Bank Of England Injects £25bn More Into Economy

[OnlyMe]

My plan and now the powers that be plan will probably end with a hyperinflationary blow off. The way I look at it Britain would already have collapsed ala the eastern euro communist countries in 1990, without QE.

I showed on another thread how if the government actually did the 21% cuts instead of QE.. it would likely mean ~1.7 million jobs lost and 20% unemployment. So it isn't really an option.

1.7 million - this number of unemployed could be wiped out immediately by removing the special rights to work here that other nationals have been given during the "boom" where there were "supposedly" skills shortages.

[Newy]

This sounds like a good idea.

Dear Mr. Darling,

Please find below my suggestion for fixing Britain's economy. Instead of giving billions of pounds to banks that will squander the money on lavish parties and unearned bonuses, use the following plan. You can call it the Patriotic Retirement Plan:

There are about 5 million people over 50 in the work force.

Pay them �1 million apiece severance for early retirement with the following stipulations:

1) They MUST retire. Five million job openings - Unemployment fixed.

2) They MUST buy a new British CAR. Five million cars ordered - Auto Industry fixed.

3) They MUST either buy a house or pay off their mortgage - Housing Crisis fixed.

4) They must send their kids to school / college /university - Crime rate fixed

5) Buy � 100 of alcohol / tobacco a week There's your money back in duty / tax etc

It can't get any easier than that!

P.S. If more money is needed, have all members of parliament pay back their falsely claimed expenses and second home allowances.

You assume that there is the steel. the bricks, and the fuel to support this policy, also what happens after this quick fix ?

[porca misèria]

If it builds up and up then the BOE could be forced to go into real negative rates instead of QE and the

money might move too fast forcing them to raise rates, or they could raise rates to show they have

the balls to do it. Speeches by two different BOE members have talked bout the balls and negative rates

issues.

Indeed. They can accelerate the flight of money. I'm "trickling" about £3-4K per month out of sterling-denominated assets, and most of them (especially the Asian investments which form the biggest part) are doing very nicely. Contemplating stepping that up with a much bigger lump sum: that would be basically a bet on UK losing its credit rating. I'm sure many folks are responding to the threats faced by Sterling in a similar manner.

[aa3]

1.7 million - this number of unemployed could be wiped out immediately by removing the special rights to work here that other nationals have been given during the "boom" where there were "supposedly" skills shortages.

Very much agree. It seems a no-brainer with the severe problems facing us to remove the special rights workers who are here because of alleged shortages. Any sane nation puts its citizens first. In addition Labour should have halted new legal immigration to the country in 2008. Which is running at 500,000 a year(and 300,000 emigrate legally each year).

[aa3]

Indeed. They can accelerate the flight of money. I'm "trickling" about £3-4K per month out of sterling-denominated assets, and most of them (especially the Asian investments which form the biggest part) are doing very nicely. Contemplating stepping that up with a much bigger lump sum: that would be basically a bet on UK losing its credit rating. I'm sure many folks are responding to the threats faced by Sterling in a similar manner.

Smart move. It seems to me wise to invest in foreign nations if you work/earn your income in one nation.

[Sybil13]

How did you come up with that number, and why stop there?

Link to £150bn

Comment by John Greenwood

(Invesco Asset Management)

Vote: Hold Bank Rate and maintain current quantitative easing targets

Bias: Prepare to extend quantitative easing beyond £150bn after July

In my view QE will need to be maintained and expanded in order to ensure the full effects are transmitted to households and businesses across the country. The Bank of England should therefore increase QE beyond the £150bn (or 7.4% of M4) that it is currently authorised to complete, requesting authorisation for a further £150 billion in asset purchases. In the meantime Bank Rate should be held at its current level of ½%.

Comment by Andrew Lilico

(Europe Economics)

Vote: Hold

Bias: Neutral

There is much discussion at the moment about whether the economy has turned and, assuming the turn, how soon interest rates might start to rise again. All this discussion appears premature to me. If cutting interest rates by 5¼ percentage points, doubling the narrow money stock, and running a £200bn budget deficit had not resulted in at least a temporary upturn in the real economy, the economics profession would have little left to say. The issue was never whether the economy might experience a quarter or two of reduced decline or even slight growth. The question was whether this was a turning point or a temporary reprieve.

