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Giordano Bruno

Mark Carney May Have To Relaunch Qe

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'I'm not addicted. I can stop any time.'

Mark Carney may have to relaunch QE

Mr Clarke said: “The Bank issued forward guidance to nurture the recovery. If the market undermines it, I don’t think they’ll hesitate to send more smoke signals out at the very least, or flex their muscles and do more QE. If the Governor moves, he’ll probably bring several of the committee with him.”

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Just in case anyone was still under the illusion that we live in a market economy.

Yes, I'm far from financially literate but that jumped out even to me. Unbelievable.

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Yes, I'm far from financially literate but that jumped out even to me. Unbelievable.

The market is to be lauded when it does exactly as you want it to.

Shows what a tight spot we are in, yields are becoming a problem to be dealt with and they are at levels seen two years ago, still well down on 'normality'. But, we're £250Bn + deeper the debt hole since then, with no end in sight.

The 'rescue to recovery' meme is tragic, I wonder if anyone believes it?

edit wrong word.

Edited by cheeznbreed

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Who benefits from QE?

The banks.

Who can push the rates up and force more QE?

You guessed it......

What exactly is the point of the central bank if it is controlled by all the others?

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Some alternative thinking from a BBC journalist for once, not that I agree with her on everything in it.

I'm not sure about this 'clarity' of forward guidance. Forward guidance tells us nothing new. We know all about the 'clarity' of the UK authorities position of wanting to keep house prices high, and support debtors, via their policy actions. To keep all the boom gains in housing and not allowing savers, or the young, to have any look in, but instead find ways to help them 'afford' high prices with extra debt. My job in the market is to push against that, not conform.

So, why aren't the markets buying it? In fact, in the UK's case, sterling strengthened and shares fell, the precise opposite reaction to what would be expected if the forward guidance were persuasive.

Investors are acting not as if rates will stay low for, say, three years, but rather that they may go up sooner than that.

http://www.bbc.co.uk/news/business-23699668

Yesterday's FT, suggesting markets won't just be marching to whatever the BoE wants with its desire for 'price-stability'. Also indication market participants sensing some weakness in forward guidance from the MPC in the minutes.

“Forward guidance is hardly worth the paper its written on. What does it add to the party? I’m afraid rates will be rising long before mid-2016,” said Nick Beecroft, senior market analyst of Saxo Capital Markets.

IMO only the largest economies can give forward guidance. US, maybe the EU. China and Japan maybe below the threshold. The UK economy is more influenced by what the world does than we influence the world.

So forward guidance for the UK is useless. Unless it is of the form "we will not raise rates unless the US raises rates/some external event forces us to raise rates", which everyone knows anyway.

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Some alternative thinking from a BBC journalist for once, not that I agree with her on everything in it.

I'm not sure about this 'clarity' of forward guidance. Forward guidance tells us nothing new. We know all about the 'clarity' of the UK authorities position of wanting to keep house prices high, and support debtors, via their policy actions. To keep all the boom gains in housing and not allowing savers, or the young, to have any look in, but instead find ways to help them 'afford' high prices with extra debt. My job in the market is to push against that, not conform.

Common misconception but the wrong way around.

Central banks have been supporting creditors. Bank bondholders, banks, and thus depositors.

The mechanism for doing this is to artificially increase the nominal value of the assets they hold. Houses, equities, bonds, to give the impression the entities are solvent, long enough for the politicians to agree how they're going to in practice tell the creditors their money has gone.

Same issue with China-America and Germany-periphery.

The less palatable alternative is to simply write off/down the creditors assets a la Cyprus. Not entirely sure most people would prefer that option though.

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Some alternative thinking from a BBC journalist for once, not that I agree with her on everything in it.

I'm not sure about this 'clarity' of forward guidance. Forward guidance tells us nothing new. We know all about the 'clarity' of the UK authorities position of wanting to keep house prices high, and support debtors, via their policy actions. To keep all the boom gains in housing and not allowing savers, or the young, to have any look in, but instead find ways to help them 'afford' high prices with extra debt. My job in the market is to push against that, not conform.

http://www.bbc.co.uk...siness-23699668

Yesterday's FT, suggesting markets won't just be marching to whatever the BoE wants with its desire for 'price-stability'. Also indication market participants sensing some weakness in forward guidance from the MPC in the minutes.

"Forward guidance is hardly worth the paper its written on. What does it add to the party? I'm afraid rates will be rising long before mid-2016," said Nick Beecroft, senior market analyst of Saxo Capital Markets.

