Strong Recovery Means Bo E Have No Need To Print

[Realistbear]

http://www.bloomberg.com/news/2010-11-01/pound-near-nine-month-high-versus-dollar-as-more-boe-easing-seen-unlikely.html

Pound Rises Versus Dollar on Speculation BOE Won't Follow Fed Into Easing

By Matthew Brown - Nov 1, 2010 1:42 PM GMT

The pound approached the highest level in nine months against the dollar on speculation the Bank of England will refrain from joining the Federal Reserve in renewed asset purchases this week.

Does this mean that the recovereh is locked in and that the consequences of the Brown years are all dealt with and its plain sailing ahead?

[Toto deVeer]

Or it could mean: get ready for the mother of all short trades...

Edited November 1, 2010 by Toto deVeer

[General Congreve]

Yep, everything's fine now. Nothing to see here, move along please.

[Nickolarge]

All this recovery talk amazes me. I would imagine that no regular on this forum is swallowing any of it.

To me it's a bit like driving a car after the little orange low fuel light comes on. If there isn't a petrol station anywhere near you can drive slowly and maybe you will find one before you run out. Or you can drive faster and run out long before you get there.

There is no economic fuel station just over the horizon. If the economy is picking up now it will only lead to a bigger correction in the very near future.

[Optobear]

http://www.bloomberg.com/news/2010-11-01/pound-near-nine-month-high-versus-dollar-as-more-boe-easing-seen-unlikely.html

Pound Rises Versus Dollar on Speculation BOE Won't Follow Fed Into Easing

By Matthew Brown - Nov 1, 2010 1:42 PM GMT

The pound approached the highest level in nine months against the dollar on speculation the Bank of England will refrain from joining the Federal Reserve in renewed asset purchases this week.

Does this mean that the recovereh is locked in and that the consequences of the Brown years are all dealt with and its plain sailing ahead?

This seems to be the crunch point for HPC. The government are caught.

Inflation above target - GDP growth okay but money supply looking shaky.

Hard to justify more QE - but without QE house prices look very shaky, and the pound will go up, lowering inflation, but killing any chance of an export led recovery.

however,

QE means house prices stay higher, but inflation rockets, and the tory voters (who are more likely to be savers) lose patience with Cameron.

I think the decisions over the next couple of days sets us down either a route to roaring inflation and a weaker pound via QE - that will keep house prices from falling, or no QE, falling inflation, a rising pound but falling house prices,

I know which I'd prefer, but will the Coalition agree? They have to do the QE at the same time as the US, if they wait 3 months then do a QE the markets will destroy sterling and the UK's credit rating, so they have to go at the same time, but how can they justify that...

ooh, they are caught.

Optobear

[mattyfc]

There is no way they can justify more QE currently. Posen is mad and needs to be taken off in a straight jacket. I see no reason for it even to be discussed.

Data seems to be pointing to a very solid recovery. Nominal GDP rising over 6% this year. Growth in Q2 and 3 very similar, Q2 was boosted by growth transferred from Q1 due to the awful weather, there was no real slowdown between them. Looking at near 3% growth this year.

Manufacturing growth accelerating, house prices falling. Inflation 1% over target all year. The only logical decision is for rates to rise now.

The "cuts" are nothing of the sort. "Increasing spending less" would be a far more accurate description. I can't see growth or jobs being effected by them directly at all. Quite likely they will in fact boost both once the negative propaganda wears off.

[Gigantic Purple Slug]

This seems to be the crunch point for HPC. The government are caught.

Inflation above target - GDP growth okay but money supply looking shaky.

Hard to justify more QE - but without QE house prices look very shaky, and the pound will go up, lowering inflation, but killing any chance of an export led recovery.

however,

QE means house prices stay higher, but inflation rockets, and the tory voters (who are more likely to be savers) lose patience with Cameron.

