Monday, Nov 30, 2009
QE straw man; credit balloon keeps deflating but hp keep rising somehow
FT: Money supply and bank lending fall
"Key measures of money supply and bank lending both fell in October, raising further questions about the effectiveness of the Bank of England’s £200bn programme to pump cash into the economy."
AND tucked away at the end of the article: "Mortgage approvals rose again, to 57,345 from 56,205. Approvals have now more than doubled since their low last November but remain well below their pre-crisis average of about 100,000 per month. Analysts have been surprised by the ability of house prices to recover in spite of the lower level of mortgage credit available, but frequently point to a shortage of homes on the market at the moment." Yes it is surprising that house prices can still rise under these conditions.
Posted by mountain goat @ 01:39 PM (1969 views) Add Comment
21 Comments
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1. tpbeta said...
This constant 'printy printy' assumption that Quantitative Easing is effective (and therefore dangerous and inflationary) bugs the hell out of me. All the evidence is that it doesn't work outside of a very limited sphere of sentiment based effects on the currency and the stock market, and is therefore deflationary, since it substitutes for effective solutions.
2. Shawkie said...
I think the argument about QE being inflationary or not all depends on whether you believe that credit is real money or not. If you do then its the credit expansion thats inflationary rather than the QE. If, like me, you believe that credit expansion isn't inflationary and that all of the bad debts arising from it should be borne by those that issued them then clearly QE is inflationary. If you believe the former then effectively you are saying that the right to create money belongs with the private banking industry rather than with the Bank of England.
3. mountain goat said...
tpbeta - it's not so simples is it
4. hpwatcher said...
Low interest rates, may have something to do with it, but where is the money coming from to maintain this artificial state of affairs?
5. mark wadsworth said...
That does not surprise me one bit. Mountain Goat, it is that simple, this is a paper shuffling exercise in a closed loop between the commercial banks and two departments of HM Treasury (the Bank of England and the Debt Management Office).
I've been trying to tell you so all along.
6. mountain goat said...
MW - I've been agreeing with all along!
7. mountain goat said...
at least on this subject!
8. letthemfall said...
Not entirely a closed loop. It has kept asset prices up, particularly bonds, all of which have an effect on long rates and cash available for lending. It seems that this has had anough impact to stop house prices dropping further, when we all agree they are still at fantasy values. But this cannot continue indefinitely, though I wouldn't want to guess how long.
9. jack c said...
There's an old saying - "markets act irrationally"
UK residential house prices will correct - the highly difficult bit is predicting precisely when.
10. hpwatcher said...
UK residential house prices will correct - the highly difficult bit is predicting precisely when.
The indications are that it will be later rather than sooner......this country - the government, BOE and politicians - are simply unable to face the pain. I think outside forces will have to do it.....
11. jack c said...
hpwatcher - agreed, true market forces will come into play - keep an eye on the gilts market.
blogs.telegraph.co.uk/finance/edmundconway/100002346/the-leaks-that-prove-how-worried-the-treasury-is/
12. mountain goat said...
UK bank adventures into Dubai and elsewhere should keep domestic lending constrained for some time.
13. hpwatcher said...
hpwatcher - agreed, true market forces will come into play - keep an eye on the gilts market.
blogs.telegraph.co.uk/finance/edmundconway/100002346/the-leaks-that-prove-how-worried-the-treasury-is/
I wonder how long before open warfare...as this irresponsible and incompetent government tries to cling to power?
Can't be long before.....
14. matt_the_hat said...
nominal house prices won't drop but we will look back at the 'real' crash in twenty years time (sterling 30% down against the euro)
15. Davepage said...
It's coming from the saver, whose loss of return is fueling the mortgage spend via depressed interest rates -- I'm £800 / month worse-off as a consequence (that investment is money saved by hard work, not the windfall of selling-to-rent, I might add...)
16. braindeed said...
There's not just a shortage of homes, there’s no FTB's and movers are generally well set in life.
And don’t mind paying what they see as a market rate. People are still letting, waiting for a return to normalcy - the huge rise in the stock market is underpinning buoyancy too - much more so in the areas of the market that are active (high end).
Seems to me that the two major parties have nailed their colours to the flagpole of re-inflating the balloon …….you can’t piss off the 70% who own their own homes, and love being ‘rich’.
HPC? – call me a bull.
17. hpwatcher said...
There's not just a shortage of homes, there’s no FTB's and movers are generally well set in life.
And don’t mind paying what they see as a market rate. People are still letting, waiting for a return to normalcy - the huge rise in the stock market is underpinning buoyancy too - much more so in the areas of the market that are active (high end).
Seems to me that the two major parties have nailed their colours to the flagpole of re-inflating the balloon …….you can’t piss off the 70% who own their own homes, and love being ‘rich’.
HPC? – call me a bull.
Yes, they are all quite happy to destroy the currency in the process of keeping house prices high.
Mind you, take that away, and ALL the Banks are VERY DEFINITELY BUST!!!!
18. str 2007 said...
Jack C at 4.10pm
I think the actual quote is ''Markets can remain irrational longer than you can stay solvent'.
There's a thought.
19. tenyearstogetmymoneyback said...
Quoting the article "Mervyn King, the governor of the Bank, has said that he would like to see the money supply growing at a similar pace to the 6-9 per cent rate it was before the financial crisis"
Could any economists out there explain why the money supply needs to grow by this rate
when inflation should be held under 2%. What are they expecting people to do ?
Buy a new car every month ?
20. stillthinking said...
matt_the_hat has a good point. This is like the eye of the hurricane (calm).
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