Qe2 In The Uk

[thirdwave]

Looks like financial armageddon 2 is upon us and as expected calls for QE2 in the UK are getting louder, mostly from VI quarters. I cannot see how the BoE can justify any further money printing, apart from attempting to scare individuals and companies to bring spending forward by stoking inflation. I suppose there was some rationale, however perverse, underpinning the first round of QEs as guilt yields were up, inflation was below 2% and dropping, bank balance sheets were shot and LIBOR was circa 6.5% at the time. With inflation at 5%, gilt yields at all time lows and LIBOR tracking base rates now, how can the Bankrupt of England get away with a further round of asset purchases without it looking like outright monetisation of govt debt and therefore risking a run on the £?

I can see how TPTB would be tempted to throw a few 100 bln at the markets if they test the 2008 lows soon (looking increasingly likely) so would they be targeting an alternative 'distressed' asset class as opposed to gilts if it does happen? I think all that bad debt on bank balance sheets in the form of 'mortgages in forbearance' may well be next in line. As someone who is 100% in cash (after having sold all my Au for a tidy profit at £ 690/oz ) I worry that a further round of QE would defer any possibility of a HPC in nominal terms indefinitely...

What does everyone else think?How likely is QE2 in the UK??

[Terribad]

They need expectations of deflation in order to get away with it. That is the only near certainty in my mind.

So they need a lot of successful spin, or 'events', in order to allow it (IMHO). As long as we have higher than expected inflation at 5% ish, its a tough sell. The first spin attempt will be "yea but inflation is falling" when it goes to 4%, and people will actually believe that a falling rate of increase is a fall.

[mattyfc]

Snip..

What does everyone else think?How likely is QE2 in the UK??

It is a certainty, probably not till next year though. They will wait for the Eurozone to collapse and the deflationary bust that follows.

Despite our current high inflation it looks rather likely that we will see a 2008 redux with commodity prices falling off a cliff as global demand collapses.

I would guess the first six months of next year, although at this rate it could be even sooner.

[kenzdawg]

The cue would have to come from America. QE3 there would surely trigger a round of competitive devaluation here.

[Terribad]

remember that last time it was the suggestion that QE2 MIGHT happen that sent stock prices to the moon, and the actual printing announcement came about 5 months after.

[thirdwave]

They need expectations of deflation in order to get away with it. That is the only near certainty in my mind.

So they need a lot of successful spin, or 'events', in order to allow it (IMHO). As long as we have higher than expected inflation at 5% ish, its a tough sell. The first spin attempt will be "yea but inflation is falling" when it goes to 4%, and people will actually believe that a falling rate of increase is a fall.

They were already discussing it at last month's MPC with RPI well over 5%. Also, creating inflation is not the stated objective of QE..last time round, it was to reduce gilt yields and LIBOR in order to ease up the credit freeze. Given how commodity prices have climbed over the last 18 months , we are unlikely to see a significant drop in inflation (to 3% or below) in the near term- the MPC know this so they must be thinking of a different excuse..

[Butthead]

...how can the Bankrupt of England get away with a further round of asset purchases...

Because everyone else will be doing it too.

[thirdwave]

It is a certainty, probably not till next year though. They will wait for the Eurozone to collapse and the deflationary bust that follows.

Despite our current high inflation it looks rather likely that we will see a 2008 redux with commodity prices falling off a cliff as global demand collapses.

I would guess the first six months of next year, although at this rate it could be even sooner.

Now where have I heard that before..

I think the TPTB will not allow a deflationary bust due to the massive overhang of private and public debt in the Western world..This would most likely involve a lot a money printing but the question is how will they go about it (short of sending everyone £ 100 shopping vouchers a la Japan). Any obvious attempt to QE our way out of debt will thrash the £ completely and I am not convinced the BoE/government are quite prepared (yet) for such an eventuality...

[thirdwave]

Because everyone else will be doing it too.

