Jump to content
House Price Crash Forum
underscored

Damage Limitation Mode Active

Recommended Posts

So we have this:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=197407

"The world’s largest international banks are still too big to fail and resolving this issue remains the biggest problem for global regulators, according to the top Bank of England official in charge of financial stability"

We have this:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=197419

BOE: "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money"

and now we have this:

http://www.theguardian.com/uk-news/2014/mar/18/george-osborne-mark-carney-pre-budget-alerts

"The Bank of England governor, Mark Carney, said it "did not take a genius" to see that a long period of low interest rates created similar risks to those that led to Britain's deepest post-war recessions and said the Bank had to focus on more than keeping inflation low, a goal he said had become a "dangerous distraction".

He said the old model "failed to recognise that financial stability is as important an objective of macroeconomic policy as price stability, and it downplayed the inter-relationships between the two".

Carney warned that the pursuit of price stability could lead to the gradual build-up of financial vulnerability through its effect on the willingness to take risks."

BUT QE IS ALL ABOUT MAKING BANKS INVEST IN RISKIER ASSETS :blink:

I don't even know what is happening, but I am either:

- imploding into paranoid madness

- or the big poopy is getting close to the fan (China, end of QE who knows?) and people are positioning their umbrellas.

Edited by underscored

Share this post


Link to post
Share on other sites

My take on QE is that it has nothing to do with risky assets, but, if the government just printed the money and gave it to themselves to spend, then we're into evident banana republic economics and we still have undercapitalised vulnerable banks. So the BoE "prints" the money and gives it to the banks at a low rate to lend to the government so they make some money out of it too. It's basically paying the public sector wages and for our huge State. Not very different to simply printing more money then.

The Bank of England seems to be making quite a few "noises" lately.

The impression I had, rightly or wrongly, based on very little actual detailed analysis and more of a gut-feeling based on psychology and behaviours and media ramping, is that Carney and the government have had a look at the state of play and have basically decided that how the UK fares will be determined more or less solely by global events in the currency war. One big one will be China as you mention.

Politically, there's nothing to be done until 2015 at least. It just has to rumble along until then. All the noises have been promoting the flagship policy of increasing house sales and prices through socialising the cost of borrowing. To get people to feel they can take on these huge debts, we have "forward guidance" (meaningless), lots of "talking up the economy" while continuing to ignore the obvious (e.g. debt and deficit), lots of TV adverts - it's one great big push until 2015.

There is an alternate theory which is that Carney has some balls and has been brought in to enact sensible policies to help rebalance the economy and finally sort all of this out. However I don't believe this has a great deal of credibility given Carney's track record of... pushing house sales and prices (in Canada). Osborne didn't have to go thousands of miles to find someone competent who could argue with them and cause them difficulty.

Share this post


Link to post
Share on other sites

My take on QE is that it has nothing to do with risky assets

Assets are priced in comparison to the price/return of the safest assets (traditionally AAA-government short duration bonds). Consider that many investors are investing to meet liabilities, why stick your money in something risky with the risk of permanent impairment of your capital, if the safest asset does enough for you?

The Central Bankss buying up the short duration bonds; drives up the price of the bonds whilst driving down the yield. This has the following effects:

- increase of the asset value (improving some balance sheets of bond holders)

- decrease of government borrowing costs

- massive liability hole for people relying on “low risk” fixed income ~(bond holders). This has been addressed by THE SEARCH FOR YIELD from riskier assets. In turn you land up with MASSIVE MISPRICING OF ASSETS via price distortion/masking of pricing signals. In this new globalized world, these asset bubbles are not localized, or even connected geographically to the money fountain.

Carney says he will use the tools to control HPI and then says he can't control HPI. Carney is there to generate debt and asset inflation, as per Canada. Carney is Osborne's lapdog and after May 2105 will be Balls's lapdog. The actions based on 7% unemployment ... out of the window and now the new metric is sustainable GDP growth (imputed rent works very well for this). Still for £800,000 plus a year why not be a 'yes man'?

Forget the real economy and real wealth generation, Carney introduces and new threepenny bit ... more QE to come to 'lock in the recovery'?

