Merv To Prop Up Housing If Q E Fails

[Realistbear]

http://uk.finance.yahoo.com/news/bank-of-england-may-shift-to-heavy-duty-credit-easing-says-rate-setter-adam-posen-tele-cd2e508d8174.html?x=0

Bank of England may shift to 'heavy-duty credit easing', says rate setter Adam Posen

Reuters, 9:18, Friday 17 September 2010

The Bank of England might aim to

cut borrowing costs in specific areas

of the economy should its buying of government bonds prove ineffective in stimulating economic growth, Monetary Policy Committee member Adam Posen said.

He told a confence in Washingon the Bank of England's next step, if necessary, would be to shift into "heavy-duty credit easing".

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with

housing markets

.

Merv knows, as do most of us on here, that HPI is the engine which has powered Britain's "growth" since the late 1970's as NS Oil began to fade and manufacturing shifted overseas. It drove the City and the service sector employment boom and it gave us a miracle for ten years when Brown boosted the economy with civil service jobs and a massive housing boom.

Now that HPI is under threat--even the most optimistic Bulls (Halifax) no longer deny the reality that housing is going down--the BoE thinks it must do something. If QE is not working (and why would it? A few 100 billion will not fill a 5TR sized hole) the only weapon left is loose credit--get the sheeple to raise their debt levels as they buy more houses and tat.

IMO, Merv should accept that the damage has been done and the best remedy is to let go and let the markets find their own natural level. Trying to rekindle HPI with looser credit is like dosing a heroin addict with bigger doses of what caused him to be addicted in the first place. It will just make the patient sicker. Best to sweat it out, bear the pain and hope for a recovery later on.

[Bloo Loo]

sorry, but I thought rates were ALREADY at .5%

with FREE loans on newbuilds...what else can they do apart from blow it all up?

the problem is we have too many banks with too much debt, supported on Ponzied assets....NOW is NOT the time to buy these assets...they are at their MOST EXPENSIVE when the means to leverage to meet the price is at its cheapest....

course, targetting the US housing market did SFA.

He needs to be radical.

he needs to close a few banks.

[Timm]

This is the fear of a neither with a bear VI (me).

Then again:

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with housing markets.

And that worked so very well, didn't it?

He'd do better targetting small and medium sized businesses.

[Reluctant Heretic]

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with housing markets.[/indent]

Can we hope that this doesn't necessarily mean that they will be targeting housing? Personally I am baffled at the BoE mentality and lack of creative thinking - I suppose there is a tendency when faced with really difficult problems and loads of pressure just to keep resorting to habitual responses (economic psychology).

Ah - I've just realised - DR Adam Posen - just an academic, macro-economic theorist and of course, only 1 out of the 9.

Edited September 17, 2010 by Reluctant Heretic

[okaycuckoo]

Don't understand. Are they hinting at negative rates, forcing the banks to lend?

Or is the government going to have to backstop refinancing of mortgages, like Fannie & Freddie?

[Georgia O'Keeffe]

http://uk.finance.yahoo.com/news/bank-of-england-may-shift-to-heavy-duty-credit-easing-says-rate-setter-adam-posen-tele-cd2e508d8174.html?x=0

Bank of England may shift to 'heavy-duty credit easing', says rate setter Adam Posen

Reuters, 9:18, Friday 17 September 2010

The Bank of England might aim to

cut borrowing costs in specific areas

of the economy should its buying of government bonds prove ineffective in stimulating economic growth, Monetary Policy Committee member Adam Posen said.

He told a confence in Washingon the Bank of England's next step, if necessary, would be to shift into "heavy-duty credit easing".

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with

housing markets

.

Merv knows, as do most of us on here, that HPI is the engine which has powered Britain's "growth" since the late 1970's as NS Oil began to fade and manufacturing shifted overseas. It drove the City and the service sector employment boom and it gave us a miracle for ten years when Brown boosted the economy with civil service jobs and a massive housing boom.

Now that HPI is under threat--even the most optimistic Bulls (Halifax) no longer deny the reality that housing is going down--the BoE thinks it must do something. If QE is not working (and why would it? A few 100 billion will not fill a 5TR sized hole) the only weapon left is loose credit--get the sheeple to raise their debt levels as they buy more houses and tat.

