Qe Forever: Bank Of England Action Means We're In Quantitative Easing Infinity

[Fairyland]

CNBC:Bank of England action means we're in quantitative easing infinity, expert says

Link: http://www.cnbc.com/2016/08/04/bank-of-england-action-means-were-in-quantitative-easing-infinity-expert-says.html

The world is in quantitative easing infinity now, after the Bank of England cut interest rates for the first time in over seven years.

While many economists had predicted that the U.K.'s central bank would lower rates, the actions the BOE announced Thursday were slightly more aggressive than expected.

"I think we're in QE infinity now and now they're coming up with new ways of making QE because they can't cut rates anymore than they already have," Steven Dudash, president of IHT Wealth Management, said on CNBC's "Power Lunch." He added, however, that he doesn't "see how that helps banks."

"It's hard to see how that's going to help the bank world and I'd probably be avoiding them right now at least for the foreseeable future," Dudash said.

But Robert Pavlik, chief market strategist at Boston Private Wealth, said banks could potentially benefit from this economic backdrop because they're involved in trading bonds and issuing new bonds for corporations. He explained that the financial sector reaps an investment banking fee from these kinds of activities.

[Fairyland]

Is there really no way to come out of the QE trap? Looking at Japan's example my heart goes out to the younger generation/lost decades.

[porca misèria]

Is there really no way to come out of the QE trap? Looking at Japan's example my heart goes out to the younger generation/lost decades.

Not until we're forced. Too politically unpalatable.

It'll be the equivalent moment to when Callahan finally admitted we couldn't spend our way out of recession and debt. Though it won't look the same.

[doomed]

Is there really no way to come out of the QE trap? Looking at Japan's example my heart goes out to the younger generation/lost decades.

To repeat what happened in Japan in current times is not possible as technology has advanced too much. The central points of control can be by passed with relative ease now if they are not working for people.

[interestrateripoff]

If they stop the economy crashes. If they continue the economy crashes!!!

Catch 22

[zugzwang]

If they stop the economy crashes. If they continue the economy crashes!!!

Catch 22

[canbuywontbuy]

Is there really no way to come out of the QE trap? Looking at Japan's example my heart goes out to the younger generation/lost decades.

Well, at least the young are in their Facebook happy-happy zombie mode. I don't know how they brainwashed 'em, but they did a good job. They even protested Byron (slacktivist style, of course) for sacking illegal immigrants FFS.

Edited August 5, 2016 by canbuywontbuy

[interestrateripoff]

In my disstertation I used that as a chapter title.

[Fairyland]

There are doubts over the new Term Funding.

CNBC: Former UK rate-setter says the BOE's new funding plan won't work

Link: http://www.cnbc.com/2016/08/04/former-uk-rate-setter-adam-posen-says-the-boes-new-funding-plan-wont-work.html

The Bank of England's new Term Funding Scheme won't work as demand for loans remained weak and banks were still under-capitalized, a former rate-setter said Friday.

Banks will be offered up to 100 billion pounds ($131 billion) in cheap funding for four years as part of the new plan to encourage them to lend to consumers and businesses. But Adam Posen, president of Peterson Institute for International Economics, and a member of Monetary Policy Committee of the Bank of England (BOE) between 2009 and 2012, said he wasn't sure the plan would succeed.

"You're still pushing on a string. Banks will simply refuse to take the extra reserves because there is no demand for the loans," Posen told CNBC's "The Rundown".

"This isn't 2008 or 2009 when there was a liquidity problem and banks were desperate to get their spreads down and get liquidity back," he said.

The Bank of England

Alice Tidey | CNBC

The Bank of England

Posen said another reason why the plan may not succeed was that regulators didn't want banks' capital positions to weaken. Despite the belief that the financial health of banks had improved, many lenders remained under-capitalized, especially in the U.K., he said.

BOE Governor Mark Carney and the financial policy committee were "making a dangerous move" by encouraging lending, considering real estate prices in the U.K. were already inflated, Posen said.

