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Quantitive Easing - Thoughts

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http://www.housepricecrash.co.uk/newsblog/2011/09/blog-merv-has-marked-his-own-homework-and-he-got-a-34723.php

8. panda said...@Mark Wadsworth, i am interested in your perception of QE; you seem to think it is "NOT" printing money, whereas ia m of the understanding that it is printing money, so we differ not in agreement, but my understanding, if you are correct, all the better, but can you convince me about QE UK STYLEEEEEE......

The way i understand it is, the BoE magic some money out of thin air, create some digital numbers on a screen, digitally print some money. They go to the market and buy up some GILTS. These GILTS were originally sold to the market to raise funds for the goverment to spend, this money has been spent. In the original form, when these GILTS mature, the DMO would redeem the origanal purchase price with funds raised from taxes. So the government borrowed money to spend, then paid back the money through income. But with QE they buy the GILTS with new money, non debt backed money, created out of nothing. So digitally pinted money. When the BoE buy these GILTS though QE, they hold them until maturity, so they do nott have to redeem the origianl purchase coupon price, so they do not have to pay for the redeemed GILT through raised tax revenue. So they have created money out of thin air as they do not have to redeem the GILT coupon price at maturity etc etc.......

9. mark wadsworth said...Panda, the books always have to balance. This is not my perception this is cold hard fact which you can trace for yourself by looking at accounts of BoE and commercial banks.

1. Remember: the UK government, the BoE, the Debt Management Office, HM treasury are all part of the same thing. If you own a gilt, it does not really matter whether it says BoE or HM Treasury as issuer - they are all back by the UK govt.

2. Day One - DMO has borrowed £x billion and has issued bits of paper saying "IOU £x billion".

3. Day Two - the BoE "buys back" £y billion's worth of bits of paper and credits the sellers (mainly commercial banks) with £y billion to their current accounts with BoE.

4. The BoE can now chuck the bits of paper in the skip, they are merely a record that one dept of HMT owes another department of the treasury £y billion, so they net off to nothing.

5. If you are a bank, on Day One, you had bits of paper confirming that the UK government (via DMO) owes you £y billion.

6. On Day Two, you have a bit of paper (or its electronic equivalent) confirming that the UK government (via BoE) owes you £y billion.

7. All that has changed is that the original £y billion gilts weren't due to be redeemed for five or ten years, so they paid 3% or 4% interest and the electronic balances pay 0.5% interest but you could in theory withdraw the money overnight with no risk of gilt prices falling.

8. The whole thing is about as exciting as you taking a £10 note to the bank and paying it into your account. You give up one bit of paper worth £10 which you can spend or save with an extra £10 in your bank accounts which you can spend or save of indeed withdraw and convert back into a good old £10 note.

9. PS, the US style QE was different in that they are so corrupt they overpaid wildly for mortgage backed cr4p, that was outright fraud on a grand scale, UK QE was very modest fraud on an acceptable level.

18. ontheotherhand said...MW and panda I am trying to follow this. I must say it does seem like new money has been created.

"3. Day Two - the BoE "buys back" £y billion's worth of bits of paper and credits the sellers (mainly commercial banks) with £y billion to their current accounts with BoE."

OK so the commercial banks had a bit of paper, a bond, that gave them a right to be paid cash in the future, a call on our future money. Now they have cash immediately.

"4. The BoE can now chuck the bits of paper in the skip, they are merely a record that one dept of HMT owes another department of the treasury £y billion, so they net off to nothing."

Hmmm. No I don't think so. The goverment was going to have to pay back the principal on the bond in the future out of future taxes, and instead it has paid it back today with newly created cash, stuff that didn't come from taxes or from anywhere else in the economy. Solve the puzzle of understanding this by reducing it to the absurd. Imagine the government did QE for the entire existing national debt out there. They would buy it all back instantly with new cash they create. They would therefore have no future pending obligations to pay anything out of future taxes. We would have zero debt without having produced anything new. Where did that reduction in our liabilities come from?

Why don't we just privatise this ability? The government would send me a tax demand for money I owe them by December, and instead of waiting until then and paying them out of income, I create some zeros on a computer and send them new cash instantly. Great.

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http://www.housepricecrash.co.uk/newsblog/2011/09/blog-merv-has-marked-his-own-homework-and-he-got-a-34723.php

8. panda said...@Mark Wadsworth, i am interested in your perception of QE; you seem to think it is "NOT" printing money, whereas ia m of the understanding that it is printing money, so we differ not in agreement, but my understanding, if you are correct, all the better, but can you convince me about QE UK STYLEEEEEE......