Yeah I was down with the whole HPC thinking on this. But suddenly something is not right.

I get that Carney is a politician; he is not stupid, you just have to know who his intended audience are for his messages for them to make sense.

The statement that "…did not take a genius" to see that a long period of low interest rates created similar risks to those that led to Britain's deepest post-war recessions and said the Bank had to focus on more than keeping inflation low, a goal he said had become a "dangerous distraction". Is so jarringly dissonant with forward guidance; and all the rubbish about 3% being the new norm that either:

1 Aliens have snatched his body and are using him as some proxy tool of another purpose

2 There has been some silent/coup regime change in the BOE thinking, and Carney is swimming with the tide

3 Some poopy is about to touch the fan and he/the BOE do not want it spraying on them

4 Nothing he says makes sense, or should be compared to any previous statement

5 Some mixture of the above.

Share this post


Link to post
Share on other sites

4 Nothing he says makes sense, or should be compared to any previous statement

The latter part of #4 wins. He's simply trying to (i) convince the captive UK populace that interest rates will never rise and housing will only ever increase in value whilst (ii) convincing anyone outside the UK that the BoE/Government are deep-down responsible. As these two aims are mutually incompatible he looks increasingly schizophrenic.

I'd be interested in what he actually thinks as opposed to what he's been paid to shill. It must seem mad even to him that the UK has decided to buy a 20% increase in house prices using fake (bad) or taxpayer (worse) cash whilst claiming that the effort is somehow aimed at improving affordability.

I'd like to see him explain to external 'investors' why the UK is using a form of market intervention implemented by the US directly after the collapse of Lehman Bros at a time when the recovery is (apparently) going strong.

You try reconciling those messages!

Edited by Cozza

Share this post


Link to post
Share on other sites

Still giving him the benefit of doubt.

I've watched some of his news conferences and he seems to be genuinely more concerned/active on the HPI issues than he gets press for.

The challenges are:

1. keeping the areas that are running away under control

2. getting the other areas to start moving again

3. getting general confidence to a level that business investment can start to replace GDP from asset inflation

He's not got a lot of control over London as so much of it is driven by cash buyers.

The regions have only just started to inflate.

The best I can see Carney can do is cap the lending multiples, whilst relaxing LTV which should cap the valuations but enable more post-boomers to buy a property.

Raising IR right now, whilst welcome from my pov, would likely just hurt the existing late entrants into property and freeze property turnover again.

Along side this mess you have a massive dislocation of wealth which is perverting everything and that can only be solved politically. The boomers are sat on all the cash and assets.

Whilst you would think an IR increase would see some of those assets rotate in to cash savings - I don't think it's that clear. I suspect many boomers would just BTL it as an IR would light up the rentals market again.

There is no incentive for boomers to sell right now - they can just keep MEWing forever if they need the money. The ones I know don't need the money, they are debt-free and can exist comfortably on pension income.

I am starting to form opinion that even a massive spike in interest rates can't budge this as it will affect so few people (a minority have property debt and a minority of those that do are on trackers - and how much of an increase in debt cost would just be passed on to renters anyway?).

The only way I can see this being fixed for post-boomers is for some taxation on wealth or assets that discourages hoarding - but they are just too politically important right now for that to happen.

I've just depressed myself again.

Share this post


Link to post
Share on other sites

It's possible that Carney's apparent recent change in stance from can't control house prices (on about 17 February) to the latest can control house prices might be something to do with Russia/Crimea events (that has escalated during that time frame) in that sanctions might be implying increased interest rates - and controlling house prices (and who knows even controlling inflation) might now be a handy excuse for that policy.

On the other hand it could be that Carney is just bearing the imprint of the person who last sat on him - as was said about John Major and apparently more recently about Call Me Dave - and he hasn't a clue about what he's doing.

Share this post


Link to post
Share on other sites

It's possible that Carney's apparent recent change in stance from can't control house prices (on about 17 February) to the latest can control house prices might be something to do with Russia/Crimea events (that has escalated during that time frame) in that sanctions might be implying increased interest rates - and controlling house prices (and who knows even controlling inflation) might now be a handy excuse for that policy.