Edited August 5, 2016 by Fairyland

[Fairyland]

Sorry this may be a naive question, if it is a question of demand not liquidity why does the BOE keep easing instead of working toward. Demand generation?

Will HPC generate a huge demand for credit?

[EssKay]

Sorry this may be a naive question, if it is a question of demand not liquidity why does the BOE keep easing instead of working toward. Demand generation?

Will HPC generate a huge demand for credit?

The BOE (and the other main central banks) don't really have any more tools in their policy locker to generate demand. Lowering interest rates is the traditional solution but in the current environment (very low interest rates already, maxed out asset prices, record government and household debt, stagnant/falling wages) it doesn't work.

Quantitative Easing could generate demand if directed directly towards individuals ("helicopter money") but the impact will be short lived unless done on a massive scale/repeated basis (which would lead to uncontrollable inflation).

The only real solution is a globally co-ordinated default/general cancellation of debts. That won't be proposed until the next major crash though.

Until then, all they can do is attempt to keep the plates spinning with more "traditional" QE (government bond purchases, term lending facilities etc)

[Si1]

Cancellation of debts would mean cancellation of the credit side. Boomers' future income promises, Germany's trade surplus. That would be very unpopular with the establishment.

[Mikhail Liebenstein]

Thing is the can in theory keep lowering rates, even from here. We just get smaller and smaller fractions of a percent.

The issue is though that you do hit a point where even if interest is negligible, people still need to make a loan repayment.

My mortgage is currently £2430 per month, about £900 of that is interest. Even if the rates went to zero in my mortgage, I'd still need to pay £1530 pcm.

The only bizarre thing would be what happens to interest only mortgages. Whilst the banks won't let them go to 0 % Which would literally be £0, they could get pretty close in some cases.

[sikejsudjek]

If its going to crash anyway - you want some assets to show for it - not just pumping money into raising house prices ! On this I believe Corbyn is right. We've had QE of £375 billion plus now another £170 billion. What do we have to show so far for half a trillion pounds ? Sweet **** all.

[Wayward]

Qe inflates asset prices, no body would deny that, now we have more qe in the light of this reality it's clear what the intention is.

Carney like osbrown and camoron - stated intention is never true intention.

[Crumbless]

Qe inflates asset prices, no body would deny that, now we have more qe in the light of this reality it's clear what the intention is.

Carney like May and Hammonds osbrown and camoron - stated intention is never true intention.

[billybong]

If its going to crash anyway - you want some assets to show for it - not just pumping money into raising house prices ! On this I believe Corbyn is right. We've had QE of £375 billion plus now another £170 billion. What do we have to show so far for half a trillion pounds ? Sweet **** all.

Just increasing impoverishment for the many and fabulous wealth for the few.

Edited August 5, 2016 by billybong

[interestrateripoff]

Thing is the can in theory keep lowering rates, even from here. We just get smaller and smaller fractions of a percent.

The issue is though that you do hit a point where even if interest is negligible, people still need to make a loan repayment.

My mortgage is currently £2430 per month, about £900 of that is interest. Even if the rates went to zero in my mortgage, I'd still need to pay £1530 pcm.

The only bizarre thing would be what happens to interest only mortgages. Whilst the banks won't let them go to 0 % Which would literally be £0, they could get pretty close in some cases.

Even negative would require a repayment. Edited August 6, 2016 by interestrateripoff

[frederico]

No mortgage rate is ever going to zero. So irrelevant.

A few important things to consider,

Firstly the ability to pay, if indebtedness and inflation squeeze spending. Also if unemployment rises or incomes reduce.

The government/boe certainly want more indebtedness and inflation.

Secondly if house prices do drop, then because of LTV the owner becomes a greater risk and as such is charged a higher interest rate.

The boe is just desperately trying to avoid financial crisis mk2.

To me this week's actions could indicate that the inter bank lending,particularly to UK banks is already struggling.

[saderic]

Zugzwang indeed. So what would you all do if you were BoE governor? As much as I would like to see rates go up that's just not going to ever be considered acceptable in a deflationary environment.

