Qe2 And The Coalition

[Mugwump Boy]

Lots of jubilation on HPC at the moment as the bear wave crashes onto the MSM shore. It's really refreshing.

Just to be devil's advocate for a moment, though: are we sure that a dead cat bounce 2 isn't going to happen with a jolt of QE2?

If houses fall 20% plus from here the banks going to be in even more trouble and looking for another bail out ("OR THE SYSTEM WILL CRASH!!!!"). Everyone keeps saying there's no money left. But when you can printy, printy that's not really an issue and we're open to being held hostage by the banks for years to come.

So, what are HPC-ers thoughts on a second round of printing in the UK?

Will the coalition be scared into doing it as the deflationary vortex picks up speed?

Will the bond market allow it (they seemed surprisingly pliant last time)?

Is gold's recent fall just a buying opportunity for those in the know before QE2 fires up inflation? [move that one to off-topic]

Will house prices bounce back if they do more printy printy?

Seems to me our problem on HPC is always expecting things to happen sooner than they actually do. Few on here were prepared for the "throw-everything-and-the-kitchen-sink-at-the-problem" approach last time. How certain are we all it won't happen again?

Not trolling, just interested in HPC-ers thoughts...

[Mega]

Bit like shoting down a plane (My Grandfather told me this)..........."You fire burst after burst, nothing seems to happen.......then a few sparks as a few rounds hit home....then nothing again.......then a few bits fly off........THEN THE BLOODY THING RIPS ITSELF APART IN MID AIR!

Mike

[gimble]

Lots of jubilation on HPC at the moment as the bear wave crashes onto the MSM shore. It's really refreshing.

Just to be devil's advocate for a moment, though: are we sure that a dead cat bounce 2 isn't going to happen with a jolt of QE2?

If houses fall 20% plus from here the banks going to be in even more trouble and looking for another bail out ("OR THE SYSTEM WILL CRASH!!!!"). Everyone keeps saying there's no money left. But when you can printy, printy that's not really an issue and we're open to being held hostage by the banks for years to come.

So, what are HPC-ers thoughts on a second round of printing in the UK?

Will the coalition be scared into doing it as the deflationary vortex picks up speed?

Will the bond market allow it (they seemed surprisingly pliant last time)?

Is gold's recent fall just a buying opportunity for those in the know before QE2 fires up inflation? [move that one to off-topic]

Will house prices bounce back if they do more printy printy?

Seems to me our problem on HPC is always expecting things to happen sooner than they actually do. Few on here were prepared for the "throw-everything-and-the-kitchen-sink-at-the-problem" approach last time. How certain are we all it won't happen again?

Not trolling, just interested in HPC-ers thoughts...

Couple of things to bear in mind - 10 year gilt rates are right down at 3.3% at the mo. The pound is at $1.50, Euro 1.20. In other words the pound is currently probably a little under fair value and gilt rates are pretty damn low (below inflation even). Would this suggest that there is little room for another massive QE exrcise?

[Tired of Waiting]

If houses fall 20% (...)

25% fall is the ideal scenario for the new gov.

The Treasury and the Coalition gov have been sending signals to the finance sector/mortgage industry that House Prices are too high, and should be around 25% lower.

Haven't you seen this thread, and news?! http://www.housepricecrash.co.uk/forum/index.php?showtopic=147307&view=findpost&p=2624404

Edited July 19, 2010 by Tired of Waiting

[50sQuiff]

Imo we will only do it Bernanke fires both barrels first.

[wish I could afford one]

...

Not trolling, just interested in HPC-ers thoughts...

I was just thinking about this also and posted full thoughts here http://retirementinvestingtoday.blogspot.com/2010/07/it-will-always-be-inflation-uk.html

I came at it more from a deflation vs inflation perspective. So mamy people seem to be arguing either way with no clear winners. My thought is that over the longer term they will not allow deflation and will QE or even worse if desperate times are reached. Both government and Joe Public are in debt up to their eyeballs. Inflating it away at the expense of savers is the only route they will take.