In my view the natural assumption is still that this is a reprieve. House prices still need to fall a further 20% or so, deleveraging by households has barely begun, the banking sector is so vulnerable that it could yet be driven into widespread default by even a moderate further shock, UK government spending is so exorbitant that it will certainly have a major effect upon the sustainable growth rate of the economy if it is not rapidly curtailed, and the UK government deficit is so wild that it must be brought under control rapidly, by tax rises if not spending cuts, if the government is to retain credibility with its creditors. All of this augurs ill for the future growth path of the economy. Even if there is not a further significant downturn (and my expectation is that there will be such), the chances of rapid growth in the recovery phase must be slim to none.

Not sure how this fits in with:

UK Lenders Ought to Cut Lending by £500 billion

Last week the Bank of England declared that UK banks might need to cut their lending by £500 billion within 4 years as the

Governmental support will be withdrawn.

The report on financial stability published by the Bank on June 26th suggests that the widening financial gap of British lenders coupled with the reduction in the Bank of England’s assistance will mean that lenders will be obliged to look for additional sources of funding.

According to the central bank, some of the shortfall was met as the banks have sold their debt, which was backed by the governmental Credit Guarantee Scheme that amounted to £250 billion.

The balance sheets of British banks have significantly grown in the past years; for instance, the balance sheet of the Royal Bank of Scotland Group has reached £2.4 trillion in 2008 – the figure exceeds the one of the UK economy as a whole. At the moment, the UK Government possesses the major share of the RBS Group and 43% of the Lloyds Banking Group.

Analysts are determined that the Government’s plans on the increased banks’ lending towards the population are in controversy with its requirement to cut banks’ lending by £500 billion.

However, the Bank of England is confident that the measure is a must.

In 2008, the difference between banks’ lending and deposits was constantly growing and reached as much as

£800 billion with almost 50% of the amount being backed by residential property securities. The Lloyds banking Group is expected to be hit the hardest as it mainly relies upon the wholesale funding.

Another important change, which is reflected in the Bank of England’s report, is associated with financial institutions that act like banks. The Bank of England wants these organizations to be treated and regulated as banks.

Edited July 6, 2009 by Sybil13

[MongerOfDoom]

My actual estimate circa 2008 was �350 billion a year would be needed of QE. Basically the money supply in the UK was expanding at �400 billion a year, over 90% of that through the private creation of bank credit. Because of technological progress ever greater amounts of money are needed in the system to keep prices stable.

400e9/60e6 is about 7k per person. Clearly, the broad money supply measures have little to do with the cost of living.

So once the private creation of bank credit collapsed which it was obvious it was going to, instead of creating ~�400 billion a year it went negative or near negative. Which in the real world means people are paying back old debts faster than new debts are being created.

I would be surprised if the savings ratio skyrocketed, and certainly has not done so sufficiently to offset the budget deficit. The country is sinking into lots more debt, and there is no "danger" of that trend reversing for years to come.

The inevitable result was deflation. The authorities then went with their old tried and true method of lowering interest rates in order to get people borrowing again. Which I also predicted would fail, as people are already so over-leveraged there is no way they could take out more, especially in this economy.

Yes, but if you are suggesting that a person's cost of living would fall by >7k p.a every year of the crunch if it was not for QE then that is clearly incorrect.

So plan B, the authorities have to use QE. I actually think they have to go bigger now maybe more like �500 billion a year to get out of the deflationary death spiral.

That is a staggering number that pushes 30k per family per year. It is completely insane to suggest that it would be just sufficient to to avoid "a deflationary death spiral".

[interestrateripoff]

2007 was their perfect year and it's where they want to be - forever.

You mean having a bank run is perfection?

[HumanAction]

currency destruction will be worse than deflation

Currency destruction is guaranteed..... We have fiat money ffs.

