Bonds

[switters]

So its true, the Fed is printing bonds and buying them themselves. They then say that demand is strong. Commentators then point out that the dollar is well supported. This is then propping up the recovery whilst minimising inflation.

Once again this is transparently nonsense, and yet the media and city play along as though it is sound economics.

Cui bono?

Edited September 21, 2009 by switters

[Traktion]

Our economies are far more complex than ever before, so comparing contemp. trends with depression era economics is almost completely pointless, IMO. My view is we had a massive period of ridiculous inflation up to the 2007 bubble peak. Before 1998-1999 a normal person on a normal wage could afford a normal house at a normal LTV. Since then the inflation has been wild. So we've already done the inflation thing.

What's been trying to happen since 2007 is this: the markets were deflating to bring sanity back to our economies, but vote-hungry psychopaths in governments round the world colluded with banking dynasties to stop this happening. So today we live in an artificially propped up inflated balloon - with the Fed and BoE holding that balloon mouthpiece tight with their fingers. When they let that thing go........................................................Meantime, talk of hyperinflation is absurd. Politicos could not cause hyperinflation even if they wanted to.

+1

We have had the inflation already.

Also, AFAIK, the BoE can force the banks to buy back the securities that they switched for cash (pulling out cash from the supply again). They can also force them to hold a min. number of government bonds too (again, forcing money out of the supply). In fact, they can force the banks to do just about anything they like if they feel like bank lending is going insane again. What they can't do though, is force people to borrow - they can only dangle the carrot.

While they may want businesses to be able to borrow money and they would rather people didn't lose their homes, there is no advantage of allowing a hyperinflation holocaust. We may have higher than normal to help force some of the debt out, but hyperinflation would be as bad for business as massive deflation.

[Traktion]

So its true, the Fed is printing bonds and buying them themselves. They then say that demand is strong. Commentators then point out that the dollar is well supported. This is then propping up the recovery whilst minimising inflation.

Once again this is transparently nonsense, and yet the media and city play along as though it is sound economics.

Cui bono?

The banks have been creating credit from thin air for decades/centuries too. There is much wrong with the monetary system, which is why we are in this mess.

Besides, ask yourself why demand would be strong at a low interest/yield rate. If there were better investments, would the private sector still be buying them? They are in demand because they are safe.

The central banks are essentially forcing the rates down to encourage the banks to lend elsewhere - into the economy. This is why they are talking about having negative overnight saving rates for the banks too. If the central banks weren't buying to keep the yields next to zero, there would likely be less money being lent into the risky economy (as the yield would be more attractive for the banks to buy gov. bonds).

I have read that the government is forcing the rates low to help keep interest rates down, but IMO this may be secondary to the cause. Sure, low rates are good for trackers and such, but having money lent to businesses must be the priority. Of course, there is an element of keeping banks liquid too, but that is what the central bank is supposed to do (rightly or wrongly).

Take a look at Bloo's posts - you and I are giving Sterling value, just as they have since the gold standard was dropped decades ago.

[Justice]

Daddy Bear fills in his "global dash for assets" phase and another box is ticked. What global dash for assets? Some managed stories coming out of Beijing about gold purchases? Ever thought about what's going to happen to the price of gold when half the West sell all of their stocks to help pay their debts off? Talk about inflation - gold was $200 very recently. Come on DB - you know what happens when you let go of a blown up balloon that hasn't been tied up. That energy has to go somewhere and it's going to be an average house price of ?75,000.

Yes that energy has got to go somewhere and all that money that is being printed has got to go somewhere and that means the value of paper against a finite asset like gold will go down and if you want to predict $200 gold prices then may i sugest you go the other way and say it will go down as we come out the recesion as people cash out to buy stocks and shares.

Gold has beeen used as money for 1,000 years for the same reasons as today and try as you might you can not rewrite history and the onlt thing in your defence is all that paper gold can have effect on the real stuff so for now i'll stick with the real stuff and watch the print press churn out more crap.

[Traktion]

If paper money collapses, I'm sure gold will go up, but then I'm sure there will be panic over food, fuel and all manner of things. Staking your investment on state failure seems a bit risky to me though, as it is in no one's interest for it to happen. I'm not saying it won't happen, but you have to wonder how likely it is at this point (not 100% guaranteed, I suspect!). A long, slow, controlled, drawn out deflationary recession seems much more likely to me.