Unfortunately I felt reasonably protected from inflation although news today the NS&I ILSC will now longer be available has taken one of my inflation protection techniques clean out from under me. I'm going to have to have serious rethink as I refuse to have exceptionally large sums of cash sitting in banks that are paying me below inflation rates which are then taxed heavily. Low risk options are getting thinner and thinner on the ground.

All IMO of course.

[bricor mortis]

I remember Cameron banging on about ''having to get the banks lending again.''

Their plan for a million new private sector jobs requires credit availability.

I am guessing they wiil wait till things in the uk go very ugly then QE.

[Injin]

I expect them to do it.

And the new watchword here and in the states is 'pre-emptive action'. The theory being you need to do less if you take action early and decisively.

So I wouldn't expect the data to have to tank first, merely show a 'worrying' softening.

Hank Paulsons Bazooka theory.

Printy printy absolutely guaranteed.

[Zngland]

I think Zirp saved our housing market rather than QE.

[Mugwump Boy]

I think Zirp saved our housing market rather than QE.

There's a lot of truth in that, actually. ZIRP and leniency towards repossessions certainly did keep things afloat.

But I think the dead cat bounce we've seen was a result of QE - even if in part only indirectly. Savers fearing about their cash scared into buying property (properties).

I'm not convinced the coalition will let house prices drop 25% - they might be hinting at it but once it starts (and proves difficult to stop at 25% since let's face it, that'll barely deflate the bubble we've got in HPI) they will probably cack themselves and hit the printer button again...

[plummet expert]

I think Zirp saved our housing market rather than QE.

They will have to do some QE here just to get by and pay public sector workers I suspect. But, I don't hear a great desire from the Coalition to maintain high property prices. In fact their rhetoric is that property investment is not of the same value to the economy as encouraging manufacturing. Unless something is very wrong here, there is recognition that mortgage lending needs proper controls and that simply having raging house prices does not create lasting wealth, just an impermanent mirage. Would any govt want to pump up the housing market now, with yet more borrowed or printed money. The fear of debasing the currency an causing inflation, thereby upsetting the markets is now too great. The USA is in a different situation slightly over all these issues. Their property HAS collapsed, they are world reserve currency and so many countries hold their treasuries, in the short term it is easier for them to get away with more printing.

[Zngland]

Hank Paulsons Bazooka theory.

Printy printy absolutely guaranteed.

UK ECONOMY ONLY

Right i'm no economist , well [ a bit] i have a A level in this psuedo science.

Firstly, if the ptb start printing via QE nothing really happens, do house prices stabilise?,debateable.

Does cpi rpi etc shopping prices increase , yes but it's not pointing to high inflation in prices, again debateable,

is it QE or £ depreciation ,because the " ugliness" of acknowledging money printing tap is on , is the cause?

Some argue that QE does nowt, just increases liquidity, this makes sense to me.IE helps Banks out during the deleveraging process.

Quantitative easing and a contracting money supply in the real economy

Posted By Richard Henley Davis On February 17, 2010

The Bank Of England has decided not to expand its asset purchasing scheme for another month but with inflation increasing many fear that the previous schemes in quantitative easing (QE) have artificially increased inflation beyond its target.

These fears do appear to be unfounded because asset purchasing is exactly what it says on the tin, it is purchasing assets with a value of X for the cost of X. QE was always only designed to increase liquidity by swapping illiquid assets for readies, not to increase the size of the economy.

So why do we see such sharp rises in inflation with less money floating around the wider economy and, is this the beginning of a trend for inflation, or is it just a sharp blip but a blip none the less?

An increase in the price of oil will have an obvious impact on the price of transporting all goods both outward and inward and this may be the reason for the widening of the trade gap and recent sharp increases in the prices of importing goods but quantitative easing is not responsible here.

So why are we seeing a contraction and stiffening in all aspects of lending?

