

the sooner people realise that this is a political problem the sooner something 'might' get done about it

:blink:


You seem to forget that the BoE swapped huge amounts of treasury Gilts for toxic bank crud, much of which no doubt ended up being purchased under QE and giving the banks large amounts of cash to play with.

EDIT: I do agree that the government used the opportunity to monetise it's own debt too, of course, but the banks benefited by more than just the risk-free cuts they made on fencing bonds from the treasury to the BoE.

Edited by Sour Mash, 12 April 2012 - 10:01 PM.


Plus a change, plus c'est la mme chose

#24 rit

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Posted 12 April 2012 - 09:59 PM

Not a legal move. We're in the EU and can't pull a fast one like that. Sure, we can devalue the , but that's a different story, already done.


Sorry but it's all very legal, and very likely once the UK government get to the point of issuing fewer new bonds due to lower borrowing. Its has a number of advantages beyond the ones already listed.

1) The BOE has been purchasing bonds of 10 years or less, so removing them means that the UK government will not have to issue bonds to cover the near term repayments.

2) Any increase in the interest that the UK Government has to pay on new bonds after pulling this stunt will be less that the likely increase seen if the 350B of bonds were placed back in the market.

3) It will stop all the reports about how much money the bankers will make if the BOE trys to resell these bonds.

If Lab wins the next election this is a 100% cert as the market will raise the cost of borrowing just because it's Lab. If the Lib/Con win I would say 75% chance.

#25 bland unsight

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Posted 12 April 2012 - 10:17 PM

Here's my 2p.

(Caution advised, I am NOT a banker.)
The only reason we haven't seen Weimar-type inflation thus far is because the QE cash has been largely confined to the banking system. The commercial banks have returned much of it to the BoE whence it originated, where it earns a notional 0.5% on deposit.

The commercial banks are profit-seeking enterprises. Since the original QE cash showed up as a liability on their balance sheets (transaction deposit?) they were obliged to generate assets on the other side of the ledger, or risk failure. They also expect QE to be reversed.

As the BoE reverses QE, so the commercial banks will draw down their deposits with the Bank and exchange them for the superior yield of 'risk-less' gilts. ~3.0% on the 20 yr ain't much but it's way better than 0.5%.

If the BoE doesn't reverse QE then the banks will go in search of yield elsewhere, releasing up to 325bn of new money into the economy proper. This has the potential to be wildly inflationary, to say the least.


I don't know squat about central banks but I can read a balance sheet, and if there are 325,000 million deposits from other banks on the Bank of England's balance sheet, they they are hiding them very, very well - this is the balance sheet from the Bank's 28 February 2011 financial statements the column heading I've trimmed off is m. You can find the financial statements here

Posted Image

One assumes that the zombies have all got this stuff on deposit with each other. It was a solvency crisis - no one would lend to UK banks apart from the UK government. I would assume that they can't get their hands on any cheap funding apart from by lending to each other in a kind of suicide pact. That's why ISA rates are climbing. I read somewhere, I forget where, that LIBOR is so fictitious now that trading desks just go onto MoneySavingExpert and compare ISA rates to see the real cost of funding for their competitors.

IMO the zombies yield chasing days are over, these days the yield chasers come to them. And, to bore people again with my pet theory, when the yield chasers do come Merv chases them off by firing up his money printing machine
Wendell: It's a mess, ain't it, sheriff?
Ed Tom Bell: If it ain't, it'll do till the mess gets here.

#26 rit

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Posted 12 April 2012 - 10:47 PM

Here's my 2p.

(Caution advised, I am NOT a banker.)
The only reason we haven't seen Weimar-type inflation thus far is because the QE cash has been largely confined to the banking system. The commercial banks have returned much of it to the BoE whence it originated, where it earns a notional 0.5% on deposit.

The commercial banks are profit-seeking enterprises. Since the original QE cash showed up as a liability on their balance sheets (transaction deposit?) they were obliged to generate assets on the other side of the ledger, or risk failure. They also expect QE to be reversed.

As the BoE reverses QE, so the commercial banks will draw down their deposits with the Bank and exchange them for the superior yield of 'risk-less' gilts. ~3.0% on the 20 yr ain't much but it's way better than 0.5%.

If the BoE doesn't reverse QE then the banks will go in search of yield elsewhere, releasing up to 325bn of new money into the economy proper. This has the potential to be wildly inflationary, to say the least.


Sorry but thats complete and utter twaddle. The whole point of QE is to purchase bonds from bond holders who then mainly just purchase more bonds and so allow the government to continue the process of issuing more of them. If this has not happened the current yield on UK bonds would not have dropped in the way it has. The main players in this game are the bond market makers who have made rather a lot of money from the additional volume of business created. They have been purchasing bonds from the market and as the BOE issues new ones, held on to them and then sold them when the BOE has gone to the market to purchase bonds.

