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Reversing Quantitative Easing?

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In this article http://www.guardian.co.uk/business/2011/jan/13/interest-rates-mpc-economists-reaction one of the 'economists' talks about the BOE reversing quantitative easing instead of raising interest rates.

Philip Shaw, Investec economist

The discussions at the meeting were probably far more interesting than the result, the reason being that members are probably looking at the inflation outlook with increasing concern. We have recently revised our in-house inflation forecasts with the view that the CPI measure will rise a little above 4% towards the middle of this year, and a risk that this could be 0.5% or so higher than this should the 2.5% increase in VAT be fully passed through.

The committee's credibility is at stake. But raising the Bank rate from its current 0.5% risks sending the recovery into reverse. We argue that one solution could be to keep interest rates steady, but to start to reverse some of the quantitative easing.

How would this be done, how likely is it to happen and what effect would this have on the economy, inflation and the government's finances?

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In this article http://www.guardian.co.uk/business/2011/jan/13/interest-rates-mpc-economists-reaction one of the 'economists' talks about the BOE reversing quantitative easing instead of raising interest rates.

How would this be done, how likely is it to happen and what effect would this have on the economy, inflation and the government's finances?

The BoE sell that Gilts they bought from the Banks back to the banks so removing cash the banks may have lent out as loans so less credit less spending, keener pricing, less inflation.

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The BoE sell that Gilts they bought from the Banks back to the banks so removing cash the banks may have lent out as loans so less credit less spending, keener pricing, less inflation.

So bad (good) for house prices then.

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The ability to reverse QE is why it was done instead of printing money. It is very, very easy to reverse QE if needs be.. the BoE simply sells the securities it has bought to someone, anyone. Then takes the money it gets from that sale and deletes the money.

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So bad (good) for house prices then.

If a percentage of the money used to buy the gilts would have instead been used to offer cheap mortgages, then it could restrict mortgage availabilty.

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Assuming there is enough demand, not sure where the demand will come from, I thought the BoE was the only buyer of net new government debt, so if BoE stops buying, and starts selling, what happens when our government also tries to sell new gilts? they are going to have to undercut BoE to get any buyers ... so there is going to be higher rates whatever, unless by some miracle we run a budget surplus.

Edited by Snagger

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The ability to reverse QE is why it was done instead of printing money. It is very, very easy to reverse QE if needs be.. the BoE simply sells the securities it has bought to someone, anyone. Then takes the money it gets from that sale and deletes the money.

Hi Jamie, its Merv....look, can you see your way to buying 50 billion in UK Gilts...Id like to reduce the liquidity in the market, you know, that liquidity you needed in order to survive, and that same liquidity needed to support the PSBR...helloo..Jamie....Jamie are you there?...cuss...he's hung up.

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Assuming there is enough demand, not sure where the demand will come from, I thought the BoE was the only buyer of net new government debt, so if BoE stops buying, and starts selling, what happens when our government also tries to sell new gilts? they are going to have to undercut BoE to get any buyers ... so there is going to be higher rates whatever, unless by some miracle we run a budget surplus.

The rates would rise and the amount of debt the government could issue would go way down. Which would limit the growth of the money supply and cool inflation.

If inflation was overheating because of a booming economy, this wouldn't be painful, because the booming economy would have opportunity for people and have its own momentum.

On the other hand if we just had inflation because our economy had structural problems and was declining in competitiveness, and drowning in bureaucracy.. then such a change would be very painful, and perhaps we would start to melt down. As if demand was falling because of those cutbacks, so would tax receipts and governments ability to finance debt.. so borrowing costs would rise.

At that point the government would have a terrible choice. Continue with cutbacks and have a death spiral of falling demand, or turn back on the printing presses and have inflation go out of control. It is why although I support stimulus, I think we need structural economic reforms. Like a radical green, regulated into the ground, feminist economy will die sooner or later evn with the smartest central banker at the BoE.

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The rates would rise and the amount of debt the government could issue would go way down. Which would limit the growth of the money supply and cool inflation.

If inflation was overheating because of a booming economy, this wouldn't be painful, because the booming economy would have opportunity for people and have its own momentum.

On the other hand if we just had inflation because our economy had structural problems and was declining in competitiveness, and drowning in bureaucracy.. then such a change would be very painful, and perhaps we would start to melt down. As if demand was falling because of those cutbacks, so would tax receipts and governments ability to finance debt.. so borrowing costs would rise.

At that point the government would have a terrible choice. Continue with cutbacks and have a death spiral of falling demand, or turn back on the printing presses and have inflation go out of control. It is why although I support stimulus, I think we need structural economic reforms. Like a radical green, regulated into the ground, feminist economy will die sooner or later evn with the smartest central banker at the BoE.

its a myth. robbing peter producer to borrow from billy banker so Pricilla public Sector can buy from peter is the death spiral. peter can sell to other peters who also make useful things. the rest is a waste.

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its a myth. robbing peter producer to borrow from billy banker so Pricilla public Sector can buy from peter is the death spiral. peter can sell to other peters who also make useful things. the rest is a waste.

Very true at the end of the day that is what matters. The US had a great economy in the 1930' it was just cash starved. So when the floodgates opened the economy flowered.

Otoh in modern Britain those people who make useful things.. like coal workers, oil and gas workers, refinery workers, steel mill workers, etc.. are nearly looked at as enemies of the people. Polluters and exploiters to be barely tolerated if at all.

While lawyers, diversity consultants, bankers, climate monitors, inspectors are the heros trying to forge a new and better society.

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In this article http://www.guardian.co.uk/business/2011/jan/13/interest-rates-mpc-economists-reaction one of the 'economists' talks about the BOE reversing quantitative easing instead of raising interest rates.

How would this be done, how likely is it to happen and what effect would this have on the economy, inflation and the government's finances?

Rather like that episode of Red Dwarf were time runs in reverse, then the reversing of QE should be quite predictable:

Stock markets would fall

Precious metals would fall

Interest rates would rise (gilt market would be flooded)

Credit would seize up

One huge crash

Man devolves into homo erectus

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In this article http://www.guardian.co.uk/business/2011/jan/13/interest-rates-mpc-economists-reaction one of the 'economists' talks about the BOE reversing quantitative easing instead of raising interest rates.

How would this be done, how likely is it to happen and what effect would this have on the economy, inflation and the government's finances?

BoE cannot 'unQE' as long as this £150bn+ deficit persist. QE is not a problem in itself, it is only a problem when it prints and gives money to the government who

then give it to people who are close to the government / live off the state.

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The ability to reverse QE is why it was done instead of printing money. It is very, very easy to reverse QE if needs be.. the BoE simply sells the securities it has bought to someone, anyone. Then takes the money it gets from that sale and deletes the money.

Not that easy. Reversing QE would raise nominal interest rates (assuming no foreign buyer came in to depress yields again) so the BoE would lose money on all the bonds it has bought. Sooner or later it would have to be recapitalised.

And in any case, a more likely method is to just pay interest on the reserves created via prior QE.

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O brave new world! That has such people in it!

Yeah, the lefties loathe us in public but love our corporate and personal taxes to spend.

Ed Milliband in Copenhagen "We've 24 hours to save the world". Next scene, he's in Aberdeen with the oil company bosses doing a Sarah Palin impression:"Drill baby Drill", except that wasn't publicized was it?

What a tool.......

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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