[caparn]

no. the UK government is SELLING bonds to bidders AT INTEREST.

the taxpayer is still paying for the bonds backed by the taxpayer.

The bonds, therefore have a value as they are backed by a real asset....you and me.

the Banks have a problem...its called deflation....its not in the money supply per se, its in the credit supply, caused by the bankers losing ASSET values in £ terms every second of every day. they NEED to change these assets into something that wont loase value in £ terms....CASH is the perfect item.

so to acheive this, the BoE is creating more cash...as they always have done...and swapping cash for the new bonds, old bonds and other "assets". They also have a fund that lends against the impaired "assets"...quite who has these is a secret.

the QE is mostly staying on deposit within banks. it earns interest at the BoE. where it stays.

lending is down generally...money supply via credit IS reducing. slowly. as it must. they have to trade through this crisis. removing bonuses would make the process quicker and more equitable.

>>>no. the UK government is SELLING bonds to bidders AT INTEREST.

It's selling them but it is also buying them back from the banks with money iit has created out of thin air.

>>>The bonds, therefore have a value as they are backed by a real asset....you and me.

The bonds are backed by the government printing money to buy them back.

>>>the Banks have a problem...its called deflation....its not in the money supply per se, its in the credit supply

Foreign investors have pulled their investment, they have invested in american credit default swaps, buy to let lenders have posted back their keys, people who have borrowred 90% + hmortgages and have had house price decreases have handed back their keys.

>>>so to acheive this, the BoE is creating more cash...as they always have done...and swapping cash for the new bonds, old bonds and other "assets".

They are buying back old bonds with the newly created money and still trying to sell new bonds. They have never created money in such quantities or using this method before.

>>>lending is down generally...money supply via credit IS reducing. slowly. as it must. they have to trade through this crisis. removing bonuses would make the process quicker and more equitable.

I agree but what are the chances of that happening?

[garybug]

Bonds - pah! You want to get yourself a Lloyds RMBS (Version 2.0) released today:

http://www.reuters.com/article/rbssFinanci...SLL324120090921

I mean, they worked so well last time...

Form an orderly queue...

[Compukit UK101]

Foreign investors have pulled their investment, they have invested in american credit default swaps, buy to let lenders have posted back their keys, people who have borrowred 90% + hmortgages and have had house price decreases have handed back their keys.

If the American government can't pay it's debts what chance is there that the issuer of the Credit Default swaps will pay.

It reminds me of a quote by Nicholas Nassim Taleb. "Buying Credit Default swaps is like buying insurance on the Titanic from a person who is also on the Titanic".

[Guest Daddy Bear]

I cannot believe otherwise intelligent people seriously think the US and UK will soon be in the grip of 50% inflation per month and more. I cannot accept this. I can only accept that these people are simply ramping the economy because they have bought hard assets too early.

Daddy Bear - you are clearly an intelligent poster. You're telling me you think in the near future a loaf of bread will be marked �35,000 and a brand new Ford Focus is going to "cost" �250,000,000? You seriously believe this?

I remember someone mocking me in Jan 2007:

"DB, You seriously think that Global Banks will collapse, there will be a massive stockmarket crash, the nikkei will drop from 17000pts to 8000pts and oil will rise from $60 to $120 - You honestly think major insurance comapnies like AIG and Mortgage companies like Fannie mae will collapse and need to be supported by the government?"

"I listed the 3 most at risk banks as Northern Rock, B&B and HBOS......many months before they collapsed"

Was all I got.

People said I was mad to STR in Aug 2007 - I was not.

People said I was an idiot buying in in May 2009 after nearly 2 years of renting. They laughed when I said nominal falls will grind to a halt.

Now guess who's laughing?

This will all end in a global currency crisis - suddenly - when a tipping point is reached - very few will be able to get to the right side of the deal - it will happen so quick.

GO back and check my posts - its all there.

[Guest Daddy Bear]

I cannot believe otherwise intelligent people seriously think the US and UK will soon be in the grip of 50% inflation per month and more. I cannot accept this. I can only accept that these people are simply ramping the economy because they have bought hard assets too early.

Daddy Bear - you are clearly an intelligent poster. You're telling me you think in the near future a loaf of bread will be marked �35,000 and a brand new Ford Focus is going to "cost" �250,000,000? You seriously believe this?

