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Qe Just Acting As A Sugar Rush For Insolvent Banks That Deserve To Fail

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http://www.telegraph.co.uk/finance/comment...ve-to-fail.html

The idea is that the proceeds of such sales boost the money supply and kick-start lending. By decreasing the supply of gilts in the market, QE is also meant to push up gilt prices, driving down the yields that determine borrowing costs right across the economy – not least for commercial loans and mortgages.

At this point, people in my position are supposed to explain that QE isn't "printing money". I'm not going to do that. For the only difference between the UK's current policy and Zimbabwe-style economics is that QE involves the creation of electronic balances rather than actual notes.

That last paragraph will have caused a sharp intake of breath among my friends in the higher-echelons of the UK's economics profession. Unable to dismiss me as a "non-economist", they'll say I'm being alarmist – perhaps due to some kind of personality trait.

I would suggest they sit down, turn off their mobile phones, take a cold look at the evidence and then ask themselves if they've got the guts to help expose the madness of the current policy consensus – the debt-funded fiscal boosts, the non-conditional bank bail-outs and, above all, QE.

Over the past three months, the Bank has spent £106bn of QE funny money. By the end of July, it will have purchased the £125bn of assets it has so far been authorised to buy. At this week's meeting of the Monetary Policy Committee, interest rates will be held at 0.5pc. But, with the original QE "pot" almost gone, the Treasury and Bank could well signal there's more to come.

I accept the start of QE caused share prices to rally and business sentiment to improve. But that sugar rush has gone. The harsh reality is that despite the huge inflationary dangers posed by QE, the credit crunch is getting worse.

The Bank of England has more than doubled the monetary base since March, yet mortgage approvals remained at 43,000 in May – consistent with house prices falling at double-digit annual rates. Lending to non-financial companies contracted 3pc last month.

Banks are keeping the QE cash on reserve or lending it to their own off-balance sheet vehicles (the ones stuffed with sub-prime toxic waste). So rather than helping solvent firms and households access credit, QE is re-capitalizing, by the back door, banks that are otherwise insolvent and should be going bust. Gilt yields haven't come down either. The 10-year yield remains where it was before QE began, having been much higher in the interim.

Around a third of the Bank's QE purchases are, anyway, from overseas investors – doing nothing to ease credit in the UK. Such sales by foreigners reflect mounting concerns about the UK's wildly expansionary policy stance and sterling's related medium-term fragility.

As someone who spends a lot of time talking to overseas asset-managers, I can't tell you how often I'm asked: "Liam, why this money-printing? Have your politicians gone mad?" I can only reply that I ask myself the same thing.

There is, in extremis, an argument for QE, but only to buy commercial paper, not sovereign debt. When used to re-purchase gilts, QE allows governments to carry on borrowing like crazy, rather than facing up to the reality the country must balance its books.

When QE was announced, the emphasis was on the commercial debt purchases the authorities would make. In the event, gilts have accounted for a staggering 99pc of the total. That's why QE will inevitably lead to high inflation – whatever nonsense is spouted about "withdrawing the monetary stimulus".

History shows you can't get the inflationary toothpaste back in the tube. That's why price pressures are rising – and gilts yields refuse to fall.

At the outset of QE, the Tories called it "a leap in the dark" – failing to reveal if they backed it or not. Since then, HM Opposition has been silent on a policy that's destroying the last vestiges of this country's policy-making credibility.

Such credibility is what keeps inflation benign and borrowing costs low. By providing a solid macro-economic platform, such credibility is vital if this country is to create the jobs and wealth that will be so important to our citizens in the years to come.

Such credibility, tough to win, is easy to lose. Because of QE, the UK is now losing it – at breakneck speed. Yet those who will form our next government are silent – not yet in power, but complicit in this grotesque policy vandalism.

One of the most damning articles I've read so far in the mainstream press.

Although it does highlight the poor quality of academia in this country with the fact that none of his colleagues are prepared to stick there necks out and speak out.

The herd mentality has kill academic debate in this country, our universities are full of happy clappy tw@s.

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http://www.telegraph.co.uk/finance/comment...ve-to-fail.html

One of the most damning articles I've read so far in the mainstream press.

Although it does highlight the poor quality of academia in this country with the fact that none of his colleagues are prepared to stick there necks out and speak out.

The herd mentality has kill academic debate in this country, our universities are full of happy clappy tw@s.

The man who dares to say publicly what everyone else is saying in private!

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The man who dares to say publicly what everyone else is saying in private!

The most unfortunate part of the story is that QE has managed hide the true story of the governments bungling of the finances. Even if we hadnt had the credit crunch, the govt was staring this in the face .. it will all be hidden from view now ..

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The most unfortunate part of the story is that QE has managed hide the true story of the governments bungling of the finances. Even if we hadnt had the credit crunch, the govt was staring this in the face .. it will all be hidden from view now ..

I would disagree, it will highlight there incompetence even more.

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Halligan seems to talk a lot of sense these days. Didn't he used to be an uber-bull on property though right up to 2007. I'm sure he used to bang on about dropping interest rates all the time though.

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Just after Major told the truth on the Marr show, so did one of the Dragon's Den lot on R5. Together with this article it seems like a decision has been taken to now get the truth out there. Maybe an exciting new phase and the phony war may be over.

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Some very good comments too. More and more people are realising that we're heading for disaster.

I see an HPC name amongst the commentators.

I was inspired to comment:

How is QE both inflationary and not-inflationary? The missing link in the story is that it is not so much a cause as an effect.

High inflation happened in the years to 2007, as lenders issued ever bigger mortgages and other loans. But it remained off-balance-sheet as far as the headlines and BoE 2% target were concerned. What's happening now is a tsunami of house-price inflation coming home to roost.

The question for commentators like yourself is: will QE bring inflation back onto the balance sheet?

If you use interest rates as your instrument of monetary policy, then the inflation measure you have to target is M4 money supply. Not chinese manufactured exports!

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Ah good to see that someone posted this. Good article from someone working working as a Fund Manager I believe.

The Bank of England has more than doubled the monetary base since March, yet mortgage approvals remained at 43,000 in May – consistent with house prices falling at double-digit annual rates. Lending to non-financial companies contracted 3pc last month.

Like this bit. I probably like many on here have been getting slightly worried about the fact that houses have been shown by some surveys to be rising again. But put into context i.e. 150bn pumped into the economy and stupidly low IR then the rises and transactions are actually pathetically low. Shame they are trashing the economy in a vain effort to try and keep houses inflated.

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One of the most damning articles I've read so far in the mainstream press.

Although it does highlight the poor quality of academia in this country with the fact that none of his colleagues are prepared to stick there necks out and speak out.

The herd mentality has kill academic debate in this country, our universities are full of happy clappy tw@s.

Poor quality of academics? Stick their necks out? :rolleyes:

Anyhow - I agree that the article is damning - but, in my opinion, it lacks credibility - a trait I value above hyperbole and emotional outbursts. Perhaps none of Liam's peers are willing to "stick their neck out" because they consider this a serious topic - and one which is not progressed by making wild spurious claims.

QE poses very real risks - and these risks have been debated... among the informed, at least. The article looks to me like an attempt to push a pseudo-economic article with no more respect for the intelligence of the reader than that afforded by the lowest common denominator tabloid.

Yes, QE is dangerous;

Yes, the national accounts are a disgrace;

Yes, there's an economic and monetary crisis;

No, Liam's points are not level-headed.

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