King To Halt Gilt Purchases On Economy

[MOP]

I do think the downgrade threat could be the reason why QE is not being increased, what I was trying to clarify was what King's reasons may be for not increasing QE not my personal opinion on the matter.

As far as I can see the green shoots are entirely dependant on QE and the artificially low interest rates. What I can't understand is why the BOE would want to stop the green shoots now? Surely they either continue postponing the inevitable until after the election or they don't bother at all. Unless they believe they can't sell any more bonds and they're credit rating will diminish.

[assetrichcashpoor]

I do think the downgrade threat could be the reason why QE is not being increased, what I was trying to clarify was what King's reasons may be for not increasing QE not my personal opinion on the matter.

As far as I can see the green shoots are entirely dependant on QE and the artificially low interest rates. What I can't understand is why the BOE would want to stop the green shoots now? Surely they either continue postponing the inevitable until after the election or they don't bother at all. Unless they believe they can't sell any more bonds and they're credit rating will diminish.

D'oh, something went wrong when I tried to change they're to their.

Edited August 5, 2009 by cashrichassetpoor

[threetimesdead]

I do think the downgrade threat could be the reason why QE is not being increased, what I was trying to clarify was what King's reasons may be for not increasing QE not my personal opinion on the matter.

As far as I can see the green shoots are entirely dependant on QE and the artificially low interest rates. What I can't understand is why the BOE would want to stop the green shoots now? Surely they either continue postponing the inevitable until after the election or they don't bother at all. Unless they believe they can't sell any more bonds and they're credit rating will diminish.

Stoping QE does not mean reversing to-date "green shoots" - this is where the flaw in your understanding lies

Edited August 5, 2009 by threetimesdead

[loginandtonic]

Stoping QE does not mean reversing to-date "green shoots" - this is where the flaw in your understanding lies

as in the funny money stays in circulation/with the benefactor? but werent they supposed to reverse and 'destroy' it at some point? when is that point? the day after Brown loses?

although i'd be surprised if the tory tw^t doesnt continue it

[LuckyOne]

Well I lent myself £100 last month but now I want £100 more. I am really worried that I wont pay it back. Do you think I should trust myself? Will my credit rating be affected? Could I take myself to court?

Ah yes, fiscal masturbation.

Possibly a bit satifying in the short run if you have the right lotions to hand but nowhere near as much fun as having a satisfying long term relationship with another person.

[threetimesdead]

as in the funny money stays in circulation/with the benefactor? but werent they supposed to reverse and 'destroy' it at some point? when is that point? the day after Brown loses?

although i'd be surprised if the tory tw^t doesnt continue it

may be funny money just went to rebuild banks' decimated balance sheets

[MOP]

may be funny money just went to rebuild banks' decimated balance sheets

Exactly. The banks are insolvent.

What else did you think the bankrupt banks would do with the QE money?

Edited August 5, 2009 by MOP

[29929BlackTuesday]

Ah yes, fiscal masturbation.

Possibly a bit satifying in the short run if you have the right lotions to hand but nowhere near as much fun as having a satisfying long term relationship with another person.

You're not married, are you

[Guest KingCharles1st]

"The Bank of England has spent 125 billion pounds ($212 billion) of the 150 billion pounds authorized by the Treasury in March, equivalent to almost 10 percent of Britain’s gross domestic product, to help contain borrowing costs and pull the economy out of the recession. Central bank Governor Mervyn King’s policy of so-called quantitative easing helped spur a 23 percent increase in loans to small companies, British Bankers’ Association data show.

23% of f_ck all is still f_ck all

[MOP]

"The Bank of England has spent 125 billion pounds ($212 billion) of the 150 billion pounds authorized by the Treasury in March, equivalent to almost 10 percent of Britain’s gross domestic product, to help contain borrowing costs and pull the economy out of the recession. Central bank Governor Mervyn King’s policy of so-called quantitative easing helped spur a 23 percent increase in loans to small companies, British Bankers’ Association data show.

23% of f_ck all is still f_ck all

Why on earth would bankrupt banks want to give the free QE money out? Your just being silly.

Edited August 5, 2009 by MOP

[Guest spp]

the parity pound wil be here soon, nothings changed.

Has the UK's manufacturing/service industries expanded ? nope.......GDP is fooked for a decade at least.

We are spending more on benefits alone than we gain from business taxation, so where does that difference come from ?

it's getting worse by the month, people who think otherwise either have there heads buried, are believing the media driven recovery hype, or are just stupid.

it's a depression & it will be a bad depression.

+1

They don't know what the donald duck they are doing really!

Now there's a thought...Donald duck for PM.

Well... better than that quack pot we've got right now!

Sorry...I'm just completely baffled by how much $hite they keep spinning.

[InternationalRockSuperstar]

I dont believe them. I think theyve already printed trillions and will continue printing trillions every year for the forseable future until someone wises up.

bingo.

[InternationalRockSuperstar]

They have the obligation to report their activities on a quarterly basis just as corporates do

[libspero]

as in the funny money stays in circulation/with the benefactor? but werent they supposed to reverse and 'destroy' it at some point? when is that point? the day after Brown loses?

although i'd be surprised if the tory tw^t doesnt continue it

That was the theory, but I don't think they have any intention of doing it.

