Interest Hike Aug 2nd - Will They / Won't They?

[hurlerontheditch]

1 hour ago, zugzwang said:

Interest rates will stay low for another twenty years, says outgoing MPC member Ian McCafferty.

https://www.theguardian.com/business/2018/aug/09/interest-rates-will-stay-low-for-20-years-bank-of-england-expert

Plan A not working? Stick with it for another generation. 

And down Stirling goes . Will it break 1.27 next week and through 1.26? 

[winkie]

4 hours ago, Captain Kirk said:

Just shows the BoE are wrong. QE and low rates have not resulted in any growth, just a housing bubble.

Growth in the stock market......just as volatile.......many people would like to grow they just don't have the real earned money to do so.......all the debt money is tied up in growing the size of assets...... not enough effort growing a wealthier country, wealthier people, and wealthier businesses.?

[Captain Kirk]

3 hours ago, winkie said:

Growth in the stock market......just as volatile.......many people would like to grow they just don't have the real earned money to do so.......all the debt money is tied up in growing the size of assets...... not enough effort growing a wealthier country, wealthier people, and wealthier businesses.?

Everything has gone into the wealth effect under the pretense of stimulating the economy. The real economy has hardly budged and seems to me to have been in decline for years.

 

[Captain Kirk]

7 hours ago, Gigantic Purple Slug said:

Doesn't really show anything about QE.

1998-2008 growth was higher than it should be because it was pumped up by excessive lending.

And unless you know what would have happened to growth without QE then it's hard to say what effect it would have had. Maybe 2008-2018 would have been negative who knows.

What QE did was swap short term volatility for long term stagnation. Hard to say whether the net effect now is better or worse, certainly not from that graph.

Well I wasn't sure what zugzwang meant by posting the chart. We've had periods of low growth and recessions before but never had QE and ultra low rates.

 

[mathschoc]

“True: it had a strong 2017, and there is something arbitrary about the definition of a recession (two successive quarters of contraction). But it is disappointing news nonetheless.”

Read this on sky news, regarding manufacturing.

Gave me the feeling that definition of a recession may be changed in future to ‘avoid a recession’.

Haha

[zugzwang]

Wage growth takes another dip.

https://www.theguardian.com/business/live/2018/aug/14/turkey-crisis-lira-rupee-germany-growth-uk-unemployment-business-live

[Dorkins]

On 10/08/2018 at 16:40, zugzwang said:

Interest rates will stay low for another twenty years, says outgoing MPC member Ian McCafferty.

https://www.theguardian.com/business/2018/aug/09/interest-rates-will-stay-low-for-20-years-bank-of-england-expert

Plan A not working? Stick with it for another generation. 

If impoverishing a thousand generations is what it takes to protect existing assetholders, then by golly that's what we'll do.

[scottbeard]

On ‎10‎/‎08‎/‎2018 at 13:35, zugzwang said:

 

Some posters have suggested that this chart demonstrates how QE "hasn't worked" because growth over 2008 - 2018 has been low.

However, to judge QE you shouldn't compare to previous decades but rather to how 2008-18 *would have looked* without QE.  And that of course we will never know for sure - but it would almost certainly have been lower growth or a big fall in GDP.

I think actually at face value it probably has worked if the goal was "create a bit of artificial demand over 2008-18 to try and avoid a massive depression in that decade".  The problem is that it isn't pain free, and that the tradeoff will now be lower growth over 2018-28 than we would have had without QE.

 

[spyguy]

And inflation up - 2.5%

BoE rates need to be ~ 3%-4$

 

[rantnrave]

10 minutes ago, spyguy said:

And inflation up - 2.5%

BoE rates need to be ~ 3%-4$

 

Sterling now dipping below $1.27

[spyguy]

1 hour ago, scottbeard said:

Some posters have suggested that this chart demonstrates how QE "hasn't worked" because growth over 2008 - 2018 has been low.

However, to judge QE you shouldn't compare to previous decades but rather to how 2008-18 *would have looked* without QE.  And that of course we will never know for sure - but it would almost certainly have been lower growth or a big fall in GDP.

I think actually at face value it probably has worked if the goal was "create a bit of artificial demand over 2008-18 to try and avoid a massive depression in that decade".  The problem is that it isn't pain free, and that the tradeoff will now be lower growth over 2018-28 than we would have had without QE.

 

Recession have many charateristics.

One of them is to stop dead a trend that become an problem over the expansion - i nthe UKs case debt and house prices - and let them return to normal.

All QE has done is can kick.

The debt and cost of housingdue to the debt, has not been addressed.

