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House Price Crash Forum

"qe" Update


Mega

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HOLA441
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HOLA445

I'd go for £250 or even 300 billion if I was in charge. But I guess they can do 150 again and just spend it quickly, then ask for another 150.

Thing is they need to super pump fiscal spending, not just buy things from the banks and have it stay on the balance sheet. In the first round I think 80 billion worth was buying bonds to fund fiscal spending.. the rest was pushing down rates.

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HOLA446
My initial thoughts were this was to keep the banks afloat, not to help mortgage payers.

False premise. It's to keep interest rates down without (re-)busting the banks. Mortgage payers would be in a lot of trouble if interest rates went to over 20%, so it helps them.

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The rummor is that the banks have been TOLD not to lend........the money flow would spike inflation.

Mike

Not sure I believe that. Although it would fit with the established record of nuLabour doing exactly the opposite of what they said they were doing...

Err...

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HOLA448
My initial thoughts were this was to keep the banks afloat, not to help mortgage payers.

No.

Gilts are as good as cash at keeping banks afloat. Because gilts are so safe, they can easily and very cheaply be swapped for cold hard cash. In fact, gilts are better than cash, because gilts pay interest, and cash sat in the vault doesn't.

Because gilts are better than cash, the banks tend to hold quite a lot of them - because they're a very safe source of income. As unemployment rises, and the economy contracts, it becomes very risky for banks to lend to businesses and consumers - so the banks would prefer to stock up on gilts rather than lend cash as mortgages. If the government goes crazy printing gilts, then it acts as a big magnet for banks' cash, reducing the supply of cash for mortgages and business loans.

QE basically hoovers up gilts from the banks, and replaces them with cash. This pushes up the price of gilts - encouraging banks to sell, and discouraging new buyers. The banks are then left with cash festering in their vaults doing nothing. So, the banks are forced to look for something to do with the cash - e.g. lend it out as mortgages, or business loans, etc.

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HOLA449
No.

Gilts are as good as cash at keeping banks afloat. Because gilts are so safe, they can easily and very cheaply be swapped for cold hard cash. In fact, gilts are better than cash, because gilts pay interest, and cash sat in the vault doesn't.

Because gilts are better than cash, the banks tend to hold quite a lot of them - because they're a very safe source of income. As unemployment rises, and the economy contracts, it becomes very risky for banks to lend to businesses and consumers - so the banks would prefer to stock up on gilts rather than lend cash as mortgages. If the government goes crazy printing gilts, then it acts as a big magnet for banks' cash, reducing the supply of cash for mortgages and business loans.

QE basically hoovers up gilts from the banks, and replaces them with cash. This pushes up the price of gilts - encouraging banks to sell, and discouraging new buyers. The banks are then left with cash festering in their vaults doing nothing. So, the banks are forced to look for something to do with the cash - e.g. lend it out as mortgages, or business loans, etc.

But isn't the treasury is flooding the market with an unprecidented volume of gilts?

If what you say in para 2 is true, would they not simply buy more of those?

I have to say, this all looks like an arbitrage opportunity for the banks, and free money for govt.

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