The way i understand it is, the BoE magic some money out of thin air, create some digital numbers on a screen, digitally print some money. They go to the market and buy up some GILTS. These GILTS were originally sold to the market to raise funds for the goverment to spend, this money has been spent. In the original form, when these GILTS mature, the DMO would redeem the origanal purchase price with funds raised from taxes. So the government borrowed money to spend, then paid back the money through income. But with QE they buy the GILTS with new money, non debt backed money, created out of nothing. So digitally pinted money. When the BoE buy these GILTS though QE, they hold them until maturity, so they do nott have to redeem the origianl purchase coupon price, so they do not have to pay for the redeemed GILT through raised tax revenue. So they have created money out of thin air as they do not have to redeem the GILT coupon price at maturity etc etc.......

The Bank of England is not planning to hold the gilts to maturity, but to sell them when the economy improves so as to take the new money back out of circulation. So they are creating new money, but only temporarily and reversibly.

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QE is essentially a tax on the money supply, those whom hoard it lose value.

The only problem is where it goes.

Surely it would be better to give the money to me to work, than to prop up the banks.

They could say to me, "Unemployed person, you need to do something with your life, here is some money, you can have £6 an hour, but only if you repair that pot hole/lay some bricks/dig some foundations/paint that wall etc."

I'm coming up to 25 next year, and I'll have signed on cumulatively for a year, that's 2000 hours of labour lost to history. You need less than 1000 hours of labour to build an house.

It's not that I can't do anything productive, it's the fact that there is no incentive for me to do so, or demand from employers for me to do so. And lets face it, starting a business probably isn't the best idea right now, when you've no capital yourself to keep it running while the economy picks up, and sod all demand.

Better to pay a man to sit idle, than to work blink.gif

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The Bank of England is not planning to hold the gilts to maturity, but to sell them when the economy improves so as to take the new money back out of circulation. So they are creating new money, but only temporarily and reversibly.

A bit like income tax which was a temporary measure which kept getting abolished and reinstated until it became permanent.

Luckily we have backed up this printing of money with productivity increases across the whole economy...

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It IS printing.

sure the books balance..thats double entry bookkeeping.

but, they didnt borrow the new money into existence, and they havent monetised a thing for a loan..they have purchased the thing...thats the difference...a purrchase, rather than a monetisation.

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Vince Cable (business Secretary) just said on Radio 4 PM: "QE is the best possible option ... "

Printy Printy it is :ph34r:

Was walking through Birmingham last night, met Danny Alexander, had a brief chat, but i was eight pints to the wind, had my pic taken with him though! Real nice guy, down to earth, waited a while while Ms Panda managed to navigate her IPhone camera, which was a good while................

Funny really LibDem conference, the costs must be massive to stage such an event, security, policing, hotels, drinking eating, totty everywhere. Seen Nick Robinson, Frost off Channel Four, even seen Brillo head off This Week............

Edited by Panda

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Only 88 pages.............

Ah…that's before the document was quantatively eased. It now runs to 556 pages, but strangely is the same thickness.

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Was walking through Birmingham last night, met Danny Alexander, had a brief chat, but i was eight pints to the wind, had my pic taken with him though! Real nice guy, down to earth, waited a while while Ms Panda managed to navigate her IPhone camera, which was a good while................

Funny really LibDem conference, the costs must be massive to stage such an event, security, policing, hotels, drinking eating, totty everywhere. Seen Nick Robinson, Frost off Channel Four, even seen Brillo head off Tonight.....................

He is an expense fiddler.

http://www.telegraph.co.uk/news/newstopics/mps-expenses/liberal-democrat-mps-expenses/7787519/Danny-Alexander-new-Treasury-chief-avoided-capital-gains-tax-on-house.html

Tesco & Asda are some of the conference sponsors.

http://www.thewestmorlandgazette.co.uk/news/9261067.Tim_Farron__I_don_t_want_to_be_Lib_Dem_leader/

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Would not fiddle myself, but if someone can avoid they will, i know in office you have to be either stupid or willing to risk public opinion, so looks like the latter, took the risk, paid off i guess, or know more at the next election?

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The Bank of England is not planning to hold the gilts to maturity, but to sell them when the economy improves so as to take the new money back out of circulation. So they are creating new money, but only temporarily and reversibly.

No they will hold till maturity, no doubt.........

