Jump to content
House Price Crash Forum
Mega

Blanchflower "let Go Printing"

Recommended Posts

I imagine the guys in the Gilts thread will have some interesting things to say about this.

government is trying to replace consumers, as deflation occurs government will print away, thill the point were the currency becomes worthless.

Share this post


Link to post
Share on other sites
I imagine the guys in the Gilts thread will have some interesting things to say about this.

;)

I just don't understand why the deflationists think they will STOP printing.

I mean, why would they ?

They have made their choice regarding the fate of sterling & the UK economy last year.

Share this post


Link to post
Share on other sites
;)

I just don't understand why the deflationists think they will STOP printing.

I mean, why would they ?

They have made their choice regarding the fate of sterling & the UK economy last year.

They can't stop printing because the govt has no money which means it has to sack some very important people in non descript jobs, the govt would rather print and go zimbabwe than sack the gimps it's employed in pointless posts.

Share this post


Link to post
Share on other sites

:rolleyes::rolleyes::rolleyes::rolleyes:

And now, the actual article, to which the discussion in this thread bears no resemblance.

Blanchflower is calling for more printing, whilst correctly noting that the tolls exist to deal with inflation, but deflation remains the bigger threat..

Blanchflower Says BOE May Expand U.K. Money-Printing Program

Share | Email | Print | A A A

By Elliott Gotkine and Brian Swint

June 8 (Bloomberg) -- Former Bank of England policy maker David Blanchflower said the central bank may expand and widen its program of buying assets with newly created money as the British economy keeps shrinking.

The bank may seek to spend more than the 150 billion pounds ($240 billion) authorized by Prime Minister Gordon Brown’s government, as well as buying different types of bonds, Blanchflower said in an interview on Bloomberg Television. Britain will be mired in a recession for another year, he said.

The Monetary Policy Committee entered its fourth month of money printing last week and recommitted to spending 125 billion pounds. Blanchflower, the Dartmouth College professor who left the panel at the end of May, said that the biggest concern is still that the deepest recession since World War II will cause an extended drop in consumer prices.

“The 150 was just, if you like, a notional starting number,†Blanchflower said in a June 5 interview from Hanover, New Hampshire. “The forecast the bank produced essentially said that at constant rates, and with the amount of quantitative easing that we’ve actually voted for, that still doesn’t bring inflation back to target†at 2 percent.

“If you read it that way, the assumption would be there is more QE to come,†Blanchflower said.

The central bank in May predicted that the inflation rate is most likely to drop to around 0.4 percent by the end of this year and will reach only 1.2 percent in the middle of 2011.

Bond Program

So far, the Bank of England has bolstered the money supply by purchasing 77 billion pounds in government bonds with residual maturities of between five and 25 years. It had added 2.1 billion pounds in commercial paper and around 730 million pounds in corporate bonds on its balance sheet as of the end of last week.

“My expectation would be: look at the data, and if the data is not strong and growth isn’t coming, they could do more,†Blanchflower said. “They may decide they have to alter the type of gilts they’re buying or do rather more in commercial paper, but it’s really going to depend.â€

The bank’s June 4 move to maintain the plan for 125 billion pounds of purchases and to keep the benchmark interest rate at a record low 0.5 percent “really is a ‘sit-and-wait-and-see decision,’†he said. The Treasury has given the bank authority to spend up to 150 billion pounds, and policy makers can vote to ask permission for more.

Recession Forecast

The U.K. economy contracted 1.9 percent in the first quarter, the most since 1979. The International Monetary Fund expects gross domestic product to fall by the most since at least 1948 this year.

Barclays Plc raised its forecast for GDP on June 4 after a report showing services industries unexpectedly grew for the first time in a year. The British economy will stop contracting in the third quarter, Barclays predicts.

“I’d be surprised to see a positive quarter of growth in 2009,†Blanchflower said. Expansion probably won’t resume “until the second quarter of 2010. Certainly the labor market is going to be pretty terrible for quite a long time.â€

For the global economy, “there are some positive signs,†Blanchflower said. “But they’re not exactly strong. It certainly doesn’t look as if we’ll be leaping into a strong recovery this year.â€

With the U.K. in recession, inflation slowed to a 15-month low of 2.3 percent in April, down from a peak of 5.2 percent in September. Blanchflower said he’s less concerned about accelerating inflation in a few years than the possibility of a period of falling prices.