We will probably have to initially move within 6-12 weeks of the US starting to move otherwise the dosh will start exiting the UK and finding more interesting places to multiply itself in financial institutions.

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Common misconception but the wrong way around.

Central banks have been supporting creditors. Bank bondholders, banks, and thus depositors.

The mechanism for doing this is to artificially increase the nominal value of the assets they hold. Houses, equities, bonds, to give the impression the entities are solvent, long enough for the politicians to agree how they're going to in practice tell the creditors their money has gone.

Same issue with China-America and Germany-periphery.

The less palatable alternative is to simply write off/down the creditors assets a la Cyprus. Not entirely sure most people would prefer that option though.

I'd slightly disagree, they are hoping that another boom comes along to avoid all that nastiness and leave it for someone else to be Mr Unpopular to make a lot of "wealthy" people poor. Clearly the Cyprus route is the new banker bailout mechanism, you lose a chunk of your deposit and don't get any shares in return for your kind participation.

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The less palatable alternative is to simply write off/down the creditors assets a la Cyprus. Not entirely sure most people would prefer that option though.

Or they could make savers under the protection limit sacrosanct, and put the burden on those who own over-valued homes. Allowing those values to fall and savers to exchange their savings / take on mortgages.

Non home-owning savers are not being 'saved' with house prices kept so high. It's just protecting older owners, second home-owners and BTLers. Bring the crash instead.

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We will probably have to initially move within 6-12 weeks of the US starting to move otherwise the dosh will start exiting the UK and finding more interesting places to multiply itself in financial institutions.

Yes. Forward guidance is rear mirror guidance really for UK, imo. Reactive to the market forces in UK and globally, and not being able to lead and control them. It will probably manifest itself in lower sterling (perhaps what they want) rather than base rates rising first, leading to some inflation pressures.

Thu Aug 8, 2013 4:43pm EDT

(Reuters) - The U.S. Federal Reserve will likely begin cutting back on its massive bond-buying stimulus next month, as long as economic data continues to improve, a top Fed official said on Thursday.

http://www.reuters.c...E97714920130808

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Common misconception but the wrong way around.

Central banks have been supporting creditors. Bank bondholders, banks, and thus depositors.

The mechanism for doing this is to artificially increase the nominal value of the assets they hold. Houses, equities, bonds, to give the impression the entities are solvent, long enough for the politicians to agree how they're going to in practice tell the creditors their money has gone.

Same issue with China-America and Germany-periphery.

The less palatable alternative is to simply write off/down the creditors assets a la Cyprus. Not entirely sure most people would prefer that option though.

Im sorry, but WHO can just write down creditors whilst an entity is still "solvent".

Normally, only the INSOLVENT even need to write down such liabilities, then the entity is wound up. It is normally a legal process. the creditors can appeal and refuse.

In the case of Bail ins..there is no appeal, there is no process other than force, and they even needed a new law to carry it out.

Capital Formation is being destroyed by the current process, yet banks are being asked to hold MORE of it...which leads to even less investment.

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The mechanism for doing this is to artificially increase the nominal value of the assets they hold. Houses, equities, bonds, to give the impression the entities are solvent, long enough for the politicians to agree how they're going to in practice tell the creditors their money has gone.

I think you're overestimating the vision, it is more short term and more reactive. It always is. They're just trying to "avoid the bad thing", but with no real plan other than praying for a growth miracle before it all falls apart.

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Is 'forward guidance' the right term? Surely 'forward order' or 'forward direction for mandatory compliance' would be better.

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Yes. Forward guidance is rear mirror guidance really for UK, imo. Reactive to the market forces in UK and globally, and not being able to lead and control them. It will probably manifest itself in lower sterling (perhaps what they want) rather than base rates rising first, leading to some inflation pressures.

http://www.reuters.c...E97714920130808

Indeed, I would also add the expectation of "real world" interest rates that UK customers or firms pay would rapidly diverge from BoE faster than any FLS, HTB1/2 could fill the hole left by money being sucked elsewhere unless real world IRs rise to stop it leaving in such large quantities.

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Or they could make savers under the protection limit sacrosanct, and put the burden on those who own over-valued homes. Allowing those values to fall and savers to exchange their savings / take on mortgages.

Non home-owning savers are not being 'saved' with house prices kept so high. It's just protecting older owners, second home-owners and BTLers. Bring the crash instead.

