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Mervyn King: Quantitative Easing May Have To Restart


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http://www.guardian.co.uk/business/2010/feb/23/mervyn-king-quantitative-easing-eurozone

• Bank of England governor tells MPs scheme could be extended if economy deteriorates

• Fears over the eurozone, the UK's major trading partner, causing 'particular concern'

Mervyn King, the governor of the Bank of England, warned today that the weakness of the eurozone is jeopardising the UK's recovery, and the emergency £200bn quantitative easing programme might have to be re-started if the economy deteriorates in the coming months.

"My particular concern at the moment derives from the health of the global economy, and in particular our major trading partner, the eurozone," the governor said.

Much of the 16-member eurozone bounced out of recession by last summer, but recently-released data for the final quarter of 2009 showed that Germany, the eurozone's largest economy, stagnated, and several other countries, including Spain and Ireland, remain weak, while Greece is battling to avoid a default on its debts.

Charlie Bean, the Bank's deputy governor, warned that he expects recovery in the eurozone, as in the UK, to be "sluggish".

King struck a pessimistic note about the prospects for a global recovery, and warned that the UK had, "embarked on a process of healing," which would take some time. He stressed that, "risks to the [bank of England's monetary policy] committee's central view of a gradual recovery of output remain to the downside."

Despite news last week that inflation jumped to 3.5% in January, the governor repeated his insistence that the monetary policy committee (MPC) stands ready to extend its £200bn scheme to pump money into the economy. The pound fell more than 1.2 cents against the dollar during the hearing, from $1.5539 to $1.5413.

It's clear the UK is going to try and print it's way out of this mess. It's a policy that has failed at every other time point in history but I'm sure this time it will be different.

Currency collapse seems inevitable.

Printy printy.

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[it's a policy that has failed at every other time point in history but I'm sure this time it will be different

Yes, but they never had Golden Gordon back then did they?

He's the right man for the job and he's getting on with the job.*

* I suspect that the "job" is being a soviet sleeper agent left over from the Cold War. One day, Gordon picked up the phone and Donald Pleasence was on the other end, saying the words "The woods are lovely, dark, and deep, but I have promises to keep. And miles to go before I sleep, and miles to go before I sleep. Remember. Miles to go before I sleep. " From that point on, we were doomed.

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http://business.timesonline.co.uk/tol/business/economics/article7037399.ece

Sterling fell sharply today after Mervyn King, the Governor of the Bank of England, warned that it may be necessary to continue the Bank’s asset purchase programme and pressed the Government to reveal its plans to reduce the country's record £178 billion deficit.

In his last appearance before MPs before the general election, Mr King outlined the political challenges facing the economy.

He said: “The crisis has left us facing many serious challenges. Among them are how to reform the international financial system, how to reduce our largest peacetime fiscal deficit, and how to restructure our banking and financial system to prevent another, more serious, crisis in future.

"The crisis did not originate in the non-financial sectors of the economy but that is where most of the costs are falling.

“You don’t need me to tell you that its impact is not just economic but also social and political in nature.”

The Governor, who was appearing before the Treasury Select Committee, said that ratings agencies were looking for a “detailed explanation” of how Britain intended to reduce its budget deficit.

But he warned: “You certainly can’t eliminate the deficit in one year. There has to be a programme announced that will start and continue right through the lifetime of the next parliament.”

The pound lost more than one cent against the US dollar after the Governor also told MPs that, although the UK economy had “embarked on a process of healing”, this would take time.

Mr King added: “The risks to the [Monetary Policy] Committee’s central view of a gradual recovery of output remain to the downside.”

..........

Mr King also warned that bank lending could prove scarce during coming months.

He told MPs: “We would like to get back to a situation where the banking sector can expand its lending, but I am not sure that is going to happen until we have seen further consolidation in the balance sheets of the banking sector.

"There’s still quite a way to go on that front.”

Seems King is admitting growth is in the UK is completely down to bank lending and he wants a return to it. Doesn't look like that will happen any time soon.

