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Everything posted by sharpe

  1. It should be called child tax reduction; as anyone in this category is already paying a lot of tax. That tax reduction is now being removed and the most overburdened sector is paying more tax again
  2. The UK has won - plain and simple we are the winners. These putz's have no idea how to play the game, it takes years of pissing away generations of hard work on coke, hookers and over priced house to win.
  3. If you described Thatcher as the "Banker's Whore" you would be about right. Check what she did to the reserve ratios in England: Country 1968 1978 1988 1998 United Kingdom 20.5 15.9 5.0 3.1 http://en.wikipedia.org/wiki/Reserve_requirement Greatest money printer in UK history.
  4. Unlike a lot of the rest of economics there is a wealth of data on demographics, which makes it possible to test out some of the arguments currently being discussed in the media. There have been a number of articles in the press discussing the changing shape of demographics and how this impacts our economy. One of the theories is that the increasing proportion of the population in the age group 50-69 is having an impact on the saving behaviour. As this group are naturally hoping to save for retirement, a rise in their number would suggest more savers looking for a yield on their savings. With a higher demand for savings and a higher demand for bonds, property etc… we would expect prices to rise and yields to fall. This theory is used to explain the rise in asset prices and fall in yields seen in the UK, US and Japan. I have taken demographic data for the UK, US and Japan from www.mortality.org. The following chart shows the proportion of the population between 50-69. For the UK this proportion rose from 1922 until 1940; after which it has stayed between 20 and 23%. The US has shown a similar pattern with a slightly lower blip during the Second World War and a slightly higher rise after 1990. Japan has had a different pattern of a constantly rising proportion only peaking in 2006. Interpretation It seems difficult to me to see how the banking crisis or current low yields in the UK are due to demographics. In the UK the proportion of population between 50 and 69 was highest between 1965 and 1975 and yet interest rates ran well into double digits in this period. If we can dismiss demographics as a significant impact on yields in the UK – is it then credible to discuss it in other nations? Some other factor aside demographics must be impacting the yields in the UK. I would contend it is this factor (or factors) that should be explored rather than focusing on demograhics.
  5. I think most of the fraud has been stopped in UK insurers after people realised the scale of the issue some serious time was put into tracking it. I think the UK government does something similar with state pensions - obviously more difficult if people live abroad.
  6. This is certainly not limited to foreigners. In the UK about 5 or 6 years ago insurers started comparing the pension book to a UK database of recorded deaths (contrasting with their previous approach of having policyholder deaths reported to them). Some companies had about 5 percent of policyholders as being dead who had been receiving pensions. So on say a 10 billion reserve that is 500 million set aside for people already dead. Some of this was likely due to joint pensions where the spouse just forgot to mention it. A lot was potentially fraud. I imagine it is even more difficult with foreigners. Increasing fraud is possibly due to a dis enfranchisement of the population. Bankers commit massive fraud on a wide scale which is sanctioned by government approval using tax payers money. Small wonder normal do it. There is such a thing as society.
  7. I would agree with the Henry Hazlit tip. Also "The Mystery of Banking" Rothbard. "Monetary Regimes and inflation" Bernholz is worth a read
  8. The guy opposite me at work got one. Apparently 7.5 grand a year with respect to the last 4 years - so 30 grand. He was a bit down hearted.
  9. Do low interest rates encourage borrowing and so raise quantity of money?
  10. Are there any smart people in the army? As the price rises many new sources become available. The germans were converting coal into gasoline during world war 2. I understand this becomes economic at around 200 dollars a barrel. There is still a lot of coal...
  11. Is the UK government massively supporting house prices? Any falls would be as a result of failure by the government to prop up prices. If housing fell say 30-50 percent (what is needed for a sustainable market) would that wipe out most of the assets on the banks balance sheets and put the UK is deep trouble again. My big guess is interest rates will stay low and inflation will go high (10 percent plus) and house prices will not fall much nominally. Which for someone in a 2 bed rented cottage with one child and another planned is a grim prospect of not being able to buy without a hugh risk (risk the government fails and house prices do collapse (as in US, ireland)).
  12. I did about 3 years ago - it is down about 90 percent. They have some long term fixed deal on coal prices which means buying into UK coal is effectively buying into commerical property. (Though do not quote me...)
  13. No doubt there - mainly because they already started printing. Are public sector pensions now linked to cpi rather than rpi? That has likely reduced that liability significantly. They are printing and also cutting. The pound is holding up well which shows someone has confidence in what is currently being done.
  14. Is that right? The BoE has printed 200 billion pounds directly. If that goes through the banking system which has about 5 percent fractional reserve you get a multiplier of 20. Is that is about 4 trillion pounds by the BoE alone?
  15. I will buy them - pm me if you are selling
  16. Coupon value has nothing to do with yield. You do not need a negative coupon to get a negative yield. If redemption is 100, with a 1 year bond, if the coupon is 100 you still have a negative yield if the price is 500. In the article above the government got free money - people knowingly accepted a small loss.
  17. Coupon value has nothing to do with yield. You do not need a negative coupon to get a negative yield. If redemption is 100, with a 1 year bond, if the coupon is 100 you still have a negative yield if the price is 500. In the article above the government got free money - people knowingly accepted a small loss.
  18. Remember this: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azLmks3BmQm4 Just be glad you ignored that advice, as bond prices have risen significantly since that utterly guff advice.
