Bo E Shocker: 7:2 Against A Hike

[Realistbear]

http://uk.reuters.com/article/2011/06/22/uk-bank-idUKTRE75L1CN20110622

(Reuters) - The Bank of England's Monetary Policy Committee judged the growth outlook had weakened and some members raised the possibility of future quantitative easing, minutes to its June 8-9 meeting showed on Wednesday.

From here on things will be getting very nasty. Its payback time folks.

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

So where from here?

Higher IR, falling demand, higher unemployment, lower wages, crashing house prices.......................

Deflation cometh

[VeryMeanReversion]

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

Yet HSBC are still offering base rate trackers (base+1.89%). Someone is still prepared to lend at BoE linked rates.

[MrFlibble]

These spinning plates are starting to wobble badly, cannot be long now before one comes crashing down, and the printing press gets fired back up

[Thane Tasker]

I want people to really think about this question. cui bono?

[Harry North]

Surely it is QE 2 now, same as in the US

[Djini]

Yet HSBC are still offering base rate trackers (base+1.89%). Someone is still prepared to lend at BoE linked rates.

Actually First Direct (essentially HSBC) is offering base+1.49% for 2 years (£999 fee).

I'm seriously thinking of pulling the trigger on that for my £70k Mortgage.

[A.steve]

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

But... do they?

Are we talking about the same interest rates?

I've read about the 'stratospheric' interest rates in the early 1990s - and didn't really understand what was supposed to have happened then... or - maybe - I understand - but don't really believe.

I do not see why bond prices necessarily dictate central bank base rates. I don't even see why short-term rates (LIBOR, for example) should correlate strongly with bond yields. Sure, I understand yield curves - and how an excessively steep slope yields a tendency for arbitrage... but - if central banks chose - they could keep their rates far lower than that we'd traditionally have inferred from bond prices... and control things by the amount of credit they issue not the rates they charge.

I don't see why the central bank base rate had to climb so high in the crisis of '92. I understand that the government borrowed £16bn unexpectedly and was charged an arm and a leg for doing so... but I don't see why that one-off shock required central bank interest rates to follow suit... and definitely not as quickly as they did.

Similarly, today, I see no reason in principle why bond prices couldn't become detached from central bank base rates... and the difference be considered the risk premium.

Perhaps you mean that retail borrowing rates are determined by the bond markets - and I'd agree - but that's always been the case.

[Errol]

Surely it is QE 2 now, same as in the US

2? 3, surely?

Either way, this is the titanic and all hands are going down with the ship ...

[JaneTracy]

I was reading about this earlier and thought it was put nicely here.

The Monetary Policy Committee Minutes

These latest minutes just released have shown that we are further away from an interest-rate rise as the new member Ben Broadbent voted for unchanged policy. As I mull over the idea of an ex-employee of Goldman Sachs voting for no change to the current – very beneficial for Goldman Sachs- status quo I am reminded of the quote from Turkish in the film Snatch.

Who’d da thunk it?

http://t.co/H4Z3Mha

There were also some interesting thoughts on problems with the UK's public-sector finances from the figures released yesterday...

[rantnrave]

I don't see why the central bank base rate had to climb so high in the crisis of '92. I understand that the government borrowed £16bn unexpectedly and was charged an arm and a leg for doing so... but I don't see why that one-off shock required central bank interest rates to follow suit... and definitely not as quickly as they did.

To defend the £'s value in the Exchange Rate Mechanism, the forerunner to the Euro. It could only trade between certain values against a basket of currencies including the Deutsche Mark and was dropping through that floor.

[Democorruptcy]

http://uk.reuters.com/article/2011/06/22/uk-bank-idUKTRE75L1CN20110622

(Reuters) - The Bank of England's Monetary Policy Committee judged the growth outlook had weakened and some members raised the possibility of future quantitative easing, minutes to its June 8-9 meeting showed on Wednesday.

From here on things will be getting very nasty. Its payback time folks.

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

So where from here?

Higher IR, falling demand, higher unemployment, lower wages, crashing house prices.......................