So the plan is to reduce the deficit by printing money instead? Why bother earning money when you can print it.

It seems the lure of the magic printing press is too great to resist, once the presses are turned on it becomes too difficult politically to turn them off as politicians are too week.

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It seems the lure of the magic printing press is too great to resist, once the presses are turned on it becomes too difficult politically to turn them off as politicians are too week.

None of them has the guts to be unpopular.

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7297727/BoE-Governor-warns-stalling-eurozone-is-a-threat-to-Britain-sterling-falls.html

Mr King suggested that while the recovery in the UK was likely to be fragile, he was more concerned about the world economy.

In his final appearance in front of the Treasury Committee during this Parliament, he added that a weaker pound had so far failed to lift exports as desired.

"My particular concerns at present derive from the state of the world economy and our largest trading partner, the euro area...that will inevitably have an impact in the UK and we are already seeing that despite the depreciation of sterling, we haven't so far seen much evidence of a pick up in net trade, which is an important part of our rebalancing.

"Recovery in our largest export market – the euro area – appears to have stalled."

It had been hoped that the weakness of the pound since the onset of the financial crisis would provide a boost to the UK economy by making British goods cheaper abroad and therefore pushing up exports. That however is reliant on recovery in foreign demand.

Mr King said he was struck by the mood at a recent meeting of G7 finance ministers and central bankers in Canada, "where several of the major economies said quite openly that they were relying on external demand growth to generate growth in their economy."

Sterling fell sharply - 1.3 cent to $1.5451 - after Mervyn King hinted that the BoE may have to restart quantitative easing.

It fell further when David Miles, a fellow member of the Bank's Monetary Policy Committee, said his decision to vote for a pause in the committee's £200bn quantitative easing programme in February had been a "pretty finely balanced decision".

.......

As the hearing closed Mr King thanked John McFall, chairman of the Treasury Committee, for the work the committee had undertaken during the financial crisis.

He said he had appeared in 17 occasions in front of the Treasury Committee since the downturn began, citing it as "some sort of record."

"It hasn't been fun, it hasn't been easy, but it has been productive," he said.

It certainly appears that we will be having a recoveryless recovery.

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None of them has the guts to be unpopular.

Does being unpopular take guts? Are you saying Brown could be even more unpopular if he actually had the guts to be? :P

Yep tough decisions the electorate don't like and if politicians know if they take them the opposition will make popular promises that it doesn't have to be this way and win the election.

I still feel we'll end up with the IMF here so they can take the blame for this mess.

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It seems the lure of the magic printing press is too great to resist, once the presses are turned on it becomes too difficult politically to turn them off as politicians are too week.

as predicted by some

for most it was unexpected

and for a few - well they just lied

Edited by lowrentyieldmakessense(honest!)
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The truly frightening thing about King's stance is that he is basically conceding that 800 billion of tax-payers' money has not helped the economy at all, so he wishes to print even more money in some misguided belief, IMPO, that the extra money will work.

Is 800 billion has not worked what will? Another 800 billion? What happens when that gives no recovery? Has King thought what we do then?

The fundamental structual problems still exist and they need to be addressed before the economy recovers let alone flourishes. Throwing hundreds of billions at banks who then simply hoard it and give out large bonuses to each other does no good for struggling UK businesses nor for the rest of us.

You do not need to be an economic genius to understand that!

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Does being unpopular take guts? Are you saying Brown could be even more unpopular if he actually had the guts to be?

Oh easily. Easily.

Brown is massive unpopular without even trying. Just think what he'd be like if he worked at it.

None of them will take the tough decisions (that need to be taken) because they know the public won't like it. Look at the waffle and backpedaling over spending cuts.

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I still feel we'll end up with the IMF here so they can take the blame for this mess.

Silly question, if we print and devalue too much can our creditors, 'call in the imf'? A la calling in the administrators to make someone bankrupt.

