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TheCountOfNowhere

The Unintended Consequences Of Qe.

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I wondered yesterday if Q.E. means house prices will have a 2nd dead cat bounce ( more a skim than a bounce perhaps ) as it did when the last money was printed.

Several people pointed out this also coincided with the interest rates going to 0.5%, which is a more likely savior of the housing market.

I then thought this new round of printing with it's consequence of inflation, devaluing of pound, low standard of living might actually have a positive ( i.e. down !!!! ) effect on house prices. I mean, if your standard of living is being hammered you don't pay more for the most expensive thing you ever buy. They might well be hoping for wage inflation...good luck to them it's not happening ).

So this round of free money for the banks might well help our cause.

Does anyone see that happening ?

Does anyone see any other unintended consequence ?

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Never mind about disposable income... discretionary income must be pretty much 0% or negative for a lot of people.

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What's the difference ? ( genuine question )

I always thought that disposable income was the income you had left when you'd paid all the essential bills. Apparently, that's *discretionary* income.

Disposable is how much money you have after you've paid all your taxes (I think). It doesn't include for paying things like fuel bills, housing costs, travel costs, etc.

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What's the difference ? ( genuine question )

I read it as the following:

Disposable Income - what you currently have left after all that you have spent. (ie this either goes to savings or gets spent at the end of the month)

Discretionary Expenditure - What you are currently spending that, if you chose too, you could cut if required (ie your gym membership, sky subscription)

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The HPC was moving at a snail's pace anyway. If QE sparks some more serious inflation that brings an IR hike nearer, then I'll welcome that.

Did QE or ZIRP cause the deadcat bounce - it is a good question. IIRC QE2 did little to boost house prices in the US. I can imagine we'll see a knock-on effect in London prices though.

There has been a second deadcat bounce for much of this year actually that appears to have peaked and be winding down. Anyone else spotted that?

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The HPC was moving at a snail's pace anyway. If QE sparks some more serious inflation that brings an IR hike nearer, then I'll welcome that.

Did QE or ZIRP cause the deadcat bounce - it is a good question. IIRC QE2 did little to boost house prices in the US. I can imagine we'll see a knock-on effect in London prices though.

There has been a second deadcat bounce for much of this year actually that appears to have peaked and be winding down. Anyone else spotted that?

I think the downgrading of the banks might help the interest rate cause. These banks will need to raise their rates soon to get peoples money in.

These are interesting times, excuse the pun.

Edited by TheCountOfNowhere

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I read it as the following:

Disposable Income - what you currently have left after all that you have spent. (ie this either goes to savings or gets spent at the end of the month)

Discretionary Expenditure - What you are currently spending that, if you chose too, you could cut if required (ie your gym membership, sky subscription)

Nope.

Disposable income

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Thanks - although I suspect that the number of people that are strict about using those definitions isn't very high. I'll certainly try going forward though.

It's fun being pedantic :P

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On another note, my discretionary income is about 10% of my actual salary. That means, effectively, that the coffee that costs £2 needs me to earn £20 to afford it.

It's quite an eye opener to see your discretionary spend in terms of how much you've had to earn to afford it.

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I think the downgrading of the banks might help the interest rate cause. These banks will need to raise their rates soon to get peoples money in.

These are interesting times, excuse the pun.

To my shame, I've got a sizeable amount of cash in an RBS subsidiary.

Now that they've been downgraded, I'll be reconsidering how much interest I require from them in order for me to keep lending.... I'd been meaning to move it to suitable investments/assets anyway but now I have a smartarse line to use when I go to close the savings accounts :lol:

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Having had no pay rises for a year but household spend has went up 8%, our disposable income has fallen 6%, so that 6% less into the savings each month (which is a real kick in the teeth with the interest on savings as they are) but for the spenders out there thats 6% less stuff they can buy or pay the debts down with and become savers. The recent price rises are going to bite companies on the ****, we've decided not to run the heating this winter unless its fresian and if others have our mindset then the power companies could well see a fall in revenew as they have priced themselves out of the market, for excample (I'm sure thier pricing reflects costs to a greater degree but those costs are high as a result of the BoE, what a mess they have made of the economy)

On a side not, my fiancee commented the other day that I was the 4th person who had moaned about the conservatives as in "they aren't the feking conservatives, they're the labour party by another name!!!"

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Just a quick Devils Advocate theory:

QE money the banks receive may be used by the banks property buying shell companies, to buy up houses that are defaulting on their mortgage payments.

This strategy of buying up defaulting houses should therefore slow down any great influx of repossessed properties coming on to the public market, the result being a slow controlled lowering of house prices based on affordability, as opposed to the mother of all house price crashes!