I think the decisions over the next couple of days sets us down either a route to roaring inflation and a weaker pound via QE - that will keep house prices from falling, or no QE, falling inflation, a rising pound but falling house prices,

I know which I'd prefer, but will the Coalition agree? They have to do the QE at the same time as the US, if they wait 3 months then do a QE the markets will destroy sterling and the UK's credit rating, so they have to go at the same time, but how can they justify that...

ooh, they are caught.

Optobear

I think everywhere is eventually going to get to this situation, where they are damned if they do asnd damned if they don't. It's the same with the cuts. Do they cut and risk stifling the recovery, or not cut and risk crippling debt ? To me it boils down more to ideology than analysis, because no one knows what the right decision to take is.

Regarding QE, I think the political issues are not to be underestimated. As I understand it the BOE has some QE cash left in the kitty from the previous Labour government. If the Tories stop them using this they could be accused of interfering. I believe if more QE is needed above this then the Tories will have to sanction it.

This is a big one. If the Tories sanction more QE they lose the ability to claim QE is a Labour policy and responsible for all sorts of economic ills. I think the Tories are unlikely to sanction more QE unless they are utterly convinced it's necessary. Unlikely. Obama on the other hand has already pursued aggressive QE and has nothing to lose by going for another roll of the dice.

[nohpc]

I think they will print at some point again within the next year. I would be money on it. Anybody know if you can get odds on it?

[Optobear]

This is a big one. If the Tories sanction more QE they lose the ability to claim QE is a Labour policy and responsible for all sorts of economic ills. I think the Tories are unlikely to sanction more QE unless they are utterly convinced it's necessary. Unlikely. Obama on the other hand has already pursued aggressive QE and has nothing to lose by going for another roll of the dice.

That is a good point. They'll be seen as being to blame for any future inflation from future QE... makes it hard to claim to be the spiritual inheritors of Thatcher if you just print money too.

To what extent will the markets take it badly if they print? It seems to me there is an element of double standard in the press and markets, by which I mean that everyone expects Labour to overspend and print money, so the markets don't react too badly, while the tories are expected to be a little more prudent and are expected to make tax cuts as the norm. So labour can overspend (and are expected to do so) while the tories can cut and get no credit!

[neil324]

I think they will print at some point again within the next year. I would be money on it. Anybody know if you can get odds on it?

Walk into any bookies.

[the flying pig]

i sometimes think that this website is daft to get excited about monthly house updates but the press hysteria over this single GDP release seems even sillier... it seems to be being implied that the expected 0.4% real growth would almost certainly have meant we'd have needed more QE, whereas the 0.8% means we definitely won't, at least not now [and may even want to raise rates]... i wonder where the cutoff point was? 0.5%? 0.6%? 0.7%?

[Fairies Wear Boots]

Hang on, if the BofE decides we have a strong recovery, and keeps on deciding to not have another round, and then the economy dips, won't they just go, oooops we should have printed, but never mind, fire up the presses?

[Democorruptcy]

I suppose you can say what you want to get into power but once there you can do what you want

Cameron at the 2009 Tory conference:

If we win the election, we will have to confront Labour's debt crisis, deal with it, and take the country with us. I want everyone to understand the gravity of our situation.

Our national debt has doubled in the last five years and our annual deficit next year will be over £170bn.

That's twice as big as when we nearly went bankrupt in the 1970s. It is a massive risk to our economy. If we spend more than we earn, we have to get the money from somewhere.

Right now, the government is simply printing it. Sometime soon that will have to stop, because in the end, printing money leads to inflation. Then the government will have to borrow it.

But we'll only be given the money if lenders are confident we can pay it back. If they're not, we'll have to pay higher interest rates and that could stop our economic recovery in its tracks.

So we have three choices.

Option one: we can just default on the debt. Not pay it. Other countries have done that in the past. But I don't think anyone in this country wants to go down that road.

Option two: we could encourage inflation, which would wipe out the value of the debt, making it easier to pay off. But that's not just an economic disaster – it's a social disaster too. It doesn't just wipe out debts, it wipes out people's hard-earned savings.