Hmm..But that would lead rapidly to this

(hyperinflationary collapse)

As I said, I don`t think the authorities are eady for that just yet (or maybe its wishful thinking)

[R K]

They're going to get 'hugo chavez' on the banks' ass.

They don't need to force rates lower they need to get households out of their hole and credit back into the economy.

[interestrateripoff]

Selling QE either in the UK or US is going to be very difficult especially if the same elite group benefit again.

They are going to have give money to the people. This will probably create a very big boost to the economy, but it will be short lived and then we can have calls for more printing.

The only solution is kill the credit bubble and move on. It will be painful however it won't be anywhere near as painful as the one that's coming because they won't allow the economy to rebalance.

[thirdwave]

Selling QE either in the UK or US is going to be very difficult especially if the same elite group benefit again.

They are going to have give money to the people. This will probably create a very big boost to the economy, but it will be short lived and then we can have calls for more printing.

The only solution is kill the credit bubble and move on. It will be painful however it won't be anywhere near as painful as the one that's coming because they won't allow the economy to rebalance.

Just watching Bloomberg..QE3 has been mentioned by several commentators in the last hour with some predicting an announcement by Bernanke before Friday next week, despite the fact that inflation is significantly up in the US this month..

[Terribad]

They were already discussing it at last month's MPC with RPI well over 5%. Also, creating inflation is not the stated objective of QE..last time round, it was to reduce gilt yields and LIBOR in order to ease up the credit freeze. Given how commodity prices have climbed over the last 18 months , we are unlikely to see a significant drop in inflation (to 3% or below) in the near term- the MPC know this so they must be thinking of a different excuse..

I should have been clearer. I meant the market's expectation, not the MPC's phoney expectations.

[interestrateripoff]

Just watching Bloomberg..QE3 has been mentioned by several commentators in the last hour with some predicting an announcement by Bernanke before Friday next week, despite the fact that inflation is significantly up in the US this month..

The junkies need their fix.

There appears to be panic spreading.

[DTMark]

Because everyone else will be doing it too.

+1

Except, it won't quite be "everybody". The US will go for another round despite what China thinks, and we'll follow. It is not, however, the entire world that's in the mire despite the "world recession" nonsense. I remember that line being touted in the 1990s too.

Higher inflation is not only to be tolerated, but desired by those in charge.

What the longer term effects of any action might be are not relevant when the entire economy is going to Hell in a handbasket, if it's the only option seen to be on the table which is politically palatable and/or acceptable to the bankers, then that's what will happen.

They have no more idea about inflation in the future than they have about how to "unwind" the 200bn they've already printed.

The case against suggests that the consequences might be dire, but regardless of the spin put out (safe haven and all that) the outcome will be dire anyway without growth. We'll be a safe haven until we're suddenly not a safe haven any more. Like Greece, the writing was on the wall but all of a sudden, there's a "crisis". Which anyone could have seen coming. Which many on this forum saw coming since c. 2004.

And I have yet to see anyone including Osborne who can explain where growth is going to come from.

[DTMark]

Just spotted this little gem:

Government must count £35bn in PFI debt

The cost of private finance initiatives (PFI) should be fully accounted for by all Government departments - in a move that would push the national debt figure up by £35bn.

http://www.telegraph...n-PFI-debt.html

A nice round figure. Perhaps the tip of the iceberg?

Edited August 19, 2011 by DTMark

[aa3]

As you know I have been one of the biggest supports of QE. (although in fairness my call was to give it equally to all citizens, instead of to the richest 0.1% of the population).

But I think it would be very hard for the BoE to get away with QE right now. And honestly not needed. We've got the inflation way above the rate of secured investments.. so that is reducing the real value of the outstanding debt each year.

In the USA we could see it because there is a real chance the US could slip back into deflation. House prices there seem to be heading down more, oil finally came off its highs, demand the big driver of inflation looks weak.

A scenario I could see happening is over the coming months the annual rate of inflation yoy sharply falling, which could set the BoE for another round early in 2012.