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The truly frightening thing about King's stance is that he is basically conceding that 800 billion of tax-payers' money has not helped the economy at all, so he wishes to print even more money in some misguided belief, IMPO, that the extra money will work.

Is 800 billion has not worked what will? Another 800 billion? What happens when that gives no recovery? Has King thought what we do then?

The fundamental structual problems still exist and they need to be addressed before the economy recovers let alone flourishes. Throwing hundreds of billions at banks who then simply hoard it and give out large bonuses to each other does no good for struggling UK businesses nor for the rest of us.

You do not need to be an economic genius to understand that!

This is my message to Mervyn King . . .

http://www.youtube.com/watch?v=yo0qjuA42HA

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Yes, but they never had Golden Gordon back then did they?

He's the right man for the job and he's getting on with the job.*

* I suspect that the "job" is being a soviet sleeper agent left over from the Cold War. One day, Gordon picked up the phone and Donald Pleasence was on the other end, saying the words "The woods are lovely, dark, and deep, but I have promises to keep. And miles to go before I sleep, and miles to go before I sleep. Remember. Miles to go before I sleep. " From that point on, we were doomed.

"Is that not Gordon...oh Dr kelly, sorry wrong number"

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Silly question, if we print and devalue too much can our creditors, 'call in the imf'? A la calling in the administrators to make someone bankrupt.

If I understand this what would happen is that the creditors would force the IMF to be called in by a bond strike, rather than them saying your giving us worthless pounds stop it or we'll call in the IMF, they'll simply stop buying the debt and foreign investment will cease.

There best hope of getting some value back for what they have lent is a bond strike as it would force fiscal discipline on the UK. The problem is that this could trigger total financial collapse across the globe, meaning you won't get anything back. Do you feel lucky?

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It's like an alcoholic trying to give up the drink. Been dry for a couple of weeks but now needs a small drink, just the one, and a small one at that, as a pick-me-up ...

Yep, but it's only a small bottle of wine and I used to drink 3 or 4 bottles a day so it won't hurt just to have the bottle and then just a couple lagers but it's all under control I can stop if I want to.

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this on Bloomberg

“Monetary policy can either be more expansionary or more contractionary as the situation demands,” King said. “We stand ready to do whatever seems appropriate.”

in other words, it really could swing either way, and the boys at the BoE have no control...

perhaps swing is too meek a word

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If I understand this what would happen is that the creditors would force the IMF to be called in by a bond strike, rather than them saying your giving us worthless pounds stop it or we'll call in the IMF, they'll simply stop buying the debt and foreign investment will cease.

There best hope of getting some value back for what they have lent is a bond strike as it would force fiscal discipline on the UK. The problem is that this could trigger total financial collapse across the globe, meaning you won't get anything back. Do you feel lucky?

stopped buying the debt - didnt they stop buying it last year when the bank of england took over

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well, we've printed and it worked for a while....except as we stopped, the disease returned.

It is clear therefore we have not printed enough.

and its not our fault, but more money printed here will restore customers in the Eurozone.

And people will borrow more.

and all will be well.....in the wheel barrow trade...not for notes, but for memory sticks loaded with 0's.

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For anyone who didn't see it first time around, to the tune of Lily the Pink, all sing along now ...

We’ll print and print and print to

Stop the nation going skint

We’re saviours of the human race

For we’ve invented Quantitative Easing

Most efficacious in every case

Gordon Brown he is such a clown

He just cannot do his sums

And so he gives us Quantitative Easing

And the bankers remain his chums

.

.

chorus

.

.

Governor Merv does not have the nerve

To stand up to the politicos

And so he gives us Quantitative Easing

And inflation just grows and grows

.

.

chorus

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Alcoholism is a good analogy with Quantitative easing.

Chronic Alcoholics if they suddenly stop drinking, it can cause seizures, delirium tremens and death. You must continue to give an alcoholic alcohol!

If you suddenly stop QE, we've had it.

--

Heroin addicts are different, you can make them go cold turkey, and they will be OK.

Edited by Money Spinner
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