Properties the banks are buying will be rented out at a controlled market price, as of course their is scarcity of properties for sale.

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So only if the cows come home?

I've switched the gas off for now and use the fitted electic shower. If we need hot water, we boil a kettle.

gas bill, 10% of what it was last year.

I guess we'll need the central heating on soonish, but it will be going off again in March for the following 7 months.

Fec 'em.

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So this round of free money for the banks might well help our cause.

I consider QE to be deflationary, overall.

The thing is, the 'rock solid' assets (Gilts and gilt-equivalent-after-haircut-paper) could both be used in payment for big deals. They are cash-equivalent whenever the size of the deal is large. Furthermore, when they sit on a private balance sheet - they are already balanced by liabilities - but (historically, at least) have lent an air of solidity to the institution that holds them... they're assets that can be easily liquidated at near face value... which makes those institutions less likely to default... hence increasing their creditworthiness... making them more prone to balance sheet expansion... in turn facilitating significant monetary expansion.

Enter QE... this swaps out the cash-equivalent assets that bolster confidence and promote growing balance sheets... onto the balance sheet of the central bank (who, incidentally, never had any problem gaining financial credit) - and putting cash onto the balance sheets of private companies. These private companies then have cash... rather than assets... cash they can use to pay-down debts and de-leverage... and as they, or their creditors, repay bank loans... and this reduces the money supply in circulation.

QE is bad in many ways... but, provided the assets purchased by the central bank are appropriately priced... there is no inflationary effect. Conversely, it concentrates riskier assets on the balance sheets of corporates... which has to have a downwards effect on their value - which all feeds into the same deflationary spiral.

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Having had no pay rises for a year but household spend has went up 8%, our disposable income has fallen 6%

How does that work then?

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I've switched the gas off for now and use the fitted electic shower. If we need hot water, we boil a kettle.

gas bill, 10% of what it was last year.

I guess we'll need the central heating on soonish, but it will be going off again in March for the following 7 months.

Fec 'em.

Yeah that's good. Central heating will probably go on here when the wife comes home from Japan on the 18th of November. Hopefully I'll be a little warmer here now that they've put an extra layer of insulation in the roof.

It's probably just me but I find that I'm getting tighter as I get older, all I really need now is food (we've spent 20 quid a week over the past 6 months!)and money to pay utilities. Council house will be bought and paid for next year. As for clothes we have boxes of new stuff waiting to be worn....

Strangely my boss doesn't seem to be aware of this and keeps on pileing the work on, I'll probably give

it another six months before quiting and then starting a small business, one which will cover my food bill!

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How does that work then?

Because out outgoings are about but not quite 30% of income for us

so for examples sake take in last year £1000 and bills of £400 so disposable of £600

this year take £1000, bills (10% up) £440, disposable £560 (-6.6%)

Simples

Edited by zebbedee

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I wondered yesterday if Q.E. means house prices will have a 2nd dead cat bounce ( more a skim than a bounce perhaps ) as it did when the last money was printed.

Several people pointed out this also coincided with the interest rates going to 0.5%, which is a more likely savior of the housing market.

I then thought this new round of printing with it's consequence of inflation, devaluing of pound, low standard of living might actually have a positive ( i.e. down !!!! ) effect on house prices. I mean, if your standard of living is being hammered you don't pay more for the most expensive thing you ever buy. They might well be hoping for wage inflation...good luck to them it's not happening ).

So this round of free money for the banks might well help our cause.

Does anyone see that happening ?

Does anyone see any other unintended consequence ?

The bounce was around 10% so even if QE was entirely responsible for it, £75 billion would give just a 4% increase.

However, IMO the two other 'stimulus measures' - dropping BRs and the stamp duty holiday were responsible for most of the bounce (arguably the QE fed some bonuses in the city and produced a slight ripple effect within the S.E.).

Problem is after a sudden reprieve, overindebted mortgage payers have since been seeing their disposable income cut into via cost inflation coupled with negligible wage inflation - a situation that will be excacerbated with more QE (and of course this also affects those on fixed-rates and owner-occupiers with no mortgage).

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What's the difference ? ( genuine question )

Discretionary income is money the government needs you to give to the banks.

Disposable income is money the government intends to take from you to give to the banks.

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QE pushes the value of sterling down. We saw this as soon as it was announced. This makes all imported goods more expensive, including fuel. This intern makes the transporting of all goods more expensive, as well as the transportion of people.

So it may put more money into the economy, but surely that money is just lost to cost increases of all goods and services

Edited by Superted187

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  • 284 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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