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Having read that the Bank of England might be forced to offer money auctions in view of it becoming increasingly expensive for banks to borrow money, I wondered where the BoE gets its money from and to whom it belongs? I know it is probably a daft question but one that I don't know the answer to and am sure someone on this Forum could explain in lay terms. What does the BoE do with the money that it has - is it able to earn interest for the country?

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It creates the money out of thin air!

Although, it does not give this away for free. They expect security/collateral for the loans it gives; hence their books balance.

The BoE does receive interest on this money, although it pays interest to other banks who deposit money with them (up to a certain amount).

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Yep created out of thin air. The more in circulation means the less yours is worth.

Bit like a company issuing more shares, means current holders share are devalued.

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Having read that the Bank of England might be forced to offer money auctions in view of it becoming increasingly expensive for banks to borrow money, I wondered where the BoE gets its money from and to whom it belongs? I know it is probably a daft question but one that I don't know the answer to and am sure someone on this Forum could explain in lay terms. What does the BoE do with the money that it has - is it able to earn interest for the country?

Yes, as above. They print it or issue it electronically. This is the same with all central banks.

http://uk.youtube.com/watch?v=cy-fD78zyvI

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It comes/is borrowed from the future on the promise of growth. Money creates money, if you have 10 quid and put it in a bank, the bank can loan out 9 quid, who spends it all down the pub, the publican banks the 9 quid in the same bank (19 quid is now 'in' the bank, and the alcoholic owes the bank 9 quid, which pays back through future earnings), the more money moves between banks and people the more exists, through the magic of fractional reserve. Borrowing money essentially creates more money, more wealth.

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

Edited by moosetea

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It creates the money out of thin air!

Although, it does not give this away for free. They expect security/collateral for the loans it gives; hence their books balance.

The BoE does receive interest on this money, although it pays interest to other banks who deposit money with them (up to a certain amount).

How much collateral do they require ie % of new money, and what counts as collateral?

Having read that the Bank of England might be forced to offer money auctions

These auctions - does it create M0 narrow money or M3/4 broad money?

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Didn't the BoE get most of their spare cash after flogging the nations gold reserve at a knock down price to goldfinger & CGNAO?

Back in 1999 i think it was?

:lol:

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Having read that the Bank of England might be forced to offer money auctions in view of it becoming increasingly expensive for banks to borrow money, I wondered where the BoE gets its money from and to whom it belongs? I know it is probably a daft question but one that I don't know the answer to and am sure someone on this Forum could explain in lay terms. What does the BoE do with the money that it has - is it able to earn interest for the country?

It is borrowed from the treasury. The treasury gets the money by issuing bonds to investors. If the BoE buys treasuries and keeps them on its balance sheet then it does indeed effectively print the money and gives it to the treasury. The treasury then lends the money to the BoE to lend out. Thus in summary increasing amount of treasuries on BoE balance sheet = printing money and vice versa.

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Having read that the Bank of England might be forced to offer money auctions in view of it becoming increasingly expensive for banks to borrow money, I wondered where the BoE gets its money from and to whom it belongs? I know it is probably a daft question but one that I don't know the answer to and am sure someone on this Forum could explain in lay terms. What does the BoE do with the money that it has - is it able to earn interest for the country?

A better question to ask is not where does money come from but to where does it go?

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Actually, I have it on very good authority that it's all about vegetative reproduction. Every fiver lost in a cab, every pound coin lost down the sofa carries with it the hope of the species.

Take a good long hard look at yourself and think a little the next time you pluck a tenner innocently trying its best to breed on the pavement. The future of money might depend on it.

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Thank you for that, although I'm rather slow on the uptake. Surely the BoE cannot just continue to print money - shouldn't it be securitised against something? Is this why it is important for house prices to remain high, as they are counted as part of the UK wealth? If they fall dramatically, does that make the UK poorer???? :blink:

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Actually, I have it on very good authority that it's all about vegetative reproduction. Every fiver lost in a cab, every pound coin lost down the sofa carries with it the hope of the species.

Take a good long hard look at yourself and think a little the next time you pluck a tenner innocently trying its best to breed on the pavement. The future of money might depend on it.

