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Bank Of England Buys Commercial Paper To Unblock Credit Markets

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http://www.guardian.co.uk/business/2009/ju...-england-credit

Recession-hit companies will be able to raise funds by selling short-term debts known as commercial paper to the Bank of England, under plans announced today.

In its latest effort to unblock frozen credit markets, the Bank said it would buy "asset-backed commercial paper" directly from firms, and also from other investors, "to support the provision of working capital to a broad population of companies."

The measures form part of the Asset Purchase Facility, under which the Bank has been allowed by the chancellor to create up to £150bn to buy bonds from investors and companies and boost the economy.

So far, the Bank has said it believes £125bn will be enough – and the vast majority has been used to buy government bonds, known as gilts, in the controversial policy known as quantitative easing.

However, both the Bank's governor, Mervyn King, and the chancellor, Alistair Darling, have expressed concern about the problems many firms are still having in raising funds to invest, and they are keen to lower the cost of borrowing.

The Bank said it would give 12 months' notice if it plans to withdraw the measures, suggesting it believes it will be necessary to keep propping up corporate debt markets well beyond the immediate crisis.

In the US, the Federal Reserve has already been buying commercial paper for more than a year. Earlier in the crisis, the government insisted that such a policy was not necessary here, because far fewer companies relied on this method of funding themselves.

But with the credit squeeze still constraining much of the corporate sector, the Bank is keen to open up as many sources of cash as possible.

"The purpose of the facility is to help improve the function of the private market by standing ready to make primary market purchases and by acting as a backstop for secondary market investors," the Bank said in its statement.

City investors are expecting the Bank's monetary policy committee to slow, or perhaps halt, quantitative easing next week, at their monthly interest-rate-setting meeting.

It's been a huge success in the US now the BoE is going to do it as well.

How long before the BoE buys mortgages?

If they want to get this Ponzi scheme working again this would be the best bet, just cut out the middlemen.

If I could get a good deal with the BoE fixed for a period of time I'd certainly switch.

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You've got the government complaining the banks are holding onto their money and not supporting businesses and you have the BOE saying that they would be using QE to support business and then spending all the money trying to game the gilts market and interest rates.

If / when they get round to buying assets you can imagine what sort of shit they will be and and off you know who.

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Why not create a state run "good bank", with it's monetary base funded by some fresh interest free (or very low interest) QE, offering mortgages with no interest? Cap the mortgages given out to sensible multiples (2x+1x or 3x for example), only hand them out to one per person/couple and start stealing the mortgage business off the private banks.

It would let the bad banks die off and give the people a chance to pay off their huge debts. Without loads of interest, it is easy to repay a big mortgage and have more money to spend in the greater economy.

There as about £1.2 trillion in UK mortgage debt. The average bank reserve ratio is 3% (ie. £1 = £33 issued in credit). Let the state run bank have the same silly multiple and you only need £36* billion in QE. If we are going to use QE, can't we do something more useful with it than prop up zombie banks!?

As house price deflation kicks in, more people will qualify for the state bank mortgages and no bugger gets to cream off the profits.

EDIT: £36 billion is probably too high - we could let some HPC happen first before inflating the monetary base in such a way. Say £25 billion, which would add 33-50% to M0 (assuming it is £50-75 billion now, depending on who you believe. I'm guessing current QE should have swollen this now too?).

Edited by Traktion

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Why not create a state run "good bank", with it's monetary base funded by some fresh interest free (or very low interest) QE, offering mortgages with no interest? Cap the mortgages given out to sensible multiples (2x+1x or 3x for example), only hand them out to one per person/couple and start stealing the mortgage business off the private banks.

It would let the bad banks die off and give the people a chance to pay off their huge debts. Without loads of interest, it is easy to repay a big mortgage and have more money to spend in the greater economy.

There as about £1.2 trillion in UK mortgage debt. The average bank reserve ratio is 3% (ie. £1 = £33 issued in credit). Let the state run bank have the same silly multiple and you only need £36* billion in QE. If we are going to use QE, can't we do something more useful with it than prop up zombie banks!?

As house price deflation kicks in, more people will qualify for the state bank mortgages and no bugger gets to cream off the profits.

EDIT: £36 billion is probably too high - we could let some HPC happen first before inflating the monetary base in such a way. Say £25 billion, which would add 33-50% to M0 (assuming it is £50-75 billion now, depending on who you believe).

i thought assisted suicide was illegal in the UK.

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i thought assisted suicide was illegal in the UK.

What mine, the peoples' or the prime minister who suggested such action? :lol:

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doomed dooomed f doomed

“Subsidies . . . prolong the life of inefficient firms at the expense of efficient ones, distort the productive system, and hamper the mobility of factors [of production] from less to more value-productive locations. They injure the market greatly and prevent the full satisfaction of consumer wants. . . . The greater the extent of government subsidy in the economy, therefore, the more the market is prevented from working, and the more inefficient will the market be in catering to consumer wants. Hence, the greater the government subsidy, the lower will be the standard of living of everyone, of all the consumers.â€

–Murray Rothbard, Man, Economy and State and Power and Market (Mises Institute), 2nd ed., p. 1255

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Why not create a state run "good bank", with it's monetary base funded by some fresh interest free (or very low interest) QE, offering mortgages with no interest? Cap the mortgages given out to sensible multiples (2x+1x or 3x for example), only hand them out to one per person/couple and start stealing the mortgage business off the private banks.

It would let the bad banks die off and give the people a chance to pay off their huge debts. Without loads of interest, it is easy to repay a big mortgage and have more money to spend in the greater economy.

There as about £1.2 trillion in UK mortgage debt. The average bank reserve ratio is 3% (ie. £1 = £33 issued in credit). Let the state run bank have the same silly multiple and you only need £36* billion in QE. If we are going to use QE, can't we do something more useful with it than prop up zombie banks!?

As house price deflation kicks in, more people will qualify for the state bank mortgages and no bugger gets to cream off the profits.

EDIT: £36 billion is probably too high - we could let some HPC happen first before inflating the monetary base in such a way. Say £25 billion, which would add 33-50% to M0 (assuming it is £50-75 billion now, depending on who you believe. I'm guessing current QE should have swollen this now too?).

But why bother with the middle men skimming even more off the top? Just deal with the main bank and have done with it.

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This purchasing of CP has been going on for months now...

http://www.bankofengland.co.uk/markets/apf/results.htm

This page contains links to the results of individual operations for gilts and corporate bonds, as well as to longer-run time series for each of the APF schemes and facilities.

The table below show the outstanding stock holdings (on a settled basis, net of any redemptions) for each facility. These data are as at close Thursday 23 July 2009.

Commercial Paper

£1,954mn

Corporate Bonds

£918mn

Gilts

£118,370mn

Also:

http://www.bankofengland.co.uk/mfsd/iadb/f...PN&Filter=N

Edited by chris c-t

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Guest Daddy Bear
http://www.guardian.co.uk/business/2009/ju...-england-credit

It's been a huge success in the US now the BoE is going to do it as well.

How long before the BoE buys mortgages?

If they want to get this Ponzi scheme working again this would be the best bet, just cut out the middlemen.

If I could get a good deal with the BoE fixed for a period of time I'd certainly switch.

you now this is all very hyperinflationary

:D

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you now this is all very hyperinflationary

:D

Oh no mate, any second now someone will come on and tell us that covering every flat surface on earth with crisp fivers is deflationary.

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it is if there is no wind and no one picks them up

How long would it take to pick up a loaf of breads worth of fivers?

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