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

Why We Haven't Had A Failed Bond Auction

Recommended Posts

Here's a month by month break down of quantitative easing vs new government bond issuance since March when QE started:

month qe issuance

Mar 13,973 16,200

Apr 32,212 17,950

May 26,646 12,700

Jun 26,263 16,262

Jul 17,483 17,157

total 116,577 80,269

Raw data on bond issuance is here and raw data on QE is here. Note that the vast majority (over 98%) of BoE purchases under QE have been of government bonds. So, since the programme started, the government has issued 80B of new debt but bought back - with freshly created money - 116B of outstanding debt. Now, I haven't been through the details of exactly what price they've done this at but it's a fair bet there's been a spread that someone has taken advantage of.

The big question is, what happens to the bond auctions if the BoE stops buying back more debt than the DMO is selling?

Share this post


Link to post
Share on other sites
Here's a month by month break down of quantitative easing vs new government bond issuance since March when QE started:

month qe issuance

Mar 13,973 16,200

Apr 32,212 17,950

May 26,646 12,700

Jun 26,263 16,262

Jul 17,483 17,157

total 116,577 80,269

Raw data on bond issuance is here and raw data on QE is here. Note that the vast majority (over 98%) of BoE purchases under QE have been of government bonds. So, since the programme started, the government has issued 80B of new debt but bought back - with freshly created money - 116B of outstanding debt. Now, I haven't been through the details of exactly what price they've done this at but it's a fair bet there's been a spread that someone has taken advantage of.

The big question is, what happens to the bond auctions if the BoE stops buying back more debt than the DMO is selling?

Sterling tumbles and the DMO have to massively increase the yield on gilts.

Somehow though, I sense you know that...

... problem for the government after the election, before then neither party will touch that question with a 60 foot pole!

Share this post


Link to post
Share on other sites
... problem for the government after the election, before then neither party will touch that question with a 60 foot pole!

Indeed, by which point there could have been another 200B of QE at this run rate...I'm starting to side with the inflationistas I think.

Share this post


Link to post
Share on other sites
Indeed, by which point there could have been another 200B of QE at this run rate...I'm starting to side with the inflationistas I think.

I was with the inflationistas, but I'm increasingly changing my mind. The yield curve doesn't point to that (see another recent post of mine).

Plus, the whole money as debt thing is largely true with fractional reserve, so the effect of the collapse of banks, of government bail-outs, and particularly, the lack of lending, is to massively cut the money supply. That is why inflation is running negative despite the massive QE activity. When they start to unwind QE the sales of those gilts by the BoE will make money even more coveted, saving rates will rise, interest rates will rise, and inflation will be constrained by the lack of available money.

Share this post


Link to post
Share on other sites
I was with the inflationistas, but I'm increasingly changing my mind. The yield curve doesn't point to that (see another recent post of mine).

Plus, the whole money as debt thing is largely true with fractional reserve, so the effect of the collapse of banks, of government bail-outs, and particularly, the lack of lending, is to massively cut the money supply. That is why inflation is running negative despite the massive QE activity. When they start to unwind QE the sales of those gilts by the BoE will make money even more coveted, saving rates will rise, interest rates will rise, and inflation will be constrained by the lack of available money.

Either we have found the fountain of unlimited free wealth or QE is inflationary.

The only explanation is that the market trusts the BOE will reverse QE in the not too distant future.

Share this post


Link to post
Share on other sites
Either we have found the fountain of unlimited free wealth or QE is inflationary.

The only explanation is that the market trusts the BOE will reverse QE in the not too distant future.

Oddly, I think the BoE is widely trusted (and thank goodness it is). On the other hand, the treasury and FSA are seen as being entirely useless!

Perhaps the whole crash in the UK was just to demonstrate to the politicians that taking regulation away from the old lady after 200 years was a bad idea.

Share this post


Link to post
Share on other sites
I was with the inflationistas, but I'm increasingly changing my mind. The yield curve doesn't point to that (see another recent post of mine).

Plus, the whole money as debt thing is largely true with fractional reserve, so the effect of the collapse of banks, of government bail-outs, and particularly, the lack of lending, is to massively cut the money supply. That is why inflation is running negative despite the massive QE activity. When they start to unwind QE the sales of those gilts by the BoE will make money even more coveted, saving rates will rise, interest rates will rise, and inflation will be constrained by the lack of available money.

