Tuesday, Sep 28, 2010
...or should that be how it hasnt worked??
Bank Of England: Quantitative Easing - How it Works
Well that depends doesnt it, i mean if you argue that it was trying to get asset prices to rise and yields to fall, then you could say yep its worked. If, on the other hand, you say that it was designed to get money into the wider economy and encourage consumers etc, then at best the jury is out. As for inflation targets..... well thats for the floor.
I just thought it would be nice to have this posted from the horses mouth.
Posted by techieman @ 06:05 PM (933 views) Add Comment
12 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. mark wadsworth said...
It appears to be factually correct.
But in practice, all that happens is that one branch of the government issues new money (the BoE creates electronic balances) and swaps that with existing money previously issued by another government department (i.e. govt. bonds issued by Debt Management Office). 99% of the trades were buying back govt bonds from commercial banks, and 80% or 90% of the proceeds have simply been left on deposit with the BoE.
So really, this is much the same as the BoE issuing bank notes and buying back coins issued by the Royal Mint. It's all smoke and mirrors which enables the commercial banks to cream off 0.25% each way (or whatever), which adds up to a billion in gratuitous bungs or so, but big deal.
What a complete and utter futile waste of time.
2. easybetman said...
Thanks Techieman. It is always good to have sources of factual information in the discussions at HPC (and elsewhere) as opposed to unsubstantiated ranting.
Just a note, I notice one important item missing BoE presentation -> QE, swell asset price-> Front run by IBank -> Bigger banker bonus (and MarkW notice that as well).
3. mark wadsworth said...
EBM, they DO mention that - quite early on, they say it boosts asset prices and hence pushes down interest rates. So they're quite honest about it, they are just hoping that as few people as possible that it's a bit of a scam - to continue my analogy, it's like the the Royal Mint buying back five pound notes for 501 pence in coins.
4. easybetman said...
Hi MarkW,
Yap but the presentation stopped at the asset price bit. The last 2 steps (front run, bonus bits) are strikingly missing..
Yes, your analogy is a good one. What a waste of money and time.
5. devo said...
Quantitative is spelled incorrectly (approx 14 seconds in).
6. estrader said...
Fantastic propaganda..."We do this, which causes that, which leads to this and the result is..."
Rube Goldberg comes to mind...hilarious
7. techieman said...
yes est... piece of cake... oh and if it doesnt work? i know we keep on doing it until it does ?!?!? That to me just sounds a bit dumb, but maybe i am wrong,
8. slartibartfast said...
The primary purpose of bond sales is to maintain the Central Banks desired interest rate.
For incorrect ideological reasons they also CHOOSE to issue bonds, roughly in proportion to the Government budget deficit.
Banks buy bonds to get a return on their excess cash reserves.
When the Central Bank buys back bonds the Banks have excess cash reserves looking for a good home.
What Banksters do with the cash determines the effectiveness of QE. Obviously it is not being put to good purpose. Because all Bankers are dog butts.
Possible uses of QE money.
1. Carry trade overseas. Tanking the pound. (Yes)
2. Pumping asset values/ Gambling. e.g. Chasing hot stocks and commodities. (Yes)
3. Small Business investment. (Not happening)
4. Corporate bonds (To some extent)
5. Housing (No)
6. Social welfare (In your dreams losers)
9. hpwatcher said...
A new improved socialist BOE.
The only thing wrong, is that QE isn't actually a good method of getting money into the economy; of course interest rates are kept low, allowing the banks to borrow at a very low rate, but this isn't passed onto their borrowers. Seen the rate of interest in your credit card recently?
No? Take a look, you might be [un]pleasantly surprised.
10. Carefix said...
And these people are actually running things? Looks like we're all stuffed then. I've only become interested in economics of late because of the obvious necessity.
It now seems I've been cornered.
There is a large Quantitative Difference between BoE Policy, Perceptions and Reality. It seems to me that a much simpler way of getting the economy going would be to spend this pretend money on building and making real things rather than just giving it to bent banks to create asset bubbles. It would almost seem the real idea is for the political/financial eletes to consolidate their power at the expense of the marginalised and dispossesed. When it all comes tubling down they will still be in charge. That is all that they are doing, consolidating their own wealth and power even at the expense of the entire World Economy. They are actively and purposely working towards the very destruction they pretend to be averting.
Surely this cannot be simple stupidity?
11. Slartibartfast said...
Fiscal expansion is practiced by both left and right. Reagan ran a successful expansionary monetary policy.
There tend to be more fiscal conservatives in the Tory and GOP ranks. The dems have a significant number of fiscal conservatives.
12. slartibartfast said...
Expansionary fiscal policy is practiced by both Left and Right. Regan ran a very successful expansionary fiscal policy.
There are fiscal conservatives on both sides. Reganites have dominated GOP for many years. The ultra right are all fiscal conservatives.
Many Tories (not all) are fiscal conservatives. It's the current party line.