[punter]

these economists calling for more inflation/more QE are absolutely crazy, dangerous and very worrying

[aa3]

400e9/60e6 is about 7k per person. Clearly, the broad money supply measures have little to do with the cost of living.

I agree.. especially worrying to me is the unequal income structure in the country. I believe large amounts of money are pooling with a few people, which is slowing down the velocity of money. It is just sitting in accounts doing nothing.

I would be surprised if the savings ratio skyrocketed, and certainly has not done so sufficiently to offset the budget deficit. The country is sinking into lots more debt, and there is no "danger" of that trend reversing for years to come.

Our total debt I believe is shrinking now. As debt is defaulted on and debt paid back, the other side of that debt is money which disappears. There is also the need to expand the money supply at a certain rate just to keep prices steady.

Yes, but if you are suggesting that a person's cost of living would fall by >7k p.a every year of the crunch if it was not for QE then that is clearly incorrect.

Its to hit an inflation target of 2%.

That is a staggering number that pushes 30k per family per year. It is completely insane to suggest that it would be just sufficient to to avoid "a deflationary death spiral".

I meant to hit the 2% inflation target. Capacity utilization is only 70% right now in Europe, so even with huge increase in volume, it is just going to mean more capacity utilization and bringing unemployed workers back. Its at the point capacity is at maximum and demand is still rising, and companies cannot build new capacity fast enough that you get inflation.

For a lot of goods I see like cars, the companies can always add more capacity. Same with computer chips, even if Britain's demand doubled they don't have to redesign the whole chip, just produce more, which seems to cost marginally more.

[bullsh1t]

Printy, printy.

http://business.timesonline.co.uk/tol/busi...icle6638713.ece

Good stuff!! just what the doctor ordered!

[General Melchett]

Good stuff!! just what the doctor ordered!

MODERATORS: One of the trolls is back with a new account.

I've never put anyone on ignore before: Congratulations. Just 3 posts was all it took.....

[pete.hpc]

How do you work that out, people who could not afford to buy at the peak of 2007 will be even less able to buy with falling wages, raising mortgage rates, falling rents?

ahem

[Kazuya]

MODERATORS: One of the trolls is back with a new account.

I've never put anyone on ignore before: Congratulations. Just 3 posts was all it took.....

Atleast give him credit for choosing an appropriate username

[bullsh1t]

MODERATORS: One of the trolls is back with a new account.

I've never put anyone on ignore before: Congratulations. Just 3 posts was all it took.....

lol

[lowrentyieldmakessense(honest!)]

link

The U.K. Government is under growing pressure from bankers and asset managers to sell bonds in currencies other than sterling for the first time, to help support its massive borrowing program.

The U.K. has raised more than a quarter of the GBP220 billion of gilts, or government bonds, it needs to sell this year and next to finance spending, but many bankers and investors believe the Treasury will need to issue ...

whats gordon gonna do now

[Wait & See]

The printing will never stop until reckless borrowing says hello again.

The music must play on, so that we all get out of bed every day and pretend that working for a living gives us a decent lifestyle.

[MongerOfDoom]

Our total debt I believe is shrinking now. As debt is defaulted on and debt paid back, the other side of that debt is money which disappears. There is also the need to expand the money supply at a certain rate just to keep prices steady.

That simply cannot be right. The country would not be in so much trouble if the debt was shrinking. There is an absolutely massive amount of deficit spending happening (something like 25% of state spending is borrowed). Actually, even consumer borrowing is still rising, even though not as quickly as before http://www.creditaction.org.uk/debt-statistics.html BTW, defaulted consumer debt might well just turn into national debt now that we lead the world in saving the banks.

Its to hit an inflation target of 2%.

Well, spending an extra 30k per family every year will clearly do rather more than that. I would expect it to come close to doubling the prices and halving the pound.

I meant to hit the 2% inflation target. Capacity utilization is only 70% right now in Europe, so even with huge increase in volume, it is just going to mean more capacity utilization and bringing unemployed workers back. Its at the point capacity is at maximum and demand is still rising, and companies cannot build new capacity fast enough that you get inflation.