 

If we did QE and he BoE forced mortgage holder to contnue paying at pre Qe and stopped/foreclosed IO borrowing then we might have used the QE period wisely.

nstead it was wasted, keeping the non viable going for another 10 years.

Like a nation wide IVA which alwys end ups up bankruptcy later.

 

 

[zugzwang]

9 minutes ago, rantnrave said:

Sterling now dipping below $1.27

Which means even more imported inflation. The UK's dying on its a*se.

[dougless]

32 minutes ago, zugzwang said:

Which means even more imported inflation. The UK's dying on its a*se.

I agree that things are looking pretty grim in the UK at the moment but Bloomberg is still showing £ at $1.2711 - clearly its hanging on by its finger nails.  Are we looking at a £/$ reaching parity?

[shortbread]

22 minutes ago, dougless said:

 Are we looking at a £/$ reaching parity?

Carney and his BoE cronies are trying their hardest!

[Captain Kirk]

2 hours ago, scottbeard said:

Some posters have suggested that this chart demonstrates how QE "hasn't worked" because growth over 2008 - 2018 has been low.

However, to judge QE you shouldn't compare to previous decades but rather to how 2008-18 *would have looked* without QE.  And that of course we will never know for sure - but it would almost certainly have been lower growth or a big fall in GDP.

I think actually at face value it probably has worked if the goal was "create a bit of artificial demand over 2008-18 to try and avoid a massive depression in that decade".  The problem is that it isn't pain free, and that the tradeoff will now be lower growth over 2018-28 than we would have had without QE.

 

I prefer to use Occam's razor. QE didn't work. No need to invent an ether that balances out this that and the other.

[rantnrave]

2 minutes ago, Captain Kirk said:

I prefer to use Occam's razor. QE didn't work. No need to invent an ether that balances out this that and the other.

Do we know what the actual objectives of embarking on QE were though? If the unstated aim was to keep house prices elevated, then it's done a decent job IMO.

[Captain Kirk]

57 minutes ago, shortbread said:

Carney and his BoE cronies are trying their hardest!

Yep, the only thing I take a bit of solace in is that GBP is holding up against gold OKish.

It's not surprising that the $ is strong though when yields on 1M bonds are 1.95%. It's probably needed because of US inflation. If only Carney & co cared about UK inflation the same.

[Captain Kirk]

3 minutes ago, rantnrave said:

Do we know what the actual objectives of embarking on QE were though? If the unstated aim was to keep house prices elevated, then it's done a decent job IMO.

Good point. According to the BoE website it was to stimulate the economy and boost spending, but it was most likely to inflate the housing bubble again and make banks whole.

If they wanted to boost spending they should have just given the money to any of my nephews and nieces.

[zugzwang]

7 minutes ago, rantnrave said:

Do we know what the actual objectives of embarking on QE were though? If the unstated aim was to keep house prices elevated, then it's done a decent job IMO.

Asset price inflation was/is the goal. The Bank of England said so, explicitly:

Quote

Quantitative easing is an ‘unconventional’ form of monetary policy that our Monetary Policy Committee has carried out in order to stimulate the economy when interest rates are already low. The ultimate aim of this is to boost spending to reach our inflation target of 2%. Quantitative easing is sometimes called ‘QE’ or just ‘asset purchases’. The Monetary Policy Committee makes decisions on quantitative easing at the same time as it makes its interest-rate decision. 

Quantitative easing does not involve literally printing more money. Instead, we create new money digitally.

What is quantitative easing?

Quantitative easing is when a central bank like the Bank of England creates new money electronically to make large purchases of assets. We make these purchases from the private sector, for example from pension funds, high-street banks and non-financial firms. Most of these assets are government bonds (also known as gilts). The market for government bonds is large, so we can buy large quantities of them fairly quickly.

The purchases are of such a scale that they push up the price of assets, lowering the yields (the return) on them. This encourages those selling these assets to us to use the money they received from the sale to buy assets with a higher yield instead, like company shares and bonds. 

As more of these other assets are bought, their prices rise because of the increased demand. This pushes down on yields in general. The companies that have issued these bonds or shares benefit from cheaper borrowing because of these lower yields, encouraging them to spend and invest more. 

We also buy a smaller amount of private debt like corporate bonds. This is aimed at making it easier for companies to raise money in capital markets to invest in their business. 

Those selling assets to us have more money in their bank accounts as a result. Commercial banks can use these new funds to finance new loans, encouraging more spending and investment.

If inflation looks like it is becoming too high, we can then sell the assets we’ve purchased through quantitative easing to reduce the amount of money and spending in the economy.