Banks are filling their boots right now, bad debts are being hugely offset by the mark up they are charging over base rates, scaremongerng people into uncompetative fix rate deals, knowing full well the base rate will stay low for some time.

Banking failure is the bug bear the government most fear, queues of people taking money out is end game stuff!

Hence it has been rigged, the banks (part owned by the tax payer) must not fail, deflation is not an option even with the expected huge increase in unemployment.

The banks used to make good profits with mortgage rates 1% over base rate, now they charge 3.5% over base rate!

Given the size of residential/commercial mortgage debt in the UK, even with reduced reduced mortgage rates the difference between base rates even after bad debt provisions is massive!

When they stop being massive, is when your average mortgage holder will feel the pain, but that is a way off yet.

Share this post


Link to post
Share on other sites
Guest Daddy Bear
Here's a month by month break down of quantitative easing vs new government bond issuance since March when QE started:

month qe issuance

Mar 13,973 16,200

Apr 32,212 17,950

May 26,646 12,700

Jun 26,263 16,262

Jul 17,483 17,157

total 116,577 80,269

Raw data on bond issuance is here and raw data on QE is here. Note that the vast majority (over 98%) of BoE purchases under QE have been of government bonds. So, since the programme started, the government has issued 80B of new debt but bought back - with freshly created money - 116B of outstanding debt. Now, I haven't been through the details of exactly what price they've done this at but it's a fair bet there's been a spread that someone has taken advantage of.

The big question is, what happens to the bond auctions if the BoE stops buying back more debt than the DMO is selling?

dragon.jpg

Share this post


Link to post
Share on other sites
dragon.jpg

France tried this when the new world was discovered and turned out to be a worthless swamp.

The USA/UK are doing this now, there's only so long you can fudge the figures and suck your own before it goes Weimer. China knows it and is hence stock piling of raw materials and buying up miners like they are going out of fashion!

If true deflationary collapse was on the cards bond holders would be filling their boots! But would you take that risk after knowing the amounts being pumped in world wide?

Remember the BOE pension fund loaded up on inflation protected bonds/gilts, so those that should know, clearly covered their bets on the inflation/deflation debate!

Share this post


Link to post
Share on other sites
I was with the inflationistas, but I'm increasingly changing my mind. The yield curve doesn't point to that (see another recent post of mine).

Plus, the whole money as debt thing is largely true with fractional reserve, so the effect of the collapse of banks, of government bail-outs, and particularly, the lack of lending, is to massively cut the money supply. That is why inflation is running negative despite the massive QE activity. When they start to unwind QE the sales of those gilts by the BoE will make money even more coveted, saving rates will rise, interest rates will rise, and inflation will be constrained by the lack of available money.

The Deflationists argue that the amount of QE going into the system is dwarfed by the amount of credit that has been cut off by the credit crunch, hence we will get deflation. They are right of course, thus far...

I cannot see a way out of this mess as things stand, what with all the unemployment, national debt, forthcoming mortgage defaults, probable gilt/bond strikes, currency devaluation etc.

If things are left as is we will have a deflationary crash. However, that will be too terrible for any government to contemplate, what with the debt implications, so I believe the QEing will go on until we do get inflation, most likely high and probably hyperinflationary, because the various govts. will be behind the curve and not withdraw QE in time.

Edited by General Congreve

Share this post


Link to post
Share on other sites
Guest Daddy Bear
The Deflationists argue that the amount of QE going into the system is dwarfed by the amount of credit that has been cut off by the credit crunch, hence we will get deflation. They are right of course, thus far...

I cannot see a way out of this mess as things stand, what with all the unemployment, national debt, forthcoming mortgage defaults, probable gilt/bond strikes, currency devaluation etc.

If things are left as is we will have a deflationary crash. However, that will be too terrible for any government to contemplate, what with the debt implications, so I believe the QEing will go on until we do get inflation, most likely high and probably hyperinflationary (because the various govts. will be behind the curve and not withdraw QE in time - if that's possible anyway).

Got it in one.

They are stuck between a pillow and a soft place.

There is no other alternative.

Why are there so few people that see this?

Share this post


Link to post
Share on other sites
Got it in one.