So you plan to force savers to buy everyone stuff that they would not pay for themselves, just because it can be made? I don't think the 70% utilisation can be right, except maybe if it was about 80% during the biggest credit binge ever? (I am happy to be corrected on this if you can point me at some numbers; it might be true for e.g. the car industry but surely not for the whole of Europe)

For a lot of goods I see like cars, the companies can always add more capacity. Same with computer chips, even if Britain's demand doubled they don't have to redesign the whole chip, just produce more, which seems to cost marginally more.

Some of that production could only be sold because the consumers had magicked "money for nothing" out of their houses. It may be that there is simply no desire to spend on some goods if they have to be paid for with salary. In that case printing money will not provide a sustainable solution. In any case, I am not convinced that a large output gap (if it really exists) needs just a massive dose of QE to turn into sustainable growth.

[Guest sillybear2]

No surprises there, the official stats aren't out yet but if you look at May's figures it's pretty obvious the BoE has just printed up the government shortfall for June. Expect another £30b or so this time next month in order to pay for July.

We are the not so mini-me :-

http://www.telegraph.co.uk/finance/finance...-to-double.html

Edited July 6, 2009 by sillybear2

[I want a house!]

That's fantastic news.

It's already working and this is the final step to getting HPI back. That will be good for everyone.

What you smoking. You want everyone to be a debt slave? That's not very intelligent or are you BTL and looking at your crappy assets hitting the floor. If so, HAHAHAHAHAHAHAHA... Greedy guts...

[aa3]

That simply cannot be right. The country would not be in so much trouble if the debt was shrinking. There is an absolutely massive amount of deficit spending happening (something like 25% of state spending is borrowed). Actually, even consumer borrowing is still rising, even though not as quickly as before http://www.creditaction.org.uk/debt-statistics.html BTW, defaulted consumer debt might well just turn into national debt now that we lead the world in saving the banks.

From your link: Total UK personal debt at the end of May 2009 stood at £1,459bn. This has slowed further to 1.4% in the last 12 months which equates to an increase of ~ £17.9bn (the increase was ~£116bn in January 2008).

Ah it might not be shrinking yet but that is a £100 billion drop right there in the annual increase. And that is just personal credit.. there is also business credit which is about the same size as personal. Also commercial real estate which is about half the size I believe. Lastly there is financial debt, the banks doing their speculation and such.. which again has to be coming down as they shrink their balance sheets. Then there is the nature of the global economic crisis, which means falling demand everywhere, crashing commodity prices.. it is highly deflationary.

I agree it looks like the defaulted consumer debt will end up on the national debt.. and most worrying to me is the massive, insane foreign liabilities of RBS and Lloyds.

Some of that production could only be sold because the consumers had magicked "money for nothing" out of their houses. It may be that there is simply no desire to spend on some goods if they have to be paid for with salary. In that case printing money will not provide a sustainable solution. In any case, I am not convinced that a large output gap (if it really exists) needs just a massive dose of QE to turn into sustainable growth.

I think this gets to the heart of the issue. My plan basically is flooding the demand side to match what I think is our ability to produce. But at some point do people really want a new car when they have one that works well already even if it is 10 years old. Do people really need the newest kitchen re-do every 10 years.. like if they had a choice between getting a month off a year and having a constantly updated kitchen which would they choose?

It seems at some point its an orgy of consumption for the sake of consumption. And if we dont' continue that orgy we see a massive rising unemployment and defaulting on mortgages like now.

[Kazuya]

lol

What a sad little creature you are

[OnlyMe]

From your link: Total UK personal debt at the end of May 2009 stood at £1,459bn. This has slowed further to 1.4% in the last 12 months which equates to an increase of ~ £17.9bn (the increase was ~£116bn in January 2008)

Now tack on the debt that the taxpayer is liable for that has been notched up by government the last 12 months. The situation is not getting worse quickly it is getting worse even more rapidly than before.

[council dweller]

whats gordon gonna do now

Having to issue bonds in foreign currencies is the mark of a banana republic is it not?