Private Opinion From Mpc Member Themself

[benjamin]

of course, this would receive an AWOOGA on a bullish forum, just as many of us seem to enjoy doing here (inc. me occasionally). all with a pinch of salt, but i am unable to dismiss it anyway.

[FTBagain]

The believe that housing will slup irrespective and have now accepted that, and that there will probably NOT be a long period of stagnation. However, this IRRESPECTIVE of what happens to IRs. They see IRs falling in the short term (perhaps) in conjuction with house price moderation.

When I looked at the historical data from previous HPC's I was surprised to find that rising rates often 'triggered' (or appeared to trigger) the HPC cycle, but then the rates often fell but HPC continued for years after the initial rise. So I think your contact is right to give up on the housing market, other forces will drive the crash now, such as job losses.

Having said that I would still like to see rates go up one more time just speed things along a bit!

[MarkG]

Why would the MPC cut rates when the lenders are increasing them to cover bad debts? It would make little to no difference to borrowers if the lenders didn't pass on the cuts, but it would sure increase inflation and drop the pound even lower.

[IPOD]

I was watching this documentary about the money supply that explained how the money supply is expanded and contracted by the Federal Reserve (American program).

It stated that for the money supply to be increased, the Fed would:

1) buy back bonds from the banks

2) place deposits equal to the value of the bonds into the banks accounts

3) the banks would then use this money as collateral for issuing loans.

For the money supply to be contracted, the reverse would occur

You are talking about two different phenomena here. The first step is called an "open market operation", and is how central banks influence the liquidity in the economy. The central bank selling bonds drains liquidity from the economy, when it buys them it is adding liquidity.

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

http://en.wikipedia.org/wiki/Repurchase_an...se_Transactions

Operation number 3 is possible because of the fractional reserve banking system:

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

For the money supply to be contracted, the reverse would occur, i.e.

1) the government issues a bond

A ) It is not the government that does the issuing (of course the government does issue bonds, but regarding monetary policy it is the central bank who conducts open market operations).

B ) You have got it the wrong way round. To contract the money supply, central banks sell bonds (and receive hard currency in return which they hold). To expand the money supply, the opposite applies.

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

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

[marko]

B ) You have got it the wrong way round. To contract the money supply, central banks sell bonds (and receive hard currency in return which they hold). To expand the money supply, the opposite applies.

Hang on, this is what I said....to increase the money supply, the central bank buys bonds back, and the opposite is to sell bonds, which contracts the money supply (as you have stated above).

Have I got it the wrong way round? I said the same thing as you...

Anyway, according to this mechanism, the issue by GB of 65Bn of Gilts will cause a large scale contraction of the money supply, and taken like this, would be a key factor in the cause of the forthcoming recession.

I am beginning to understand more completely the nafarious means by which bankers play us for suckers...the 'business cycle' is nothing to do with 'natural' economics...it is the result of pumping and draining of the money supply to the economy...when money is plentiful, the economy expands and everyone is happy. Then one day all the banks go 'right, no more loans sorry' (prompted by the BoE which removes capital from them through a bond issue). However, the banks of course are receiving the servicing of the loans that they already have outstanding - this causes the supply of money in the economy to shrink....and this causes a depression/recession, causing widescale forced asset sales and repossessions during which the banks get their hands on assets for pennies on the pound.

In summary the business cycle is a mechanism for wealth transfer from the real economy to the financiers. Call me paranoid if you want...

[MarkG]

In summary the business cycle is a mechanism for wealth transfer from the real economy to the financiers.

Yes. The entire modern economy is designed to make bankers rich: if only I'd realised that as a kid, I'd be retired in the Bahamas by now.