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Mpc Decision Is...no rate increase


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Yes it did work in late 2009 - 2010. House prices went up alot.

Not so fast.

It was combined with a) massive bank bailouts and b ) slashing of interest rates.

This time QE2 of 1/3rd of QE1, no UK bank bailouts and no cutting of rates. And cuts in public sector.

Edited by Killer Bunny
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BOE statement copied from zerohedge

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.

The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.

In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.

CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.

Edited by swankyman
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Buying more bonds - not actually doing anything apparently practical with the 75 billion.

Edit:

Looks like they are trying to put off a liquidity issue for UK banks, but I think it is a month too early. If Greece goes into meltdown people will forget about this 75 billion and will be demanding even more then.

But, hey, what do I know.

Edited by The Masked Tulip
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They're not trying to shift house prices from £148k avg. to £165k avg as they were in '09 when they and the banks were collapsing.

They're trying to keep them more or less level nominally I would suggest (See Grantley Shapps for details) and allow inflation to eat away at the real prices.

This is completely consistent with all their other efforts.

The nominal lows were quite clearly in during the panic Q1 '09. That's the reality.

In 4 months, and in the absence of any further QE down the line, they'll have a balance sheet of £275billion of gilts they can unwind to tighten policy before they even start on interest rate hikes (although I suspect they may eventually raise a little to start with before they use gilt sales).

Edited by Red Knight
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it really is crazy. its breaking the fundamental rules of what an economy is.

if the price of risk goes up what do they do? rather than reduce risk, they simply change the measurement of the risk so that it doesnt look so bad anymore.

what is the real value of bonds, risk, shares, money, no one knows, thats why things are so errartic, becuase its no longer a market, its just distorting the market, the money markets are artificial.

the short term impact pales into insignificance to the overall impact. its no different to how the soviet union would intervene in a social economy.

its breaking all the rules, and now its no longer a shock, its considered the norm. now thats worrying - people have completely lost sight of what an economy is.

Edited by mfp123
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BBC FTSE chart shows a vertical line upwards after midday...

banks have to do soemthing with their new money,...traders know this and buy in, theyll sell whent he banks move in with their printed money.

course, no extra real business will be done in the UK, but the price of the firms DOING business will rise.

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In a way, I'm glad they're willing to push the fiat experiment to its natural conclusion. It's only going to happen once in my lifetime, and the sooner we get it over with the sooner we can get back to things like 30somethings living in family houses and toasters for British people being made in Britain.

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In a way, I'm glad they're willing to push the fiat experiment to its natural conclusion. It's only going to happen once in my lifetime, and the sooner we get it over with the sooner we can get back to things like 30somethings living in family houses and toasters for British people being made in Britain.

I prefer German toasters.

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Only 38 comments so far to the news story on the BBC. Judging by those responses no one seems to like it (unless all the replies were HPC'ers). If it's only bankers, politicians and finance journalists who think QE is a good idea then how can we be doing this again when the electorate has rumbled this is stealing from their wallet?

My favourite comment was "When your only tool is a hammer every problem looks like a nail."

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it is just ridiculous.

theyre not pumping money into the economy. theyre buying bonds to give cash to institutions. but those institutions are just holding onto their money, buying bonds again.

thats driven down bond yields to ridiculous levels. the money isnt going anywhere but back into the bond markets. we have a bond market bubble.

and people say, well it can be reversed, they can undo it - unlikely, as soon as growth returns, interest rates will rise, and the cost of borrowing will rise. if they sold back bonds to take money out the economy, the cost of borrowing would rise massively in a double whammy - stifling the growth, so politically theyre not going to do it.

so as soon as the economy recovers, by undoing the QE, you essentially stop the growth from happening.

theyre just digging a hole thats going to bite us in a massive way later on.

Edited by mfp123
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CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.

They know QE will put upward pressure on inflation, yet their forecast for inflation, which has been wrong for years, is <2%. Lies, lies and more lies. The weaker £ will push up import prices including essentials like energy and food whilst the old stock of plasma tv's will have a deflationary effect. They have no idea what they are doing and can only guess what the consequences will be. If this was anything to do with inflation they would have waited for the next CPI/RPI figures before doing this.

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In a way, I'm glad they're willing to push the fiat experiment to its natural conclusion. It's only going to happen once in my lifetime, and the sooner we get it over with the sooner we can get back to things like 30somethings living in family houses and toasters for British people being made in Britain.

...and smallpox, rickets and 2 years of retirement before dying. Welcome to the world of HPC desire.

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  • 433 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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