IMO, Merv should accept that the damage has been done and the best remedy is to let go and let the markets find their own natural level. Trying to rekindle HPI with looser credit is like dosing a heroin addict with bigger doses of what caused him to be addicted in the first place. It will just make the patient sicker. Best to sweat it out, bear the pain and hope for a recovery later on.

i think its clear they understand the whole system is collapsing, every desperate measure that can be thought of will be taken i suppose to try to fix it, this action reaction has been happening for a decade. Ultimately every action is just ensuring the collapse is of a bigger and bigger magnitude ensuring it will wipe out the maximum number of participants and non participants possible.

These things are such that historically they tend to be mirror images, the larger the wealth and prosperity (and the last 30 years has been an amazing period of wealth, unrivalled), the larger the poverty when it implodes. This one is really a doozy of epic proportions, i think it makes the 30s seem like a hiccup, the more these sort of measures are taken the more it seems to me that this has more in common with the south sea bubble implosion

Edited September 17, 2010 by Tamara De Lempicka

[koala_bear]

http://uk.finance.yahoo.com/news/bank-of-england-may-shift-to-heavy-duty-credit-easing-says-rate-setter-adam-posen-tele-cd2e508d8174.html?x=0

The Bank of England might aim to

cut borrowing costs in specific areas

of the economy should its buying of government bonds prove ineffective in stimulating economic growth, Monetary Policy Committee member Adam Posen said.

The market might finally have attached roughly the right degree of risk premium to borrowing in a certain sector and mystic Merv's BoE suddenly think they can do better cos it doesn't fit the trend line form the boom times.

I'm hoping the main sector they are talking about is SME business lending (thankfully there is a lot of pressure there too) but gut feeling tells me we need to get worried as they will want to replace SLS (to be repaid April to December 2011) with something else or Lloyds (i.e. the basket case that was HBoS) won't be doing much lending for a while...

CGS is of course a nice money spinner for HMT (IR far more than SLS) so they won't want to replace that with "cheap" QE money.

Edited September 17, 2010 by koala_bear

[Bloo Loo]

Can we hope that this doesn't necessarily mean that they will be targeting housing? Personally I am baffled at the BoE mentality and lack of creative thinking - I suppose there is a tendency when faced with really difficult problems and loads of pressure just to keep resorting to habitual responses (economic psychology).

Ah - I've just realised - DR Adam Posen - just an academic, macro-economic theorist and of course, only 1 out of the 9.

what do you mean about creative thinking?...Banking...ITS ALL ABOUT LENDING...Nothing else.

all this stock market stuff...thats just for the risk takers...not our sober sided banks. If THAT was to crash...that shouldnt affect our strong banks as they have been lending to good prospects, risk priced in for years.

[EvilEdna]

The market might finally have attached roughly the right degree of risk premium to borrowing in a certain sector and mystic Merv's BoE suddenly think they can do better cos it doesn't fit the trend line form the boom times.

I'm hoping the main sector they are talking about is SME business lending (thankfully there is a lot of pressure there too) but gut feeling tells me we need to get worried as they will want to replace SLS (to be repaid April to December 2011) with something else or Lloyds (i.e. the basket case that was HBoS) won't be doing much lending for a while...

CGS is of course a nice money spinner for HMT (IR far more than SLS) so they won't want to replace that with "cheap" QE money.

I'd read that as a pretty strong hint that they're talking about housing.

[MrFlibble]

When all our wealth is tied up in bricks and mortar what then?

By trying to protect the broken housing market Merv will ensure we all end up poor.

[koala_bear]

I'd read that as a pretty strong hint that they're talking about housing.

that is what is worrying me :angry:

[Authoritarian]

Perhaps they can put a legal floor under house prices and have done with it. That's what they'e pretty much doing anyway with all their funny money.

[VeryMeanReversion]

I'd read that as a pretty strong hint that they're talking about housing.

Funding for US housing is already nationalised (~90% of the market controlled by state-backed institutions).

Amazing really that America is no longer a capitalist country.

[pyracantha]

that is what is worrying me :angry:

Me - I'm getting angry about this. Just returned from the garden having taken the shears to some bushes to try and get it out of my system. How dare the BoE carry on with this course of action. Where is the accountability? Where are my pitchforks and burning torches?