So we have the third option — for me the only option. We must pay down this deficit. The longer we leave it, the worse it will be for all of us.

http://www.guardian.co.uk/politics/2009/oct/08/david-cameron-speech-in-full

[Optobear]

Hang on, if the BofE decides we have a strong recovery, and keeps on deciding to not have another round, and then the economy dips, won't they just go, oooops we should have printed, but never mind, fire up the presses?

Don't think it would work like that.

Say that on wednesday the US creates 5% more dollars, and we produce 5% more pounds (via QE), then the exchange rate to dollars doesn't change at all, the price of oil barely moves either... only difference we notice is drop in sterling vs euro - that makes cars a little more expensive, but no great shakes.

If the US prints 5% more dollars and we don't shift, then the pound goes up vs the dollar, the oil price (in sterling) drops, and inflation is reduced... not too bad in the short term.

If however, the second one happens, but we wait six months, then the UK alone is printing money - just like Mr Mugabe - and we will be up a creek without a paddle in terms of credibility.

I know it differs little from the first case (Where US and UK print simultaneously) but it makes a huge difference to the markets (if we print at the same time we can blame it on the US, and can argue it is to maintain competitiveness) whereas if we wait six months, then print then the BoE have no cover. Furthermore, as was pointed out earlier, there is a big political factor.

This is probably going to be Cameron's toughest decision, and to be honest there is no good answer for the tories politically.

[Nickolarge]

QE means house prices stay higher, but inflation rockets, and the tory voters (who are more likely to be savers) lose patience with Cameron.

The Tories will avoid this choice like the plague. Apart from not wanting to be tarred with the printing money brush they would also end up having to push up interest rates (or allow inflation to go on unchecked).

The return of high inflation would not play well with the voters and although some of their supporters would like higher rates on their savings a rise in rates would send huge numbers into a debt payment crisis.

[the_duke_of_hazzard]

This seems to be the crunch point for HPC. The government are caught.

Inflation above target - GDP growth okay but money supply looking shaky.

Hard to justify more QE - but without QE house prices look very shaky, and the pound will go up, lowering inflation, but killing any chance of an export led recovery.

however,

QE means house prices stay higher, but inflation rockets, and the tory voters (who are more likely to be savers) lose patience with Cameron.

I think the decisions over the next couple of days sets us down either a route to roaring inflation and a weaker pound via QE - that will keep house prices from falling, or no QE, falling inflation, a rising pound but falling house prices,

I know which I'd prefer, but will the Coalition agree? They have to do the QE at the same time as the US, if they wait 3 months then do a QE the markets will destroy sterling and the UK's credit rating, so they have to go at the same time, but how can they justify that...

ooh, they are caught.

Optobear

The coalition are willing to sac house prices in the hope that they're cheap and rising by the time of the next election.

[Realistbear]

http://uk.finance.yahoo.com/news/bank-of-england-must-use-qe-to-buy-bad-mortgages-warns-fathom-consulting-tele-ec8c0d871600.html?x=0

.Bank of England must use QE to buy 'bad mortgages', warns Fathom Consulting

Philip "Balders" Aldrick, 8:38, Tuesday 2 November 2010

Britain is in danger of creating a generation of "zombie households" that plunge the economy into a Japan-style lost decade unless policymakers take radical action to fix the banking system properly, a leading economic think tank has warned.

In a paper published on Tuesday, Fathom Consulting has urged the Treasury and the Bank of England to join forces and create a new "bad bank" to buy lenders' worst mortgages in a bid to "unblock" the credit supply.

Every cunning plan seems to have its Achilles heel. They may have been forgetting about that rather large elephant that still sits in the lving room: the housing market and its imiment demise.

[bricor mortis]

As i have alluded to in previous posts I do not beleive the GDP growth figures should be taken seriously.

They are bouyed the idea that construction has increased by 11% this year and is the biggest growth sector in the economy.

So do you think construction is going to pull Britain out of the mire ?

As I have said before I personally think we are heading back into a severe recession.

Unemployment will be / is masked by part time working, and I beleive wages are falling for a lot of workers.