They are stuck between a pillow and a soft place.

There is no other alternative.

Why are there so few people that see this?

Daddy Bear I'm a big fan of your time line, I think it is spot on. Are you a fan of the shiny yellow stuff like me? What preparations have you made for this crisis, if I may ask?

Edited by General Congreve

Share this post


Link to post
Share on other sites

this is a pure fantasy, the government buying its own bonds, they're going to print the whole budget now? why bother taxing or working if the BOE can just print wealth? IT CAN'T, this is all false and they will just destroy the value of the currency as they ramp it up and add extra zero's

this is nothing new, its happened in loads of bankrupt, failed countries.

Share this post


Link to post
Share on other sites
this is a pure fantasy, the government buying its own bonds, they're going to print the whole budget now? why bother taxing or working if the BOE can just print wealth? IT CAN'T, this is all false and they will just destroy the value of the currency as they ramp it up and add extra zero's

this is nothing new, its happened in loads of bankrupt, failed countries.

That's why everyone here needs to protect themselves. The big issue isn't about waiting for cheaper housing any more, as it's not going to be much cheaper if the pound in your pocket is worth sweet FA. Buy yourselves some gold and silver, all of you. You have been warned.

Share this post


Link to post
Share on other sites
Guest Daddy Bear
Daddy Bear I'm a big fan of your time line, I think it is spot on. Are you a fan of the shiny yellow stuff like me? What preparations have you made for this crisis, if I may ask?

I STR'd in Aug 2007

Went to cash at 7% yield for 2 years

Bought the final family house with very little leverage at 35% below peak about a month ago - any leverage I have is on a 10 year fix at 4.99%

As for Gold. I do not own any. And I certainly would not buy only physical gold and drip feed an adequate percentage of my salary into it each month. I would not dream of seeing any falls below $840 an ounce as a buying opportunity. I think it is a useless hedge - only for conspiracy theorists.

;)

Edited to add - There is no truth in the fact that silver is much undervalued in relation to gold at present.

Edited by Daddy Bear

Share this post


Link to post
Share on other sites
this is a pure fantasy, the government buying its own bonds, they're going to print the whole budget now? why bother taxing or working if the BOE can just print wealth? IT CAN'T, this is all false and they will just destroy the value of the currency as they ramp it up and add extra zero's

this is nothing new, its happened in loads of bankrupt, failed countries.

"LET ME BE YOUR FANTASY" .. deflation can't/won't happen, UK living standards/costs have to fall back within world norms.

£25K avg UK student debt after 4 years uni vs

£5k cost of top quality degree in China? For a knowledge based economy that seems badly **** about face.

Share this post


Link to post
Share on other sites

The thing I do not get is this. If,as many argue, bond yeilds go through the roof as a result of printy printy and subsequent strike, it will be highly deflationary. how will there be upward pressure on asset prices when governments globally are pouring billions in taxpayers cash into higher bond yeilds?

I am still firmly in the deflation camp. The massive black hole left by the credit crunch will not be filled in by shovelling in cash; most of the debts for bailout so far have been added to government debt and not printed, the forces of deleverage are huge. Inflation with debt occcurs whern it gets issued (look at house prices) the opposite happens the moment the cash starts to get paid back at a faster rate than it is issued. That is demand destruction in a tee.

Does anyone want to hazard a guess as to what UK GDP would have been without all that government spending?

Edited by mbga9pgf

Share this post


Link to post
Share on other sites
I STR'd in Aug 2007

Went to cash at 7% yield for 2 years

Bought the final family house with very little leverage at 35% below peak about a month ago - any leverage I have is on a 10 year fix at 4.99%

As for Gold. I do not own any. And I certainly would not buy only physical gold and drip feed an adequate percentage of my salary into it each month. I would not dream of seeing any falls below $840 an ounce as a buying opportunity. I think it is a useless hedge - only for conspiracy theorists.

;)

Edited to add - There is no truth in the fact that silver is much undervalued in relation to gold at present.

Well I'm also lucky and have a house with zero mortgage, not a family home - only 2 bed, but then it's only me and the missus and she has her own place abroad. As far as liquid assets go I'm 45% gold, 5% silver, 50% cash. So reckon I'm fairly well sorted whatever the weather, although I'm definitely an inflationist.