"I can accept this"

whys that the - because you have banked your future on a houseprice crash?

35,000 for a loaf of bread?

250,000,000 for a focus?

nah - too many zeroes.....

A new currency is what it will be.

[caparn]

"I can accept this"

whys that the - because you have banked your future on a houseprice crash?

35,000 for a loaf of bread?

250,000,000 for a focus?

nah - too many zeroes.....

A new currency is what it will be.

No comment just look at the picture

[JonoP]

"I can accept this"

whys that the - because you have banked your future on a houseprice crash?

35,000 for a loaf of bread?

250,000,000 for a focus?

nah - too many zeroes.....

A new currency is what it will be.

You have a very basic understanding of economics and you change your signature to try to make yourself sound like some sort of ‘sage’.

But if it makes you happy, then carry on.

If you want the real picture, look at US M1, M2 and MZM, which are shrinking at 28%, 4.9% and 6.2%.

Hardly inflatory.......

[Guest The Relaxation Suite]

If paper money collapses, I'm sure gold will go up, but then I'm sure there will be panic over food, fuel and all manner of things. Staking your investment on state failure seems a bit risky to me though, as it is in no one's interest for it to happen. I'm not saying it won't happen, but you have to wonder how likely it is at this point (not 100% guaranteed, I suspect!). A long, slow, controlled, drawn out deflationary recession seems much more likely to me.

Exactly - why would anyone stake their future on the state collapsing? As I have said before, in the world that Daddy Bear describes, it will be totally irrelevant that he owns a house and not cash because anyone could walk in and drag him out of that house and take it for their own. That is the world of hyperinflation and state collapse.

[Guest The Relaxation Suite]

"I can accept this"

whys that the - because you have banked your future on a houseprice crash?

35,000 for a loaf of bread?

250,000,000 for a focus?

nah - too many zeroes.....

A new currency is what it will be.

The currency crisis hypothesis as espoused by Jim Rogers among others is possible, but such a crisis does not necessarily lead where you think it will. No - I am not staking my future on a house price crash, and I am well diversified in currency and asset terms.

A new currency where? It certainly won't be a new global currency. The renminbi is not going anywhere. Neither are the CAD and AUD. So you're telling me the pound and the US dollar are going to be replaced? Unlikely.

To the poster who brought Zimbabwe into it - comparing Zim with UK is like comparing an apple with a bicycle pump.

[mettu]

Daddy Bear,

You bought a house as you think that the debt will be inflated away or ...?

And you obviously have invested in PMs? If not, where is your money?

Just want to be sure I understand you fully.

Edited September 22, 2009 by mettu

[the_austrian]

If paper money collapses, I'm sure gold will go up, but then I'm sure there will be panic over food, fuel and all manner of things. Staking your investment on state failure seems a bit risky to me though, as it is in no one's interest for it to happen. I'm not saying it won't happen, but you have to wonder how likely it is at this point (not 100% guaranteed, I suspect!). A long, slow, controlled, drawn out deflationary recession seems much more likely to me.

State failure just means no one has to pay taxes, crime will still be risky and there will be law and order.. perhaps more ruthlessly upheld than it is presently. It would even be good for those presently controlling the reins although it will be more difficult for them to realise this until later.

[the_austrian]

Exactly - why would anyone stake their future on the state collapsing? As I have said before, in the world that Daddy Bear describes, it will be totally irrelevant that he owns a house and not cash because anyone could walk in and drag him out of that house and take it for their own. That is the world of hyperinflation and state collapse.

We can't prevent the State from failing, the best thing is to prepare. Who in their right mind would wander into someone else's home when the State has failed, they might have a gun. It is the best thing for everyone when the tax collectors don't get paid.

[the_austrian]

The currency crisis hypothesis as espoused by Jim Rogers among others is possible, but such a crisis does not necessarily lead where you think it will. No - I am not staking my future on a house price crash, and I am well diversified in currency and asset terms.

A new currency where? It certainly won't be a new global currency. The renminbi is not going anywhere. Neither are the CAD and AUD. So you're telling me the pound and the US dollar are going to be replaced? Unlikely.

To the poster who brought Zimbabwe into it - comparing Zim with UK is like comparing an apple with a bicycle pump.

the failure of all paper currencies is inevitable because they are of no intrinsic worth.

[Once in a lifetime]

A new currency is what it will be.

Exactly.