M0 and M4 are of very little concern in the grand Keynesian scheme of things. The only thing that seems to matter is the cost of a tin of beans.. as long as these don't go up by more than 2% a year everything is fine, if they do we just put up interest rates or substitute them for something else.

[the_austrian]

That was the theory, but I don't think they have any intention of doing it.

M0 and M4 are of very little concern in the grand Keynesian scheme of things. The only thing that seems to matter is the cost of a tin of beans.. as long as these don't go up by more than 2% a year everything is fine, if they do we just put up interest rates or substitute them for something else.

Yes and base rates don't really have much impact: The banks don't borrow to any great extent from the boe, the money they lend is backed by a deposit at the bank which is created when the loan is issued. They generally follow the lead of the boe only because it makes sense for them to move in concert so that collectively they aren't the last one holding the unpayable debt when the music stops.

[threetimesdead]

http://www.bankofengland.co.uk/publication...letin/index.htm

"The Quarterly Bulletin provides regular commentary on market developments and UK monetary policy operations."

[threetimesdead]

+1

They don't know what the donald duck they are doing really!

I don't think there is an institution, group of people or a person in this country that has more timely, more in-depth and more wide-ranging economic data than the BoE, some of that data well classified from the rest

the rest be it on here or elsewhere

[Timm]

*Half baked theory alert*

Someone said something to me the other day, and it's been bothering me. They said that when the BoE creates money, this money is created against debt issued by the Treasury.

Fine.

But what if this is the case with QE? What if QE money is not free of debt, but funded by gilts sold by the treasury into the market and exchanged for Money by the central bank? Wouldn't that mean that if the Govt was under pressure to limit increases in national debt, then that would impact on the BoE's ability to ease the money supply?

Sorry, just burbling. We popped in to the landlady's house to say thanks for looking after the cat and she plied us with Claret.

I know, different world...

[threetimesdead]

*Half baked theory alert*

Someone said something to me the other day, and it's been bothering me. They said that when the BoE creates money, this money is created against debt issued by the Treasury.

Fine.

But what if this is the case with QE? What if QE money is not free of debt, but funded by gilts sold by the treasury into the market and exchanged for Money by the central bank? Wouldn't that mean that if the Govt was under pressure to limit increases in national debt, then that would impact on the BoE's ability to ease the money supply?

Sorry, just burbling. We popped in to the landlady's house to say thanks for looking after the cat and she plied us with Claret.

I know, different world...

QE money is not backed by anything is not funded by anyone - it is created out of thin air.

It has then been used to buy treasury gilts to fund government borrowing and pay for the public spending.

So, it is the other way around

[Timm]

QE money is not backed by anything is not funded by anyone - it is created out of thin air.

It has then been used to buy treasury gilts to fund government borrowing and pay for the public spending.

So, it is the other way around

So who gets the coupon?

[threetimesdead]

So who gets the coupon?

My guess, and that is just a guess, that the ultimate beneficiaries are commercial banks

They buy treasuries from the govt and sell them to BoE reporting a profit and paying themselves a bonus

If the chain is correct that would be one of the many ways of "mending banks' balance sheets" - they make receive commission on trading newly printed money with no substance - same as just printing money and giving them directly to the banks

For BoE the cost is covered by printed money - effectively no cost

For the treasury - increase in narional debt

For bankers - stronger balance sheets and new homes in C&W (WC)

[threetimesdead]

My guess, and that is just a guess, that the ultimate beneficiaries are commercial banks

They buy treasuries from the govt and sell them to BoE reporting a profit and paying themselves a bonus

If the chain is correct that would be one of the many ways of "mending banks' balance sheets" - they make receive commission on trading newly printed money with no substance - same as just printing money and giving them directly to the banks

For BoE the cost is covered by printed money - effectively no cost

For the treasury - increase in narional debt

For bankers - stronger balance sheets and new homes in C&W (WC)

This is an article about what is going on in US, but UK situation would be similar to that. Check out the very last sentence of the article - The FED wants the banks to make money out of their trades with the FED. Former GS employees move to FED and give it back to their alma mater.

http://www.ft.com/cms/s/0/e84383dc-7f8c-11...144feabdc0.html

"Wall Street profits from trades with Fed

By Henny Sender in New York

Published: August 2 2009 23:04 | Last updated: August 2 2009 23:04

Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

EDITOR’S CHOICE

Wall Street benefits from Fed and Treasury - Aug-02Editorial: The value of bank independence - Aug-02Opinion: Trichet should convene a trip to the beach - Aug-02In depth: US banks - May-07In depth: Central banks - Mar-09However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,†said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.â€

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.â€

The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,†he said. “If we didn’t have transparency, we’d be criticised on other grounds.â€

However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.â€

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.†Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.â€

The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxuriousâ€, reflecting the banks’ ability to take advantage of diminished competition.

“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,†said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.

Spreads narrowed dramatically during the years of the credit bubble.

Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.

“They want to help Wall Street make money,†he said."

[Panda]

http://blogs.telegraph.co.uk/finance/edmun...interest-rates/

[threetimesdead]

http://blogs.telegraph.co.uk/finance/edmun...interest-rates/

Most of it parked by the banks on deposit with BoE as reserves

Edited August 6, 2009 by threetimesdead

[The Spaniard]

http://blogs.telegraph.co.uk/finance/edmun...interest-rates/

Can we trust someone who says that 161 > 3x54 ?