 

 

[Captain Kirk]

2 minutes ago, zugzwang said:

The purchases are of such a scale that they push up the price of assets, lowering the yields (the return) on them. This encourages those selling these assets to us to use the money they received from the sale to buy assets with a higher yield instead, like company shares and bonds. 

It's market manipulation on an insane scale.

[Gigantic Purple Slug]

14 minutes ago, rantnrave said:

Do we know what the actual objectives of embarking on QE were though? If the unstated aim was to keep house prices elevated, then it's done a decent job IMO.

Doubt whether QE was implemented for anyone on heres personal enrichment.

It was implemented because macroeconomically it was supposed to be an appropriate thing to do.

Obviously whenever you enact huge macro enconomic changes it is going to blow bubbles in certain areas. But I think you would find that the BOE would argue it does not have the specific tools to deal with those and it should just be looking at the overall picture. Looking at individual sectors is more political.

The problem with QE is not that it was wrong, or that it didn't work just because someone on here did not get to buy a cheap house.

I'm with spyguy on the errors. In terms of stabilising the system it was good. Governments are supposed to try to smooth out peaks and troughs in the economic cycle (if they weren't what's the point in having them).

The problem is that it was supposed to buy time so that issues in the economy could be resolved gradually over a long time period rather than all at once. But the lack of gradual interest rate rises over the past 10 years that could have led to the weak hands being forced out gradually is a missed opportunity in my book.

In effect the time that QE bought has been wasted, and we're now facing a combination of both rising rates and Brexit.

 

[zugzwang]

3 minutes ago, Gigantic Purple Slug said:

Doubt whether QE was implemented for anyone on heres personal enrichment.

It was implemented because macroeconomically it was supposed to be an appropriate thing to do.

Obviously whenever you enact huge macro enconomic changes it is going to blow bubbles in certain areas. But I think you would find that the BOE would argue it does not have the specific tools to deal with those and it should just be looking at the overall picture. Looking at individual sectors is more political.

The problem with QE is not that it was wrong, or that it didn't work just because someone on here did not get to buy a cheap house.

I'm with spyguy on the errors. In terms of stabilising the system it was good. Governments are supposed to try to smooth out peaks and troughs in the economic cycle (if they weren't what's the point in having them).

The problem is that it was supposed to buy time so that issues in the economy could be resolved gradually over a long time period rather than all at once. But the lack of gradual interest rate rises over the past 10 years that could have led to the weak hands being forced out gradually is a missed opportunity in my book.

In effect the time that QE bought has been wasted, and we're now facing a combination of both rising rates and Brexit.

 

It's been a case of diminishing returns. The first tranche of QE shored up the banks and pulled the country out of recession (along with govt borrowing). The effect of subsequent tranches has been less obvious. The most recent £127bn Term Funding Scheme was both dishonest and ineffectual. The fact that the private sector economy is still drowning in debt some ten years after the Crash is perhaps the greatest indictment of the program and those responsible for managing it.

[Dorkins]

4 hours ago, scottbeard said:

I think actually at face value it probably has worked if the goal was "create a bit of artificial demand over 2008-18 to try and avoid a massive depression in that decade".  The problem is that it isn't pain free, and that the tradeoff will now be lower growth over 2018-28 than we would have had without QE.

For most people under 40 there has been a depression since 2008, really since about 2001. Collapsed real wages, minimal bargaining power in the labour market, little prospect of accumulating a meaningful amount of capital during one's working life.

My large corporate employer is currently hiring STEM graduates/MSc's in SE England on £25k, and people are taking the jobs. They were probably offering around that 20 years ago. The cost of living has at least doubled since then. If that's not a depression, what is?

I don't think QE/ZIRP prevented a depression, it enabled the continuation of one that was already happening, albeit only to a certain demographic group.

Edited August 15, 2018 by Dorkins

[Ash4781]

I think the statistics downplay the squeeze on people’s incomes. This squeeze is causing massive structural change in retail that will inevitably feed through into commercial property (banks and pension funds?). This squeeze hasn’t bubbled out elsewhere eg. In banks, and car financing. I think it’s coming. 

[Gigantic Purple Slug]

1 hour ago, zugzwang said:

It's been a case of diminishing returns. The first tranche of QE shored up the banks and pulled the country out of recession (along with govt borrowing). The effect of subsequent tranches has been less obvious. The most recent £127bn Term Funding Scheme was both dishonest and ineffectual. The fact that the private sector economy is still drowning in debt some ten years after the Crash is perhaps the greatest indictment of the program and those responsible for managing it.

Agree with your sentiments re the TFS. That was a bridge too far as far as I was concerned.

I'd be interested in finding out how much of that money found its way into residential mortgages.