“We have the tools to deal with rising inflation,†he said. “Obviously we still have the interest-rate tool, and then you can just reverse the purchases of gilts. You can sell them again. The bank knows exactly what to do on the upside. The worry always, in all of this, is deflation.â€

Blanchflower suggested that turmoil surrounding Brown’s government, which the prime minister reorganized on June 5 after a spate of resignations, may have unsettled investors.

“Uncertainties about government and government policies don’t help,†he said. “There has been some weakening in the pound. The markets don’t like uncertainty. We will see.â€

Blanchflower, whose term ended on May 31, often disagreed with Governor Mervyn King. In 36 interest-rate meetings, he voted for a reduction 19 times, favored no change on 16 occasions and wanted an increase only once.

Edited by HAMISH_MCTAVISH

Share this post


Link to post
Share on other sites

The BoE will sell gilts to whom?

The interest rate tool is a spent force completely useless.

Plus the BoE needs to target debt levels from now on, a bit hard when you have a govt increasing debt at a rate never seen before.

Share this post


Link to post
Share on other sites
The BoE will sell gilts to whom?

The interest rate tool is a spent force completely useless.

Plus the BoE needs to target debt levels from now on, a bit hard when you have a govt increasing debt at a rate never seen before.

The BOE have no policies other than creating more debt.

Either by getting the public up the creek without a paddle, or the taxpayer directly through their actions. They really are useless, moronic disgrace. Mind you they seem to do well trading off the back of their own meddling.

Share this post


Link to post
Share on other sites
The BOE have no policies other than creating more debt.

Either by getting the public up the creek without a paddle, or the taxpayer directly through their actions. They really are useless, moronic disgrace. Mind you they seem to do well trading off the back of their own meddling.

We'll in they couldn't profit from insider knowledge they really would be inept.

Share this post


Link to post
Share on other sites
WTF?

over the next few months, large segments of people in Britain are going to find themselves priced out of food FFS.

you are quite right. prices have been rising rapidly over the last few years, 2008 (the year of this 'great deflation') was no exception. the mob are in charge. if you weild political power - banks, giant motor companies, or voter dependent on government handouts - then you receive money taken from others.

Edited by Where is my pen?

Share this post


Link to post
Share on other sites

I loathe Mr B and don't listen to his opinions usually.

But in this case I note that he thinks QE needs to continue big time. Curious given the alleged green shoots and return to HPI that is being hyped everywhere.

If even someone as dumb as him doesn't believe the hype, why does anyone else?- bulls clutching straws I suppose.

Share this post


Link to post
Share on other sites

Windows Summariser has found the following suggested words relevant to the text within Mr Blanchflower's article:-

the

asylum

lunatics

taken

the

over

have

finally

Share this post


Link to post
Share on other sites
They can't stop printing because the govt has no money which means it has to sack some very important people in non descript jobs, the govt would rather print and go zimbabwe than sack the gimps it's employed in pointless posts.

In dark rooms they thought yes lets print and buy up gilts from the market,they will then use that fresh sterling to buy new gilts from the government and lend to bankrupt consumers........there is your lovely new sterling,,,,,,thankyou very much,,think il buy oil,copper,Asia,AUS$ etc etc,,,Hang on,but that means at some point that sterling will come home,hitting the currency for 6,pushing up inflation in everything people need..Fancy that happening,,,no shit Sherlock.

Share this post


Link to post
Share on other sites
The BoE will sell gilts to whom?

The interest rate tool is a spent force completely useless.

Plus the BoE needs to target debt levels from now on, a bit hard when you have a govt increasing debt at a rate never seen before.

The gilts can be sold at losses but sold anyway at competitive yields at the time they are sold in the future. The result overall from the beginning point of QE in the past will be some additional money placed permanently into the economy but done at a future time when money needs to be taken from the economy to prevent inflation as the gilts are sold and a chunk of the QE money is taken back by the BOE.

As for government debt, taxes will fall now so debt goes higher now and when the economy inflates and growth returns taxes will rise.