Made me think of goldfinger, blow up fort Knox, reducing the amount of gold in the market, anyone who holds gold out of fort knox makes loads of money (supply/demand)

Edited by moosetea

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Thank you for that, although I'm rather slow on the uptake. Surely the BoE cannot just continue to print money - shouldn't it be securitised against something? Is this why it is important for house prices to remain high, as they are counted as part of the UK wealth? If they fall dramatically, does that make the UK poorer???? :blink:

Thanks to many fantastic ways of slicing and dicing turd mortgages and reselling them (CDOs SIVS etc etc) a hell of a lot more has been exposed to the falling value of houses than ever should have been :blink:

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Thank you for that, although I'm rather slow on the uptake. Surely the BoE cannot just continue to print money - shouldn't it be securitised against something? Is this why it is important for house prices to remain high, as they are counted as part of the UK wealth? If they fall dramatically, does that make the UK poorer???? :blink:

The question is what is 'money', the answer is a store of value. Wealth is how much of a share of total money in circulation you have in assets/cash. Money supply is currently running at 14% per year, so the pound in your pocket is essentially worth 14% less each year, governments have been 'printing money' into ciculation for hundreds of years, the question is why will the money creation suddently stop?

If houses fall dramatically some people have more money others have less, but houses are bought with cash/debt, houseprices will fall if there is less debt money to borrow to buy houses. Its not the house price that determines the value of houses, but the amount of money available in loans/cash ;p The more in debt the UK becomes the richer we are/appear to be because more money is 'created'....

Edited by moosetea

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The question is what is 'money', the answer is a store of value. Wealth is how much of a share of total money in circulation you have in assets/cash. Money supply is currently running at 14% per year, so the pound in your pocket is essentially worth 14% less each year, governments have been printing money into ciculation for hundreds of years, the question is why will the money creation suddently stop?

If houses fall dramatically some people have more money others have less, but houses are bought with cash/debt, houseprices will fall if there is less debt money to borrow to buy houses. Its not the house price that determines the value of houses, but the amount of money available ;p The more in debt the UK becomes the richer we are/appear to be because more money is 'created'....

there are different views of what money is.

for an individual we see it as a store of value. for a country, in economic terms, its a medium of exchange and the lifeblood of the economy. its store of value is not so important as in theory, economic supply and demand should dictate relative value, so it doesnt matter if you create lots of money or destroy it, the value of something should remain relative.

the supply of money however can be used as a tool to dictate/manage demand. so creating money and destroying money isnt a case of getting richer and poorer, its more a case of managing how much activity that goes on.

Edited by mfp123

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The question is what is 'money', the answer is a store of value. Wealth is how much of a share of total money in circulation you have in assets/cash. Money supply is currently running at 14% per year, so the pound in your pocket is essentially worth 14% less each year, governments have been printing money into ciculation for hundreds of years, the question is why will the money creation suddently stop?

If houses fall dramatically some people have more money others have less, but houses are bought with cash/debt, houseprices will fall if there is less debt money to borrow to buy houses. Its not the house price that determines the value of houses, but the amount of money available ;p The more in debt the UK becomes the richer we are/appear to be because more money is 'created'....

Sorry to sound dense, but why should there be such a need to print money supply at 14% per year. Inflation is supposedly very low, as are wage increases for the majority. Is it that it has been necessary to print this money because people owe so much debt? If this is so, then the government has been very irresponsible.

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Sorry to sound dense, but why should there be such a need to print money supply at 14% per year. Inflation is supposedly very low, as are wage increases for the majority. Is it that it has been necessary to print this money because people owe so much debt? If this is so, then the government has been very irresponsible.

The people in the government want to buy things without extra direct taxes. They do this by creating more money.

They are evil, not irresponsible.

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Sorry to sound dense, but why should there be such a need to print money supply at 14% per year. Inflation is supposedly very low, as are wage increases for the majority. Is it that it has been necessary to print this money because people owe so much debt? If this is so, then the government has been very irresponsible.

as Injin says the money is created through extra loans/mortgages, the government can slow this by raising interest rates and make debt more expensive but it is the population who is creating this extra money by getting into debt/borrowing from future earnings

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Sorry to sound dense, but why should there be such a need to print money supply at 14% per year. Inflation is supposedly very low, as are wage increases for the majority. Is it that it has been necessary to print this money because people owe so much debt? If this is so, then the government has been very irresponsible.

two reasons for low inflation:

Most of the money is going into houses/transfered to older generation when they downsize, it isn't being spent/in active circulation which stops inflation being as high

Inflation is rigged, government remove items from the metric when they are about to rise and add them back in before they start to fall, real level of inflation is higher than 2%. Essentially inflation is a form of hidden taxation/wealth transfer

however having said that the money system works supprisingly well and it has been working for a long time and i can see it continuing to work for a good few more years yet...

Edited by moosetea

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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