Jump to content
House Price Crash Forum
Sign in to follow this  
moneyfornothing

Qe Question

Recommended Posts

OK.. Treasury sells debt to institutions. Treasury pays interest (technically) to institutions for the debt. BOE buys debt from secondary market with QE money. Treasury should now pay interest to BoE (or pay from tax receipts when the debt expires).

Scenario :Treasury is stretched due to falling tax receipts. Treasury decides to stop interest payments (refuse to repay on maturity) to BoE.

Would this count as default ? Would the ratings agencies act on this default ?

Share this post


Link to post
Share on other sites

The treasury would just borrow more to pay the interest - in an ever ending cycle. There will always be demand for gilts, however it depends on what price, that price determines lending interest rates!

The BoE could QE to infinity, but that would just devalue the pound - what happens when we try to buy something from another country? How would we settle our debts in other currencies? That's when the IMF steps in, just like what happened in Iceland.

Share this post


Link to post
Share on other sites
OK.. Treasury sells debt to institutions. Treasury pays interest (technically) to institutions for the debt. BOE buys debt from secondary market with QE money. Treasury should now pay interest to BoE (or pay from tax receipts when the debt expires).

Scenario :Treasury is stretched due to falling tax receipts. Treasury decides to stop interest payments (refuse to repay on maturity) to BoE.

Would this count as default ? Would the ratings agencies act on this default ?

Yes this would be a default. So they won't do it. It will be easier to just print more money.

Also, I presume they could pay the interest to Bank of England and then just ask them for the money back, but I'm not sure exactly how this would work.

Share this post


Link to post
Share on other sites
Yes this would be a default. So they won't do it. It will be easier to just print more money.

Also, I presume they could pay the interest to Bank of England and then just ask them for the money back, but I'm not sure exactly how this would work.

If you are right, then even printing wont get the treasury out of the mess they are in .. and thats a consolation !!

Share this post


Link to post
Share on other sites
If you are right, then even printing wont get the treasury out of the mess they are in .. and thats a consolation !!

Debt is the problem, as highlighted by Denninger you have only two real options one pay down the debt or default.

Nothing else will work.

It's catch 22.

Unless of course debt is wealth.

Share this post


Link to post
Share on other sites

The only credit event for a nation is failure to pay. If a gilt coupon was missed for any reason, whether it was because the funds weren't available or because an administrative or operational crisis stopped the button being paid, that would qualify as default.

The more interesting issue is where the debt would trade for the CDS auction in either of these cases.

Share this post


Link to post
Share on other sites
The only credit event for a nation is failure to pay. If a gilt coupon was missed for any reason, whether it was because the funds weren't available or because an administrative or operational crisis stopped the button being paid, that would qualify as default.

The more interesting issue is where the debt would trade for the CDS auction in either of these cases.

But will we ever know if a default occurs ? both are arms of the govt with a vested interest in covering this up ?

Share this post


Link to post
Share on other sites
The only credit event for a nation is failure to pay. If a gilt coupon was missed for any reason, whether it was because the funds weren't available or because an administrative or operational crisis stopped the button being paid, that would qualify as default.

The more interesting issue is where the debt would trade for the CDS auction in either of these cases.

"or because an administrative or operational crisis stopped the button being paid"

I think you get 30 days grace

Share this post


Link to post
Share on other sites

bank of England could buy the coupon (interest payment).

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
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 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.