I would go to negative interest, but at the same time stop all forms of QE and monetary easing and allow natural deflation to occur. Anyone who understand basic mathematics (i.e not economists) can see that negative rates can be a sensible response to a deflationary economy. Maintaining a small but positive real rate should allow the market to operate and negative rates should help psychologically to avoid deflationary traps. Most people (and banks) would respond by paying down debt, especially those on fixed or 0% mortgages, reversing some of that odious excess 'liquidity' that's been created.

I can only assume that ***** Carney has ruled out negative rates because he knows it us actual people who benefit in such an environment of falling prices (partly due to sticky wages). Not bankers and the asset rich.

[Fairyland]

The BOE (and the other main central banks) don't really have any more tools in their policy locker to generate demand. Lowering interest rates is the traditional solution but in the current environment (very low interest rates already, maxed out asset prices, record government and household debt, stagnant/falling wages) it doesn't work.

Quantitative Easing could generate demand if directed directly towards individuals ("helicopter money") but the impact will be short lived unless done on a massive scale/repeated basis (which would lead to uncontrollable inflation).

The only real solution is a globally co-ordinated default/general cancellation of debts. That won't be proposed until the next major crash though.

Until then, all they can do is attempt to keep the plates spinning with more "traditional" QE (government bond purchases, term lending facilities etc)

How long can they keep the plates spinning?

[Fairyland]

Cancellation of debts would mean cancellation of the credit side. Boomers' future income promises, Germany's trade surplus. That would be very unpopular with the establishment.

Will they be left without any option though, provided they want to come out of the QE trap.

[spyguy]

Zugzwang indeed. So what would you all do if you were BoE governor? As much as I would like to see rates go up that's just not going to ever be considered acceptable in a deflationary environment.

I would go to negative interest, but at the same time stop all forms of QE and monetary easing and allow natural deflation to occur. Anyone who understand basic mathematics (i.e not economists) can see that negative rates can be a sensible response to a deflationary economy. Maintaining a small but positive real rate should allow the market to operate and negative rates should help psychologically to avoid deflationary traps. Most people (and banks) would respond by paying down debt, especially those on fixed or 0% mortgages, reversing some of that odious excess 'liquidity' that's been created.

I can only assume that ***** Carney has ruled out negative rates because he knows it us actual people who benefit in such an environment of falling prices (partly due to sticky wages). Not bankers and the asset rich.

Me, the guvnor?

Id stop moremoney goung into real estate.

Id shutdown high ltv btl.

id stop dead IO loans.

The main readon the uk has crap growth is there are fckall people working in productive jobs.

Loads in the publuc sector.

Loads on TC funded nailbars.

Load on made up disability.

[Fairyland]

Zugzwang indeed. So what would you all do if you were BoE governor? As much as I would like to see rates go up that's just not going to ever be considered acceptable in a deflationary environment.

I would go to negative interest, but at the same time stop all forms of QE and monetary easing and allow natural deflation to occur. Anyone who understand basic mathematics (i.e not economists) can see that negative rates can be a sensible response to a deflationary economy. Maintaining a small but positive real rate should allow the market to operate and negative rates should help psychologically to avoid deflationary traps. Most people (and banks) would respond by paying down debt, especially those on fixed or 0% mortgages, reversing some of that odious excess 'liquidity' that's been created.

I can only assume that ***** Carney has ruled out negative rates because he knows it us actual people who benefit in such an environment of falling prices (partly due to sticky wages). Not bankers and the asset rich.

I am not sure how it will work. People are heavily indebted. Unless negative rates are passed down to them it will have no effect in their ability to repay. Passing down negative rates in real terms is debt forgiveness.

[Ash4781]

Carney was talking up rate rises, and then the BOE cut the rate. Although the response would be that they were responding to the facts as they at the time.

However, there was already a mindset in the public that the BOE would 'never' in the short to medium term raise interest rates. This was countered with some 'direction' from Carney. However, do we need to re-assess? How is this all playing out in the gilts markets? Long term yields collapsing?