Well, let’s not forget the banks are now required to hold more capital, are still bleeding from the continuing fall in commercial property prices and investments in countries such as Greece and Portugal and if you take into consideration the banks exposure to risk through investments in countries teetering on the edge of defaulting on debt it amounts to over 15% of GDP and that is not an easy amount for lenders to soak up.[end]

Then BoE stats show that money printing is not able to compensate the wholesale deleveraging, and houseprices have not

"really" started to collapse. [ end]

I'm not sure how to import charts from BoE site but to summarize

1] M1 falling [ notes and coins] BoE]

2] M4 falling from 2008 peak [ BoE]

3] Home equity withdrawal fell heavily then rose but is -2bn cf to 2008 13bn [boE]

4] money multiplier fell [ BoE]

What say yous lot? Are we going to conclude in a year or so were in the Greatest Depression ever.

http://www.bankofengland.co.uk/statistics/fm4/2009/sep/index.htm#TableA

http://2.bp.blogspot.com/_Et4TQ-a0gGU/SiZSGyr-KaI/AAAAAAAACI4/ZfYHNk2KWiU/s1600-h/money_multipliers.png

http://www.bankofengland.co.uk/statistics/fm4/2009/sep/CHART3.GIF

Edited July 19, 2010 by Zngland

[Tired of Waiting]

(...)

I'm not sure how to import charts from BoE site but to summarize

(...)

http://2.bp.blogspot.com/_Et4TQ-a0gGU/SiZSGyr-KaI/AAAAAAAACI4/ZfYHNk2KWiU/s1600-h/money_multipliers.png

http://www.bankofengland.co.uk/statistics/fm4/2009/sep/CHART3.GIF

Copy the image's web address,

On the HPC reply window,click on the icon "insert image" (2nd icon on the right side of the smiley face)

paste address there, and click OK

(Though from PDF docs I don't know how to it)

Edited July 21, 2010 by Tired of Waiting

[Sour Mash]

I expect them to do it.

And the new watchword here and in the states is 'pre-emptive action'. The theory being you need to do less if you take action early and decisively.

So I wouldn't expect the data to have to tank first, merely show a 'worrying' softening.

What a pity they didn't take 'pre-emptive action' when the economy was booming and jack interest rates up in a timely manner to slow down the runaway credit bubble before it got out of control instead of edging them up in 0.25% increments as late as they possibly could :angry:

Still, when it came to dropping them there was no hesitation in lopping massive amounts at a time off.

[Timm]

They will have to do some QE here just to get by and pay public sector workers I suspect.

But, I don't hear a great desire from the Coalition to maintain high property prices. In fact their rhetoric is that property investment is not of the same value to the economy as encouraging manufacturing. Unless something is very wrong here, there is recognition that mortgage lending needs proper controls and that simply having raging house prices does not create lasting wealth, just an impermanent mirage. Would any govt want to pump up the housing market now, with yet more borrowed or printed money. The fear of debasing the currency an causing inflation, thereby upsetting the markets is now too great. The USA is in a different situation slightly over all these issues. Their property HAS collapsed, they are world reserve currency and so many countries hold their treasuries, in the short term it is easier for them to get away with more printing.

I think that sums up my view.

What they really need is more money to devalue pay roll over their debts, but not so much that inflation completley destroys the ability of the public to service theirs.

There is one thing that can help with this aim: Rent. As the cost of essentials such as food and fuel rises, surplus income will fall. This leaves less money to be extracted by landlords and speculators as rent. If rents can be encouraged to fall ahead of inflation the process can be more easily managed accross the economy.

Edited July 21, 2010 by Timm

[Minos]

Bank of England could pump more cash into the economy: MPC minutes

Economists have raised the prospect that the Bank of England could restart quantitative easing after minutes from this month’s rate-setting meeting showed that “money printing” was discussed for the first time since February.

[scappers]

Bank of England could pump more cash into the economy: MPC minutes

Free money - there's no down side to those with access to it.