Deflation cometh

You started this thread at 10:19 when at 10:01 a thread was already here

http://www.housepricecrash.co.uk/forum/index.php?showtopic=165543

Can't you at least look at the first page before you start a new repititive thread or do you have some sort of long running bet on who can start the most threads?

Mods merge?

[Traktion]

But... do they?

Are we talking about the same interest rates?

I've read about the 'stratospheric' interest rates in the early 1990s - and didn't really understand what was supposed to have happened then... or - maybe - I understand - but don't really believe.

I do not see why bond prices necessarily dictate central bank base rates. I don't even see why short-term rates (LIBOR, for example) should correlate strongly with bond yields. Sure, I understand yield curves - and how an excessively steep slope yields a tendency for arbitrage... but - if central banks chose - they could keep their rates far lower than that we'd traditionally have inferred from bond prices... and control things by the amount of credit they issue not the rates they charge.

I don't see why the central bank base rate had to climb so high in the crisis of '92. I understand that the government borrowed £16bn unexpectedly and was charged an arm and a leg for doing so... but I don't see why that one-off shock required central bank interest rates to follow suit... and definitely not as quickly as they did.

Similarly, today, I see no reason in principle why bond prices couldn't become detached from central bank base rates... and the difference be considered the risk premium.

Perhaps you mean that retail borrowing rates are determined by the bond markets - and I'd agree - but that's always been the case.

Largely, I would agree - we are now at/near debt saturation point, so having low rates is hardly going to drive mass credit creation. If anything, they will print more with QE to counterbalance some of the credit contraction and to keep a lid on gilt prices, IMO. Ofc, this debasement won't be good for buying power, but I don't see where any runaway credit inflation is going to come from - everyone (via the banks) is already tapped out.

I just see a long period of lower living standards, due to cost-push inflation (both from more external demand and currency debasement). EDIT: Much like Japan and their lost decade, in fact.

Edited June 22, 2011 by Traktion

[exiges]

This will just push inflation up further right ? As the food, fuel etc. we import has just got more expensive.

http://community.nasdaq.com/News/2011-06/forex-pound-drops-weighed-by-dovish-boe-minutes.aspx?storyid=81902

The Pound is giving away previous gains and dipping to fresh day lows against its main rivals after dovish BoE minute, where some voices called for a GBP 50 billion expansion of the Bank's "Quantitative easing" programme.

GBP/USD recovery from 1.6075 lows last week has capped at 1.6260, and the pair pulled back to day lows at 1.6145 after BoE minutes, while the EUR/GBP bounced at 0.8855 to reach fresh 8-daty highs at 0.8915, and GBP/JPY retreat from day highs at 130.55 has extended below 130.00 to day lows at 129.50.

The BoE Monetary Policy Committee approved the decision to leave rates at 0.5% by 7 votes to 2, with Adam Posen calling for a 5GBP 50 billion expansion of the Bank's "Quantitative easing" programme.

Read more: http://community.nasdaq.com/News/2011-06/forex-pound-drops-weighed-by-dovish-boe-minutes.aspx?storyid=81902#ixzz1Q09R2vD5

[R K]

7:2 at close to the peak in the CPI cycle.

One might have thought people had got the message by now.

[Conrad]

Time to buy a house?

[General Congreve]

7:2 at close to the peak in the CPI cycle.

One might have thought people had got the message by now.

Many have got the message. I don't think today's chart showing a new all-time high in pounds sterling is purely coincidence.

RB is right. Deflation cometh, if your currency is gold of course.

Edited June 22, 2011 by General Congreve

[nohpc]

http://uk.reuters.com/article/2011/06/22/uk-bank-idUKTRE75L1CN20110622

(Reuters) - The Bank of England's Monetary Policy Committee judged the growth outlook had weakened and some members raised the possibility of future quantitative easing, minutes to its June 8-9 meeting showed on Wednesday.

From here on things will be getting very nasty. Its payback time folks.

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

So where from here?

Higher IR, falling demand, higher unemployment, lower wages, crashing house prices.......................

