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EmmaRoid

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Carnage fessed up this morning that QE will only be unwound after 'several rounds' of interest rate rises to avoid the embarassment of having to restart the program if (when) he and the muppets are found to have got their sums wrong, and that some of the QE purchases would mature before that time and thus relieve the BoE of the responsibility.

Confirmation, really, that QE will NEVER be unwound as we all suspected.

.

Edited by zugzwang

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Carnage fessed up this morning that QE will only be unwound after 'several rounds' of interest rate rises

Interesting....Assuming rates went up to, say, 5%, then a lot of bonds the BoE hold would likely be trading in the secondary market at something like 90% of par. Given that, the BoE would be looking at a ~30B loss if they sold all their holdings. I don't think they have any choice but to hold the whole lot to maturity.

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Well I've always said they should raise rates first. Basically it is only by printing more of our money supply such that it is not interest bearing that we can restore an interest rate that is at the heart of capitalism. YOu need a shortage of credit to do this and it stops the money supply being too sensitive to interest rate changes resulting in instability.

Base money had fallen below 3% versus credit before the crisis whereas it was about 50% after WWII I believe.

Simple enough to raise rates to quell any incipient inflation that may arise.

Normally you wouldn't be able to raise rates with excess reserves in the system though, as the excess reserves would push the rate to zero.

So they'll have to raise the rate they pay on reserves to do it. Does that effectively me they're printing money that is still interest bearing?

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Well I've always said they should raise rates first. Basically it is only by printing more of our money supply such that it is not interest bearing that we can restore an interest rate that is at the heart of capitalism. YOu need a shortage of credit to do this and it stops the money supply being too sensitive to interest rate changes resulting in instability.

Base money had fallen below 3% versus credit before the crisis whereas it was about 50% after WWII I believe.

Simple enough to raise rates to quell any incipient inflation that may arise.

I didn't know that about base money vs WWII, but I think your point is correct. The principal argument against raising rates has been the structural weakness of the banks, but after a five year long bailout that issue is surely resolvable. I'd maintain that the risks of a future banking crisis now lie instead in the other direction. In a negative carry/flat yield environment banks are forced into practices that are economically destructive just to stay profitable, practices we're clearly witnessing in the UK right now aided and abetted at every step by the goon in No. 11. Further, I'd argue that there can be no genuine economic recovery until interest rates are renormalised (2-3%), the short-end of the yield curve is positive (not flat/negative), and the vast bubble of phantom equity is finally driven out of the housing market. Whether any of the above can be accomplished without a default/hyperinflation is another matter.

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According to the news on the radio today Con Carney has now pronounced (Forward Guidance Version 3 or is it 4 that's been pronounced in the last few weeks :P ) that interest rates will likely increase to about 2 or 3% but gradually over the next 3 years and the first increase might even be before the general election.

Of course he keeps on changing his mind and hasn't the faintest clue about what's really going to happen.

Edited by billybong

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According to the news on the radio today Con Carney has now pronounced (Forward Guidance Version 3 or is it 4 that's been pronounced in the last few weeks :P ) that interest rates will likely increase to about 2 or 3% but gradually over the next 3 years and the first increase might even be before the general election.

Of course he keeps on changing his mind and hasn't the faintest clue about what's really going to happen.

Meanwhile in the Torygraph, AEP cheers the permanent transfer of wealth to banksters and landlords and proposes risibly that it's been good for the country.

No doubt we'll see these sentiments echoed in the next Conservative election manifesto? dry.gif

The Bank of England will never unwind QE - nor should it

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I didn't know that about base money vs WWII, but I think your point is correct. The principal argument against raising rates has been the structural weakness of the banks, but after a five year long bailout that issue is surely resolvable. I'd maintain that the risks of a future banking crisis now lie instead in the other direction. In a negative carry/flat yield environment banks are forced into practices that are economically destructive just to stay profitable, practices we're clearly witnessing in the UK right now aided and abetted at every step by the goon in No. 11. Further, I'd argue that there can be no genuine economic recovery until interest rates are renormalised (2-3%), the short-end of the yield curve is positive (not flat/negative), and the vast bubble of phantom equity is finally driven out of the housing market. Whether any of the above can be accomplished without a default/hyperinflation is another matter.

Great post.

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Because Osborne doesn't know whether he needs to raise rates to try and get back some saver votes or keep them low to retain the 'home owners' votes and so he hasn't told Carney what he wants yet.

Still Carney now admits QE is permanent, they haven't got a clue about forecasting and the shiny new tools to control the housing market he was given don't work.

that sounds like endgame...stop the attack on the left with some pawns, nah, cos the right will come crashing in and check me, Ok, send the queen to the right, nah cos the pressure of rooks will destroy me on the left...no centre path to take, I know...throw a tantrum and accidently knock the board and pieces on the floor...

so we have borrowers on the left cant take a hit, meanwhile on the right we have savers unable to form capital, and in the middle an economy that cant repay the left and cant invest for the right....you cant fix one side without the other side taking the game down.

The banks were given 5 years to trade through and make good...they blew it with the same greed that got us into this mess...Moral Hazard has played out exactly as a sensible man predicted and we are no further forward.

And still they take money from us all and pay it to themselves with Government telling us to stop moaning.

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Well I've always said they should raise rates first. Basically it is only by printing more of our money supply such that it is not interest bearing that we can restore an interest rate that is at the heart of capitalism. YOu need a shortage of credit to do this and it stops the money supply being too sensitive to interest rate changes resulting in instability.

Base money had fallen below 3% versus credit before the crisis whereas it was about 50% after WWII I believe.

Simple enough to raise rates to quell any incipient inflation that may arise.

the bond market has been in bubble territory for years.

only so much playing pass the parcel works.

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According to the news on the radio today Con Carney has now pronounced (Forward Guidance Version 3 or is it 4 that's been pronounced in the last few weeks :P ) that interest rates will likely increase to about 2 or 3% but gradually over the next 3 years and the first increase might even be before the general election.

Of course he keeps on changing his mind and hasn't the faintest clue about what's really going to happen.

might have a bit to do with the scuffle in the middle east and oil prices quadrupling.(classic supply crunch)

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