On the other hand it could be that Carney is just bearing the imprint of the person who last sat on him - as was said about John Major and apparently more recently about Call Me Dave - and he hasn't a clue about what he's doing.

Alternatively, Carney knows the UK is irretrievably bankrupt and that ZIRP and QE are merely a springboard into a hyperinflationary default?

Share this post


Link to post
Share on other sites

Alternatively, Carney knows the UK is irretrievably bankrupt and that ZIRP and QE are merely a springboard into a hyperinflationary default?

Don't defaults and hyperinflations tend to involve foreign currency debts and/or pegged currencies?

Share this post


Link to post
Share on other sites

Carney was saying that first priority is financial stability, which means saving the banks, and the cost is going to be the abandonment of price stability...and he doesnt mean deflation.

Share this post


Link to post
Share on other sites

Assets are priced in comparison to the price/return of the safest assets (traditionally AAA-government short duration bonds). Consider that many investors are investing to meet liabilities, why stick your money in something risky with the risk of permanent impairment of your capital, if the safest asset does enough for you?

The Central Bankss buying up the short duration bonds; drives up the price of the bonds whilst driving down the yield. This has the following effects:

- increase of the asset value (improving some balance sheets of bond holders)

- decrease of government borrowing costs

- massive liability hole for people relying on "low risk" fixed income ~(bond holders). This has been addressed by THE SEARCH FOR YIELD from riskier assets. In turn you land up with MASSIVE MISPRICING OF ASSETS via price distortion/masking of pricing signals. In this new globalized world, these asset bubbles are not localized, or even connected geographically to the money fountain.

Yeah I was down with the whole HPC thinking on this. But suddenly something is not right.

I get that Carney is a politician; he is not stupid, you just have to know who his intended audience are for his messages for them to make sense.

The statement that "…did not take a genius" to see that a long period of low interest rates created similar risks to those that led to Britain's deepest post-war recessions and said the Bank had to focus on more than keeping inflation low, a goal he said had become a "dangerous distraction". Is so jarringly dissonant with forward guidance; and all the rubbish about 3% being the new norm that either:

1 Aliens have snatched his body and are using him as some proxy tool of another purpose

2 There has been some silent/coup regime change in the BOE thinking, and Carney is swimming with the tide

3 Some poopy is about to touch the fan and he/the BOE do not want it spraying on them

4 Nothing he says makes sense, or should be compared to any previous statement

5 Some mixture of the above.

He's just trying to sell Macro-pru as the new black doncha think?

All feeds into this realisation that the credit cycle and the business cycle are different with different amplitudes, and the Treasury/City/BoE aim to grow the banks's share of the global financial markets pie (see link in my sig).

They've become rather bored with monetary policy and housing bubbles now, they're itching to get stuck into China, India, Brazil etc now. House prices in Bradford are just so dull.

Hence the new IMF deputy director appointed in a new deputy governor role. They're gearing up their skill set to expand into new markets. First Carney, now the new girl.

Edited by R K

Share this post


Link to post
Share on other sites

He's just trying to sell Macro-pru as the new black doncha think?

All feeds into this realisation that the credit cycle and the business cycle are different with different amplitudes, and the Treasury/City/BoE aim to grow the banks's share of the global financial markets pie (see link in my sig).

They've become rather bored with monetary policy and housing bubbles now, they're itching to get stuck into China, India, Brazil etc now. House prices in Bradford are just so dull.

Hence the new IMF deputy director appointed in a new deputy governor role. They're gearing up their skill set to expand into new markets. First Carney, now the new girl.

Yes I am with you on this now. The grunaid got the context of his words a little wrong. This guy is a power hungry empire builder.

http://en.wikipedia.org/wiki/Dark_triad

I am going with leaning on narcissistic - the empire builders always do.

Edited by underscored

Share this post


Link to post
Share on other sites

Yes I am with you on this now. The grunaid got the context of his words a little wrong. This guy is a power hungry empire builder.

...

I am going with leaning on narcissistic - the empire builders always do.

His current mode of operation could quite likely result in an increase in political instability with him as central banker.

Edited by billybong

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   218 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.