You know when you are in an accident and everything seems to slow down and you can see what's coming but can do 8ugger all about it? I'm a passenger and the driver is accelerating into the tree. That's how our economy feels like right now.

Edited September 17, 2010 by pyracantha

[lets get it right]

I don't pretend to understand banking at the sort of technical level that posters like Extra Dry Martini do.

So, I'm stuck with thinking in general terms.

It strikes me that the house price boom was based on banks throwing capital ratios to the wind by creating more and more complex financial instruments and lending the same money out over and over again inflating a huge bubble in house prices. In the process they have massively increased the total debt that people, collectively, owe.

Well done the banks. You created money out of thin air and people will be paying interest on it to you for a generation or more. Maybe forever.

Following the sh!te hitting the fan in Autumn 2007, the government stepped in and did 'whatever was necessary' to stabilise the banking system. This included guaranteeing the value of their assets. Now, clearly, for the banks and the banking system to survive, the value of those assets must not be allowed to drop.

So, let's drop interest rates as low as they will go - that will prevent (some) repossessions and encourage people with cash to buy property. This, it must be said, seems to have worked.

Now it's beginning to run out of steam, they are looking for what else they can do. Despite base rates at 0.5%, SVRs are in the area of 4%. Banks are making a lot of money at the moment and should be rebuilding their capital. But, meanwhile, the housing market is beginning to fall again, so borrowing must be made even cheaper for mortgagees.

How does the bank get between the base rate and the mortgage rates charged by banks? How will they target mortgage rates? Force banks to lend at certain rates? Sounds like nationalisation of the lending market.

As many of us said after the credit crunch, when it became clear that the housing market was falling, the powers that be will do ANYTHING to keep the housing market up and the people in debt up to their ears.

[Bloo Loo]

I don't pretend to understand banking at the sort of technical level that posters like Extra Dry Martini do.

So, I'm stuck with thinking in general terms.

It strikes me that the house price boom was based on banks throwing capital ratios to the wind by creating more and more complex financial instruments and lending the same money out over and over again inflating a huge bubble in house prices. In the process they have massively increased the total debt that people, collectively, owe.

Well done the banks. You created money out of thin air and people will be paying interest on it to you for a generation or more. Maybe forever.

Following the sh!te hitting the fan in Autumn 2007, the government stepped in and did 'whatever was necessary' to stabilise the banking system. This included guaranteeing the value of their assets. Now, clearly, for the banks and the banking system to survive, the value of those assets must not be allowed to drop.

So, let's drop interest rates as low as they will go - that will prevent (some) repossessions and encourage people with cash to buy property. This, it must be said, seems to have worked.

Now it's beginning to run out of steam, they are looking for what else they can do. Despite base rates at 0.5%, SVRs are in the area of 4%. Banks are making a lot of money at the moment and should be rebuilding their capital. But, meanwhile, the housing market is beginning to fall again, so borrowing must be made even cheaper for mortgagees.

How does the bank get between the base rate and the mortgage rates charged by banks? How will they target mortgage rates? Force banks to lend at certain rates? Sounds like nationalisation of the lending market.

As many of us said after the credit crunch, when it became clear that the housing market was falling, the powers that be will do ANYTHING to keep the housing market up and the people in debt up to their ears.

no, the banks created nothing out of thin air...just expected interest to be paid and the money they lent returned...and it wasnt.

[pyracantha]

As many of us said after the credit crunch, when it became clear that the housing market was falling, the powers that be will do ANYTHING to keep the housing market up and the people in debt up to their ears.

Trouble is, so far it's working. We bid recently (a slightly cheeky offer on a run-down house that needed 'the works') and have been told by our solicitor that the winning offer was about 28% over the o/o price and about 11% over the Home Report valuation. For as long as the system continues to be propped up, people will keep on paying over the odds.

So what's it going to take to force the policy U-turn required to sort this mess out?

[SarahBell]

Ed Balls (I think - can't tell them apart really though - all horrid) said on QT last night - we should build schools, houses and hospitals.

I'd say build the houses rather than any more QE. Council housing of course.

[Alfie Moon]

So no statement in there saying that if they start targeted credit easing that they will target the property market, just that they may start targeted credit easing. Posen's statement emphasises 'targeting' not the property market.