The result of all of this is a recession where people faces austerity but an austerity that is managed by government rather than simply let loose upon people without government.

We can of course argue and agree on the madness that got us here before the need for these actions.

Share this post


Link to post
Share on other sites
The gilts can be sold at losses but sold anyway at competitive yields at the time they are sold in the future. The result overall from the beginning point of QE in the past will be some additional money placed permanently into the economy but done at a future time when money needs to be taken from the economy to prevent inflation as the gilts are sold and a chunk of the QE money is taken back by the BOE.

As for government debt, taxes will fall now so debt goes higher now and when the economy inflates and growth returns taxes will rise.

The result of all of this is a recession where people faces austerity but an austerity that is managed by government rather than simply let loose upon people without government.

We can of course argue and agree on the madness that got us here before the need for these actions.

Nail head i think.As you mention this is really about trying to avert a complete collapse and manage the decline while keeping viscosity as high as possible.The worry i have is that as you mention,when the time comes and they start to sell the gilts,inflation has already hit the system.

This could really push interest rates to the upside.Its a very dangerous game.

Share this post


Link to post
Share on other sites

“We have the tools to deal with rising inflation,†he said. “Obviously we still have the interest-rate tool, and then you can just reverse the purchases of gilts. You can sell them again. The bank knows exactly what to do on the upside. The worry always, in all of this, is deflation.â€

How does swapping Gilts for freshly-printed QE money affect prices when we know from the CDS market that Government debt is reliable?

Share this post


Link to post
Share on other sites
Nail head i think.As you mention this is really about trying to avert a complete collapse and manage the decline while keeping viscosity as high as possible.The worry i have is that as you mention,when the time comes and they start to sell the gilts,inflation has already hit the system.

This could really push interest rates to the upside.Its a very dangerous game.

The gilts dont have to be sold.

They will be sold if the economy is recovering, inflation is rising and the government has the ability to raise taxes rather than create more debt.

Selling the gilts will have a major depressing effect upon the economy at a time it needs this depressing influence so that growth is coming from production in the economy rather than funny money. If it does not need it then it wont get it because the gilts will be held.

Share this post


Link to post
Share on other sites

“We have the tools to deal with rising inflation,†he said. “Obviously we still have the interest-rate tool, and then you can just reverse the purchases of gilts. You can sell them again. The bank knows exactly what to do on the upside. The worry always, in all of this, is deflation.â€

How does swapping Gilts for freshly-printed QE money affect prices when we know from the CDS market that Government debt is reliable?

Today with deflation being the principal worry BOE money is competively buying gilts from the pension funds and insurance companies who then have money to invest in property or stocks or whatever they think will make more money than gilts. So rather than moving to the safety of gilts they move to make other investments which then places this money into the economy amongst a variety of firms and individuals. What the BOE is signalling is that there will not be a generalised deflation of prices without end but instead widespread support for a variety of asset classes. Even so with the economy on life support with multi century lows in interest rates there is no ability of the economy to have independant life to create inflationary presssures and quite massive forces at work to create depressionary forces.

In the future as per the text you have quoted the process is reversed when inflation returns that is not created by the governments actions at a time money needs to be removed from the economy.

Share this post


Link to post
Share on other sites
Today with deflation being the principal worry BOE money is competively buying gilts from the pension funds and insurance companies who then have money to invest in property or stocks or whatever they think will make more money than gilts. So rather than moving to the safety of gilts they move to make other investments which then places this money into the economy amongst a variety of firms and individuals. What the BOE is signalling is that there will not be a generalised deflation of prices without end but instead widespread support for a variety of asset classes. Even so with the economy on life support with multi century lows in interest rates there is no ability of the economy to have independant life to create inflationary presssures and quite massive forces at work to create depressionary forces.

In the future as per the text you have quoted the process is reversed when inflation returns that is not created by the governments actions at a time money needs to be removed from the economy.

Why can't the pension companies buy property and assets using their Gilts, why do they need to swap them for cash?

Share this post


Link to post
Share on other sites
Why can't the pension companies buy property and assets using their Gilts, why do they need to swap them for cash?

You mean do a swap for property?

If you had property you wanted to sell would you take a gilt?