Banks do hold UK bonds, but that is more because they have to hold a percentage of high grade assets and UK bonds are still AAA, they also do not suffer from currency risk unlike say german bonds. Banks are also able to get away with holding short dated bonds without reporting profit and losses from price movements so they can hold the bonds and just book the interest payments as a profit.

What Banks do is place their short term deposits with the BOE overnight - so earning the 0.5% this is not 350bn created from QE.

#27 spyguy

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Posted 13 April 2012 - 08:18 AM

Sorry but it's all very legal, and very likely once the UK government get to the point of issuing fewer new bonds due to lower borrowing. Its has a number of advantages beyond the ones already listed.

1) The BOE has been purchasing bonds of 10 years or less, so removing them means that the UK government will not have to issue bonds to cover the near term repayments.

2) Any increase in the interest that the UK Government has to pay on new bonds after pulling this stunt will be less that the likely increase seen if the 350B of bonds were placed back in the market.

3) It will stop all the reports about how much money the bankers will make if the BOE trys to resell these bonds.

If Lab wins the next election this is a 100% cert as the market will raise the cost of borrowing just because it's Lab. If the Lib/Con win I would say 75% chance.


The BoE is a private bank.
If they did this it would be a default.

#28 goldbug9999

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Posted 13 April 2012 - 08:24 AM

Will never happen the BOE is privately owned doing the above would seriously affect the living standards of the owner`s of the BOE


It would affect everyones living standard when the markets crucify the pound and the price of everything we import rockets.

.. instead of supporting productive industry by extending credit to increase tangible capital investment, the banking system has extended credit mainly (about 80 percent in the United States and most English-speaking countries) to buy real estate and load it down with debt. The result is that rental income is used to pay interest to the banks rather than to pay taxes. This forces governments to tax wages, profits and sales. That increases the cost of living and doing business, on top of the interest charge.


#29 57percent

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Posted 13 April 2012 - 08:48 AM

Here's my 2p.

(Caution advised, I am NOT a banker.)
The only reason we haven't seen Weimar-type inflation thus far is because the QE cash has been largely confined to the banking system. The commercial banks have returned much of it to the BoE whence it originated, where it earns a notional 0.5% on deposit.

The commercial banks are profit-seeking enterprises. Since the original QE cash showed up as a liability on their balance sheets (transaction deposit?) they were obliged to generate assets on the other side of the ledger, or risk failure. They also expect QE to be reversed.

As the BoE reverses QE, so the commercial banks will draw down their deposits with the Bank and exchange them for the superior yield of 'risk-less' gilts. ~3.0% on the 20 yr ain't much but it's way better than 0.5%.

If the BoE doesn't reverse QE then the banks will go in search of yield elsewhere, releasing up to 325bn of new money into the economy proper. This has the potential to be wildly inflationary, to say the least.


I'm with the others, I don't think this is the case.

The main benefit is to the government whose lending costs would be much higher if they had to rely on a real market.

The banks gain a small amount as part of the whole transaction, plus there's then a lot more narrow money in the system to eventually fill the banks reserves allowing for a tidier deleveraging of banking risk.

We've avoided larger inflation (much to my surprise), because the deleveraging of debt is happening almost as quick as they're printing money. No-one wants to lend and no-one wants to borrow which is very deflationary.

If they don't reverse QE, then at some stage, once in recovery, we will get the inflation. But this might be delayed for a long, long time with much stricter banking rules and capital requirements.

#30 easy2012

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Posted 13 April 2012 - 09:39 AM

I don't know squat about central banks but I can read a balance sheet, and if there are 325,000 million deposits from other banks on the Bank of England's balance sheet, they they are hiding them very, very well - this is the balance sheet from the Bank's 28 February 2011 financial statements the column heading I've trimmed off is m. You can find the financial statements here

Posted Image

One assumes that the zombies have all got this stuff on deposit with each other. It was a solvency crisis - no one would lend to UK banks apart from the UK government. I would assume that they can't get their hands on any cheap funding apart from by lending to each other in a kind of suicide pact. That's why ISA rates are climbing. I read somewhere, I forget where, that LIBOR is so fictitious now that trading desks just go onto MoneySavingExpert and compare ISA rates to see the real cost of funding for their competitors.

IMO the zombies yield chasing days are over, these days the yield chasers come to them. And, to bore people again with my pet theory, when the yield chasers do come Merv chases them off by firing up his money printing machine


QE to Feb 2011 was 200bn so the balance sheet more or less reflects that (150bn bank + 50bn others (probably government/DMO) )

The 50bn announced sometimes mid last year and 75bn annouced a few months back (not yet finished implementing).

When you get the Feb 2013 annual report, you will see the full 325bn..




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