Certainly something to keep an eye on, as HPC has been already, but Posen's statement cannot be taken as read that they are specifically indicating that they will target the property market if credit easing is brought into play again.

[Gigantic Purple Slug]

So no statement in there saying that if they start targeted credit easing that they will target the property market, just that they may start targeted credit easing. Posen's statement emphasises 'targeting' not the property market.

Certainly something to keep an eye on, as HPC has been already, but Posen's statement cannot be taken as read that they are specifically indicating that they will target the property market if credit easing is brought into play again.

Agreed.

If you want compare the UK to the US, the US government support for housing came after a housing market crash. There's been no such crash here. I think the government would be quite happy with a 20% or so crash in price. Certainly I see no specific policies in place to continue to inflate the housing bubble. In fact quite the opposite, with the changes to CGT and housing benefit on the way.

The problem with interest rates are they are not very discriminatory against different sectors and now they are largely disfunctional. I think the government will target SME's and manufacturing businesses with additional tax breaks rather than try to prop up the housing market.

The government has little money to spend. It needs to spend it where it will do the most good. Propping up the housing market ? It's just not going to happen. The only reason that the housing market has been propped up so far is as a consequence of other policies taken to try to stabilise the system, not because the government actually wants to prop it up.

[bricor mortis]

They are maybe trying to come up with the next cunning plan after SLS expires.

Remember Cameron kept saying " its imperative we get the banks lending again."

More bad ideas than an al quieda suggestion box.

I see them scheming to finance deposits somehow. :angry:

:angry: :angry: :angry:

[madpenguin]

I don't pretend to understand banking at the sort of technical level that posters like Extra Dry Martini do.

So, I'm stuck with thinking in general terms.

It strikes me that the house price boom was based on banks throwing capital ratios to the wind by creating more and more complex financial instruments and lending the same money out over and over again inflating a huge bubble in house prices. In the process they have massively increased the total debt that people, collectively, owe.

Well done the banks. You created money out of thin air and people will be paying interest on it to you for a generation or more. Maybe forever.

Following the sh!te hitting the fan in Autumn 2007, the government stepped in and did 'whatever was necessary' to stabilise the banking system. This included guaranteeing the value of their assets. Now, clearly, for the banks and the banking system to survive, the value of those assets must not be allowed to drop.

So, let's drop interest rates as low as they will go - that will prevent (some) repossessions and encourage people with cash to buy property. This, it must be said, seems to have worked.

Now it's beginning to run out of steam, they are looking for what else they can do. Despite base rates at 0.5%, SVRs are in the area of 4%. Banks are making a lot of money at the moment and should be rebuilding their capital. But, meanwhile, the housing market is beginning to fall again, so borrowing must be made even cheaper for mortgagees.

How does the bank get between the base rate and the mortgage rates charged by banks? How will they target mortgage rates? Force banks to lend at certain rates? Sounds like nationalisation of the lending market.

As many of us said after the credit crunch, when it became clear that the housing market was falling, the powers that be will do ANYTHING to keep the housing market up and the people in debt up to their ears.

Can't stop thinking about something I read once about ancient Sumeria or maybe Babylon when I read things like this, apparently when thing like this occurred they had a festival where all debts public and private were declared void which basically reset the economy (may be dodgy on the specifics, I didn't research this extensively).

Would make the banks howl certainly, and we might even loose a few more but with their ability to create profit out of thin air I don't think the damage would last for ever

Edited September 17, 2010 by madpenguin

[the_austrian]

They will do anything possible to help debtors. If the banks can no longer print money because no one is taking out loans, then the BofEng acts as backstop making sure that savings will lose value. The free market will attempt to correct for the malinvestment but it is powerless against the printing press, as history shows.

[Toto deVeer]

Me - I'm getting angry about this. Just returned from the garden having taken the shears to some bushes to try and get it out of my system. How dare the BoE carry on with this course of action. Where is the accountability? Where are my pitchforks garden shears and burning torches bushes?

There. Fixed it for you. I can join you with a watering can. Is that enough to get Merv's attention, do ya think? We could give him a hair cut and a good bath...

[Pent Up]

I thought with DWF replacing SLS that they were planning on targeting business lending.