Deflation cometh

I don't understand this.

Greece will have to pay very high rates to re-finance it's bonds but it is still on Eurozone rate of 1.25% (so people on tracker mortgages must be having a very nice time).

[Ash4781]

The mpc are giving out mixed and confusing signals. It will end in tears

[General Congreve]

http://uk.reuters.com/article/2011/06/22/uk-bank-idUKTRE75L1CN20110622

(Reuters) - The Bank of England's Monetary Policy Committee judged the growth outlook had weakened and some members raised the possibility of future quantitative easing, minutes to its June 8-9 meeting showed on Wednesday.

From here on things will be getting very nasty. Its payback time folks.

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

So where from here?

Higher IR, falling demand, higher unemployment, lower wages, crashing house prices.......................

Deflation cometh

Just to clarify RB, you are confusing the gilt market with a free market. They are talking about more QE (which means it will happen), so you can forget the notion of bond vigilantes forcing up interest rates. For every gilts sold by a 'vigilante' QE will be magicked from thin air by the BoE and they will buy that gilt, thereby creating the necessary demand to keep interest rates low.

They will cry it is not inflationary, because at some unspecified time in the future the will sell the bonds back into the market at the same price and the newly created money will be cancelled out, so it is a zero sum game. But if there isn't demand for the debt now, what do you think the likelihood will be in the future, when even more debt has been created to plug the gaps in the UK's finances?

Ergo, they will never be able to sell these bonds back into the market at the value they bought them for. So the money they have created to buy them will stay in the system. So they might as well be printing up directly to fund the deficit and cut out the bullsh1t.

ZIRP is inflationary and QE is a tool of maintaining ZIRP which is inflationary as of itself.

They will use these tools to continue to support asset prices and fund government expenditure. Can you really see our government saying, "Sorry, we're slashing pensions, closing hospitals and old people's homes, cutting teachers etc. and by the way, you've got no savings left cos we let the banks collapse". They'd be riots.

Christ, they can't even get the public sector to retire a couple of years later and pay the equivalent contributions as private sector workers towards retirement. If the public won't swallow the cuts, then they'll just have them forced on them via inflation. Same difference.

The future is inflationary.

[LiveAndLetBuy]

...

BTW--the BoE have no control over the bond market--THEY determine our IR from here on in. And of course Merv and the rest know that and will not have to be the ones to do the necessary.

So where from here?

Higher IR, falling demand, higher unemployment, lower wages, crashing house prices.......................

Deflation cometh

Except when the next round of QE takes place and the BoE once again IS the bond market.

[neil324]

Except when the next round of QE takes place and the BoE once again IS the bond market.

True, but the markets will respond by pricing Sterling accordingly.

[Sour Mash]

I do not see why bond prices necessarily dictate central bank base rates. I don't even see why short-term rates (LIBOR, for example) should correlate strongly with bond yields. Sure, I understand yield curves - and how an excessively steep slope yields a tendency for arbitrage... but - if central banks chose - they could keep their rates far lower than that we'd traditionally have inferred from bond prices... and control things by the amount of credit they issue not the rates they charge.

It's not rocket science. If you are in the market to buy Sterling debt and the government is effectively offering X percent interest then you are going to want > X% to buy sterling debt from (i.e. lend sterling to) third parties. And if the economy is shagged, as it is, you'll want quite a bit more than X% as a risk premium on private sector lending. This is because lensing to a government in control of a sovereign currency is essentially 'risk free' regarding whether you get back the nominal amounts promised. You of course have risk of inflation wiping out your return but then you have exactly the same risk of inflation with lending to the private sector as you are using the same currency.

High bond yields therefore cause higher interest rates.

[General Congreve]

True, but the markets will respond by pricing Sterling accordingly.

Exactly, see here on today's 7:2 announcement. But that is what they want, to devalue the debt. It's just an 'unfortunate' side effect that the entire population see their wealth and earnings destroyed in the process.

EDIT: Here's the latest chart too, seems the announcement has made quite a splash in the markets!

Edited June 22, 2011 by General Congreve