But lets say some people swap gilts for property. No change happens monetarily.

The idea here is that those wanting to sell gilts can do so and get cash that does not have to come from some place else in the economy. The effect is therefore to place spendable cash into the economy.

The BOE is also buying corporate debt where yields for corporate debt are pretty high now. So if some bond issued by XYZ company is trading at quite a discount to the bonds face value the BOE can reason that is a good quality bond and pay a good price for it which then in turn supports the prices of corporate bonds keeps yields lower and releases the BOE money into the economy.

It seems not much money is being spent on the corporate bonds so far however. On the other hand a pension fund can buy corporate bonds with high yields if it sells gilts to the BOE so maybe that is happening so the BOE action has the same effect of reducing corporate debt costs.

Effectively a team of people from the BOE are out there amongst the traders saying 'well hang on a minute! that bond is way too low a price you dont need to sell it so low to get money today, we will buy it at a slightly better price'. I have no idea how this actually works in practice but i imagine that the BOE is buying and selling and signalling in some manner that it will buy or it will sell depending on the market conditions. But the net result is that it is a buyer rather than a seller over time.

I imagine too that the BOE agents who travel around the country accumulating company and consumer information and so forth have loads of contacts who are supplying them with information as to prices and who is saying 'this is rediculous we cant get finance and nobody wants our bonds' and so forth so they can get a picture of how they can support companies thru this difficult period with some chance that in the future they will not have lost too much from doing so because they can take the very very long term view that joe public having to meet todays payroll cannot do.

Edited by aliveandkicking

Share this post


Link to post
Share on other sites
You mean do a swap for property?

If you had property you wanted to sell would you take a gilt?

But lets say some people swap gilts for property. No change happens monetarily.

The idea here is that those wanting to sell gilts can do so and get cash that does not have to come from some place else in the economy. The effect is therefore to place spendable cash into the economy.

<snip>

But doesn't removing Gilts from the economy result in lower prices? For example, if the Govt announced that they are going to default, that would be deflationary, no?

Share this post


Link to post
Share on other sites
But doesn't removing Gilts from the economy result in lower prices? For example, if the Govt announced that they are going to default, that would be deflationary, no?

I am not sure what you mean by 'lower prices'. You mean lower inflation or lower gilt prices?

You must mean lower inflation.

The government will almost certainly not announce they will default. Instead you will see them say one thing while desparately doing something different. We are nowhere near that yet. Iceland for example was in trouble for years with very high interest rates. Latvian overnight bank rates were 140% pa last week. The boe rates are more or less zero.

If gilts are stored in a safe some place in return for new money that may be inflationary if the new money is spent and circulates in the economy. But if it is just a swap for cash that sits in a bank account with boe money sitting in a banks BOE account it has no effect at all other than increase gilt prices and reduce yields. But the BOE needs to vastly expand the purchase programm so far announced to buy all of the gilts. So far by reducing interest rates they reduce the resistance in the economy to the spending of money and now by QE they are reducing the resistance a little further.

Meanwhile there is obviously alot of resistance in the economy to spending money that the BOE actions are attempting to neutralise.

Share this post


Link to post
Share on other sites
I am not sure what you mean by 'lower prices'. You mean lower inflation or lower gilt prices?

You must mean lower inflation.

The government will almost certainly not announce they will default. Instead you will see them say one thing while desparately doing something different. We are nowhere near that yet. Iceland for example was in trouble for years with very high interest rates. Latvian overnight bank rates were 140% pa last week. The boe rates are more or less zero.

If gilts are stored in a safe some place in return for new money that may be inflationary if the new money is spent and circulates in the economy. But if it is just a swap for cash that sits in a bank account with boe money sitting in a banks BOE account it has no effect at all other than increase gilt prices and reduce yields. But the BOE needs to vastly expand the purchase programm so far announced to buy all of the gilts. So far by reducing interest rates they reduce the resistance in the economy to the spending of money and now by QE they are reducing the resistance a little further.

Meanwhile there is obviously alot of resistance in the economy to spending money that the BOE actions are attempting to neutralise.

Why does the bond market still trust UK sovereign debt? Where do they think the money is going to come from, the printing press?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   296 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.