As for gold not being an inflation hedge, I agree that the evidence notionally supports this, as we have had continued modest inflation since gold's 1980 price peak, yet gold is worth far less in real terms than it was then, even though it is currently at its all time nominal peak. So I would say it's certainly not a 'modest inflation' hedge, as in modest inflationary times, when the economy is more or less experiencing stable growth, there are far better places to put your money to get a return, such as the stock market, housing, savings accounts, antiques, classic cars, cherished numbers etc.

However, when the economy goes t1ts and inflation goes bonkers I think it'll be a different story, just like it was in the Weimar Republic. I think a guy on here once posted that his German grandad threw all his gold in the river during the hyperinflationary times so he wasn't killed for it, such was its value.

Also with the global banking system in such a mess it's far more secure than pounds in the bank. And it's most certainly a hedge against currency devaluation, which if a very real threat sterling faces.

As for silver, it's a similar story, it's just that it's the poor man's gold, so as the sh1t hits the fan it should experience a big demand rush from even more buyers and fly skywards but with extra leverage. It's just the VAT and volume factor that make it less attractive as a buy.

Anyone any thoughts on my take on things?

EDIT: Stupid me Daddy Bear, read your post a bit quickly first time, I've just reread it. Of course, I'm only kidding, I have no gold or silver either and think they are for mugs, just like you do. ;)

Edited by General Congreve

Share this post


Link to post
Share on other sites
Guest Daddy Bear
However, when the economy goes t1ts and inflation goes bonkers I think it'll be a different story, just like it was in the Weimar Republic. I think a guy on here once posted that his German grandad threw all his gold in the river during the hyperinflationary times so he wasn't killed for it, such was its value.

Thats why i don't buy gold...... :lol::lol::lol:

Share this post


Link to post
Share on other sites
I was with the inflationistas, but I'm increasingly changing my mind. The yield curve doesn't point to that (see another recent post of mine).

True - although you've got to bear in mind that the yield curve is simply a summary of the consensus opinion of the bond markets of what's going to happen, not a foolproof view of the future.

the effect of the collapse of banks, of government bail-outs, and particularly, the lack of lending, is to massively cut the money supply. That is why inflation is running negative despite the massive QE activity.

That's the theory, and I certainly can't think of a better one right now. There is a difference between QA cash and debt money of course - the latter carries interest, so carries more cost to the borrower.

When they start to unwind QE the sales of those gilts by the BoE will make money even more coveted, saving rates will rise, interest rates will rise, and inflation will be constrained by the lack of available money.

You're assuming they'll unwind it of course... I'm not so sure myself. It's going to be absolutely impossible to unwind it for the next few years - there's no way the bond markets would soak up the huge increase in bond issuance that would be needed to raise the cash - and, by the time things have been sorted out, if they ever are, the promise to unwind it all will be long forgotten by whoever's in government and the media. I see it more like a one off 125 (or 200 or 300 or wherever it stops) billion transfer of wealth from savers to borrowers, particularly those with assets bought on leverage.

Share this post


Link to post
Share on other sites

Hyperinflation:

the LAST thing on your mind will be your house purchase.

If you rent youll squat as your landlord will be bust.

If you mortgage, youll default.

Either way, you will be starving as tescos wont be able to afford the afternoons stock from the morning sale.

Share this post


Link to post
Share on other sites
Guest Daddy Bear
Hyperinflation:

the LAST thing on your mind will be your house purchase.

If you rent youll squat as your landlord will be bust.

If you mortgage, youll default.

Either way, you will be starving as tescos wont be able to afford the afternoons stock from the morning sale.

If you mortgage, youll default.

Why would you default?

Share this post


Link to post
Share on other sites
Why would you default?

well, inflation 5000%, interest rates 6000%.

and you wont have a job.

and any money you do have, will be needed for something to eat and drink.

and if you get injured in a food queue?

Share this post


Link to post
Share on other sites
Why would you default?

Because the 1e15 GBP benefit cheque you get from the government will either:

1. cause an arithmetic overflow on your bank balance thus rendering your account unavailable

or:

2. won't be changeable into units of anything less than 1000000 GBP

Either of which would prevent you from paying the 1000GBP monthly mortgage?

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:   287 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.