Debt-fueled bubble economies have to deleverage. Govts and central banks can mitigate the cost of that correction by supporting aggregate demand and employment, and by bailing out and subsidising the insolvent. The Krugmanites believe this process can be continued indefinitely. Krugman's proposed to solution to every economic setback is to treat it as a liquidity crisis and have the sovereign borrow and spend. In reality a point is reached whereby the additional credit is no longer purposefully utilised, capital is misallocated again, and financial asset bubbles redevelop driving the economy further away from recovery. The choice then becomes a matter of deleveraging either in a slow, orderly fashion via inflation; or a quick, disorderly fashion via default.

The only way to avoid the misery of deleveraging is not to have a debt-fueled bubble. But neither Krugman or Bernanke can tell you why bubbles develop or provide a satisfactory explanation for the Crash, since the equilibrium models of the economy they subscribe to are complete bunkum.

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Im sorry, but WHO can just write down creditors whilst an entity is still "solvent".

Normally, only the INSOLVENT even need to write down such liabilities, then the entity is wound up. It is normally a legal process. the creditors can appeal and refuse.

In the case of Bail ins..there is no appeal, there is no process other than force, and they even needed a new law to carry it out.

Capital Formation is being destroyed by the current process, yet banks are being asked to hold MORE of it...which leads to even less investment.

Eh?

go back to 2007 - NRK failed. Govt decided to bail out creditors. It was entirely optional.

The law said only deposits up to £33k were protected.

Ditto Ireland, where they road a coach and horses through the law and bailed out depositors and creditors without limit.

Ditto RBS and so on........

As for 'who can write down creditors whilst entity is solvent' - that's exactly what financial repression IS. Where've you been?

Edited by R K

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In reality a point is reached whereby the additional credit is no longer purposefully utilised, capital is misallocated again, and financial asset bubbles redevelop driving the economy further away from recovery. The choice then becomes a matter of deleveraging either in a slow, orderly fashion via inflation; or a quick, disorderly fashion via default.

The only way to avoid the misery of deleveraging is not to have a debt-fueled bubble. But neither Krugman or Bernanke can tell you why bubbles develop or provide a satisfactory explanation for the Crash, since the equilibrium models of the economy they subscribe to are complete bunkum.

That's all well and good, and it looks like we're well into that misallocated capital reflating bubbles.

RK sees it as savers getting wiped out in a default. What I suggest is the older home-owners dream for the ones who really are protective of their HPI wealth, of which there are many.

Not a default where the home-owners take the losses in value, but savers take more punishment. That would be a double super-jackpot Ifor home-owners past 40 years. Savers up against it past 14 especially, when they chose to stay out of big annual HPI gain on annual gain, and others BTLing or buying at higher prices.

Savers wiped out, and home-owners protected, to keep passing down housing wealth via inheritance rather than a market allowing productive individuals without that advantage to get a look in. So unhealthy and unfair.

The mechanism for doing this is to artificially increase the nominal value of the assets they hold. Houses, equities, bonds, to give the impression the entities are solvent, long enough for the politicians to agree how they're going to in practice tell the creditors their money has gone.

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Or they could make savers under the protection limit sacrosanct, and put the burden on those who own over-valued homes. Allowing those values to fall and savers to exchange their savings / take on mortgages.

Non home-owning savers are not being 'saved' with house prices kept so high. It's just protecting older owners, second home-owners and BTLers. Bring the crash instead.

They effectively have. That's my point.

Which is what I said - they've bailed out creditors. But that money doesn't exist. It's an explicit state backed guarantee, nothing more. Who would back the deposits in your scenario?

You don't seem to get the disconnect in your argument that if the values of the houses fall, then the assets which underpin the liabilities also fall, and the liabilities (savings) must also be written down/off.

This is more or less what is happending now via real negative rates/repression.

You cannot have your cake and eat it I'm afraid.

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They effectively have. That's my point.

Which is what I said - they've bailed out creditors. But that money doesn't exist. It's an explicit state backed guarantee, nothing more. Who would back the deposits in your scenario?

You don't seem to get the disconnect in your argument that if the values of the houses fall, then the assets which underpin the liabilities also fall, and the liabilities (savings) must also be written down/off.

This is more or less what is happending now via real negative rates/repression.

You cannot have your cake and eat it I'm afraid.

I get your point - you think savers are the ones who've been bailed out.

The values in housing must be just as fragile, or more so, given savers should have more weight in the system than asset owners. Given Barclays and others (Co-op Bank) seeking capital.

Forgive me for not wanting to exchange my savings + take mortgage out, when I still think house prices are over-valued in my target areas. Both at the lower end, and the mid and the upper end.

I'll wait to see who those older owners in fairly standard family homes, now bid up to £500K+, are going to sell to. I guess the intention is they'll sell them to HTB2 buyers.

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