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http://www.housepricecrash.co.uk/newsblog/2011/09/blog-merv-has-marked-his-own-homework-and-he-got-a-34723.php

9. mark wadsworth said...Panda, the books always have to balance. This is not my perception this is cold hard fact which you can trace for yourself by looking at accounts of BoE and commercial banks.

1. Remember: the UK government, the BoE, the Debt Management Office, HM treasury are all part of the same thing. If you own a gilt, it does not really matter whether it says BoE or HM Treasury as issuer - they are all back by the UK govt.

2. Day One - DMO has borrowed £x billion and has issued bits of paper saying "IOU £x billion".

3. Day Two - the BoE "buys back" £y billion's worth of bits of paper and credits the sellers (mainly commercial banks) with £y billion to their current accounts with BoE.

4. The BoE can now chuck the bits of paper in the skip, they are merely a record that one dept of HMT owes another department of the treasury £y billion, so they net off to nothing.

5. If you are a bank, on Day One, you had bits of paper confirming that the UK government (via DMO) owes you £y billion.

6. On Day Two, you have a bit of paper (or its electronic equivalent) confirming that the UK government (via BoE) owes you £y billion.

7. All that has changed is that the original £y billion gilts weren't due to be redeemed for five or ten years, so they paid 3% or 4% interest and the electronic balances pay 0.5% interest but you could in theory withdraw the money overnight with no risk of gilt prices falling.

8. The whole thing is about as exciting as you taking a £10 note to the bank and paying it into your account. You give up one bit of paper worth £10 which you can spend or save with an extra £10 in your bank accounts which you can spend or save of indeed withdraw and convert back into a good old £10 note.

9. PS, the US style QE was different in that they are so corrupt they overpaid wildly for mortgage backed cr4p, that was outright fraud on a grand scale, UK QE was very modest fraud on an acceptable level.

What holes can you pick in this account, he is an accountant, and seems convinced this rings true. Investigations prove this to be the case.

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What holes can you pick in this account, he is an accountant, and seems convinced this rings true. Investigations prove this to be the case.

he forgets the cash the bank gave to the Government....that money is stays in the system to be spent on Salaries, broken computer projects and war.

The bank cashes in the Gilt for the money it lent.

we now have 2 x the original loan in the system.

No QE, and the BoE would have LENT the extra money into the system. The money would come back out to the BoE as the bank paid it back.

with QE, the BoE GAVE the extra money into the system. The money STAYS in the system.

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You need IMO to define what money is. To assist with that, answer my questionairre below:

You have promised to buy your wife a car for her birthday in 7 days time which will cost 18K. You have one of:

a) 20K in insured bank current account

B) 20K in 1 year gilts (or substitute your local government as required)

c) 20K cash in a suitcase

d) 20K in 10 year gilts

e) 20K in Apple shares

In the above situations how confident are you that come 7 days time you can walk in to the dealer and do the deal?

Now multiply all the numbers by 100 million and imagine you are a CEO preparing to purchase a rival company and answer the same question.

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From what I have been led to believe, the money from QE is just being used to fill the black hole created by the great overspend we have had for the last 14 years.

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You need IMO to define what money is. To assist with that, answer my questionairre below:

You have promised to buy your wife a car for her birthday in 7 days time which will cost 18K. You have one of:

a) 20K in insured bank current account

B) 20K in 1 year gilts (or substitute your local government as required)

c) 20K cash in a suitcase

d) 20K in 10 year gilts

e) 20K in Apple shares

In the above situations how confident are you that come 7 days time you can walk in to the dealer and do the deal?

Now multiply all the numbers by 100 million and imagine you are a CEO preparing to purchase a rival company and answer the same question.

Actually you've got to buy the missus a car for 18k next week and you've got sweet ****** all.

Your best mate Mervyn swaps you one of your "i am stony broke" notes for legal tender so you can.

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You need IMO to define what money is. To assist with that, answer my questionairre below:

You have promised to buy your wife a car for her birthday in 7 days time which will cost 18K. You have one of:

a) 20K in insured bank current account

B) 20K in 1 year gilts (or substitute your local government as required)

c) 20K cash in a suitcase

d) 20K in 10 year gilts

e) 20K in Apple shares

In the above situations how confident are you that come 7 days time you can walk in to the dealer and do the deal?

Now multiply all the numbers by 100 million and imagine you are a CEO preparing to purchase a rival company and answer the same question.

A or C but the best deal of all would be the husband. :D

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  • 335 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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