  19. http://www.bloomberg.com/apps/news?sid=aOGXsWKEI6F4&pid=newsarchive Treasury Bills Trade at Negative Rates as Haven Demand Surges Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression. The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001. “It’s the year-end factor,” said Chris Ahrens, an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.” The benchmark 10-year note’s yield tumbled 11 basis points, or 0.11 percentage point, to 2.63 percent at 4:48 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 31/32, or $9.69 per $1,000 face amount, to 109 23/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began. The two-year note’s yield fell 10 basis points to 0.84 percent. It dropped to a record low of 0.77 percent on Dec. 5. If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56. ‘Horrible Year’ Indirect bidders, a group that includes foreign central banks, bought 47.2 percent of the four-week bills, compared with 31.7 percent in the prior auction. Primary dealers bought 52.1 percent, while direct bidders such as individual investors purchased 0.7 percent. “It’s been such a horrible year people want to show they have the good stuff on their balance sheets, not the bad stuff, but with yields already so low it pushes these even lower,” said Theodore Ake, the head of Treasury trading in New York at Mizuho Securities USA Inc., another primary dealer. The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The government began issuing the four-week bills in July 2001, according to Stephen Meyerhardt, a spokesman for the Bureau of Public Debt in Washington. The bills are intended to reduce the government’s reliance on irregularly issued cash management bills. Meyerhardt wasn’t aware of the three-month bill ever trading at a negative rate before. Housing Slump Treasuries of all maturities have returned 11.4 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. That compares with a 39 percent loss in the Standard & Poor’s 500 Index, including reinvested dividends. Bonds have surged as the U.S. housing slump pushed up the cost of credit globally, causing equity markets to tumble. The world’s biggest financial companies incurred almost $1 trillion in writedowns and credit losses since the start of last year, helping push the major economies into recession. Treasuries rallied today as stocks snapped a two-day winning streak after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the deepening recession crimps sales. The S&P 500 lost 2.3 percent. ‘The Bottom Line’ “The bottom line is there’s still a good amount of cash on the sidelines, and people are trying to figure out how they want to allocate that capital,” said Richard Bryant, a trader of 30- year bonds at primary dealer Citigroup Global Markets Inc. “The answer is still Treasuries for a lot of people.” The National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell a less-than- forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the group today in Washington. Futures contracts on the Chicago Board of Trade show 100 percent odds t the Fed will lower its 1 percent target rate on overnight loans between banks to 0.25 percent on Dec. 16. The probability was 38 percent a week ago. Rate predictions based on the futures are not considered as accurate as they once were because the central bank hasn’t sought to bring the daily effect rate to the level of its target. Mutual Funds Money-market mutual funds that buy mostly Treasuries are starting to turn away new investors as the record low yields pull down returns for shareholders and squeeze managers’ fees. At least three Treasury money-market funds run by JPMorgan Chase & Co., Evergreen Investments and Allegiant Asset Management recently stopped taking outside cash, according to Web site notices and regulatory filings. Barring new customers protects returns for investors already in the funds because managers don’t have to buy as many new Treasuries with yields lower than current holdings. Higher fund yields also prop up management fees. The record low borrowing costs for the Treasury Department may turn out to benefit President-elect Barack Obama as he faces a widening budget deficit while pledging to embark on the biggest U.S. public works plan since the 1950s to stimulate the economy. The U.S. is headed toward $1.5 trillion in debt sales as the budget deficit approaches $1 trillion in the 2009 fiscal year according to Bank of America Corp. The deficit this year was $455 billion. The Treasury will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes the following day. The $44 billion total is about $3 billion more than expected by Wrightson ICAP LLC.
  20. I understood during the credit crunch for 3 month t-bills people paid say 101 to get back 100 in 3 months time. If this happens in the secondary market for longer term bonds, it would also happen in the primary market, you can get negative yield simply by having a higher purchase price - regardless of the coupon. So the government could issue a two year bond with 5 percent coupon and 100 par. If the purchase price was say 120 that is negative yield - even though the coupon is positive. This is free money for the government - I am really wondering what the consequence of that is?
  21. are negative rates on bonds free money for the government? did yields on treasuries go negative briefly a couple of years ago. could I ask why the government would be unhappy at free money from investors?
  22. Ok, that makes more sense to me. http://www.federalreserve.gov/monetarypolicy/reservereq.htm I think some countries other than china use an explicit reserve requirement. Are capital ratios not an implicit reserve requirement, which incorporates the quality of assets backing those liabilities? You can estimate the reserves held across the industry; who knows what they are now, say 2%; then the money multiplier is 1/0.02. Gilts have a different term to money; so if you have a long term liability like a pension or life insurance liability - you would buy gilts to match - not cash. In fact you can match your expected liabilities for life insurance and pensions extremely well with gilts. Cash would create a term mismatch as you would be at the mercy of short term interest rates - this would create a risk of not meeting your liabilities, so they are clearly not interchangeable
  23. But I am still lost as to why the velocity is comparable to 1/(fractional reserve req)? Money goes through the banking system and increases in volume by 1/fract reserve. This reduces the value of the money as its supply increases. This does not happen for gilts.
  24. Could I repeat my question. Why is velocity comparable with the money multiplier? (By money multiplier I mean 1/(fractional reserve requirement)
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