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Boe About To Print Money


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I am not sure if this is common knowledge as yet, but the Telegraph has recently published an article as follows:

'In what would be a major departure for British monetary policy, the Bank is considering pressing the button on printing presses by engaging in a so-called policy of quantitative easing. It emerged after the Monetary Policy Committee cut borrowing costs by 1pc to just 2pc - the lowest level since 1951.'

Even more worrying is that in the new banking bill, the necessity for the BoE to publish how much money it prints has been abolished. I found out about this on at Guido Fawkes here.

To say the least, this is very disturbing. It appears that the government will try to print its way out of the crisis. I believe that this is because the UK is about to default on debt, and have been looking at this subject for some time. It seems that there are troubles selling government guilts/bonds, which essentially means that the UK will need to default on debt. I am more than a little puzzled that there are not headlines screaming about even the fact that the BoE is considering printing money. It just seems like nobody is really bothered?

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I believe that this is because the UK is about to default on debt, and have been looking at this subject for some time.

Really? Can you give us some more evidence of your thoughts?

QE is one way out, as is a massive devaluation. Default is a powerful world, only use it if you can back it up.

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Really? Can you give us some more evidence of your thoughts?

QE is one way out, as is a massive devaluation. Default is a powerful world, only use it if you can back it up.

Even QE is a form of borrowing that has to be repaid in the future. UK govmnt can only continue to borrow money for as long as people are prepared to lend to it. It's not impossible that we will get to the stage where people no longer believe we can repay the debt through future earnings and bondholders demand higher returns or go on strike altogether.

It all comes down to whether or not lenders believe we can grow our way out of the hole we are in. Ultimately it is a view on the productivity and competitiveness of UK plc. Even more so now that we are gradually losing the N Sea prop that rescued us in the 80's.

If it is deemed we cannot repay our debts then we are left with 2 options;

Actual printing of currency (as opposed to borrowing) - collapse in confidence, hyper-inflation. For more details google Zimbabwe.

Default.

UM

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Really? Can you give us some more evidence of your thoughts?

QE is one way out, as is a massive devaluation. Default is a powerful world, only use it if you can back it up.

The first point is that printing money is an indirect method of default. When a government prints money, they are transferring some of the value of the existing money supply to the newly printed money. The overall value of the money has not altered, it is just distributed over a greater number of units. As such, if you then repay debt with the money at the new value, you are paying less than you would otherwise pay. If you owe £1, yesterday the person you owed the money to could have used that money to buy a loaf of bread. Today they can only use it to buy three quarters of a loaf of bread. In effect, you are not honestly paying that person back, but are actually evading paying them back. It is a default through other means.

The other problem with printing money is that it is an indirect form of taxation. I suggest you read an article from the Ludwig von Mises institute here. However, the article does not explain the mechanism of the taxation. In redistributing the value of money effectively the government is taking the value of money held by individuals and institutions, and moving that value onto the money that is printed. The government holds that money, and therefore is indirectly taxing everyone who holds that currency.

I am not sure what you are asking for what you say more evidence of your thoughts. However, I have recently written this explanation of some of the dangers of the combination of government borrowing and printing money. I have already posted a link to an article, where the possibility of printing money is being openly discussed by the BoE in the original post.

With regards to the possibility of default, we have this from the FT:

'The UK and Italy struggled to sell bonds on Thursday in a fresh sign of the difficulties governments are facing because of the debt needed for economic stimulus packages and bank recapitalisations.

The two bond auctions saw both governments forced to pay higher yields to attract investors and Italy scaled back the amount on offer.

Analysts say it is an “ominous” warning that debt raising is likely to become even tougher in the coming months if problems are emerging so soon after government announcements to increase issuance. A record of more than €1,000bn ($1,290bn) of debt is expected to be issued in Europe next year.'

This is just one example, amongst many that I have seen (this is just the first that I found). I have been tracking these kind of articles (with the help of some of the commentators on my blog) for some time, and have referenced many similar stories. The government can not operate without continued borrowing. If the creditors do not stump up, the government will no longer have the finance to meet expenditure. The government will then have a choice of not paying for people/companies in the UK, not paying overseas debt, or paying for either/both with printed money.

I hope that I have covered your concerns, but let me know if you need more information. I normally take a browse through the forum once or twice a week, and will be happy to respond to any further questions.

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The first point is that printing money is an indirect method of default. When a government prints money, they are transferring some of the value of the existing money supply to the newly printed money. The overall value of the money has not altered, it is just distributed over a greater number of units.

In deflation the value of money with velocity is increasing. Printing money can redress this increasing value.

When this extra money finds it's way back onto the asset side of a bank balance sheet through debt repayment, I think it could in theory be contained, with regards to new money creation, with higher capital requirements imposed by the central bank.

Edited by Hancial
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In deflation the value of money with velocity is increasing. Printing money can redress this increasing value.

When this extra money finds it's way back onto the asset side of a bank balance sheet through debt repayment, I think it could in theory be contained, with regards to new money creation, with higher capital requirements imposed by the central bank.

You are assuming deflation is due to the collapse of confidence, rather than a supply side problem. This is what everybody is not considering. It is all a question of over supply. Sorry for a brief reply, but it is very late where I am, but a fuller answer is here.

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  • 2 weeks later...
  • 3 weeks later...

I'd be interested to hear everyone's thoughts on how much closer we are to QE than when this thread started. The last interest rate reduction was less than expected by most pundits (sorry, economic commentators) and shows a marked deceleration. My guess is that the BoE (and the government) don't want to hit the zero rate to soon, as then the only option left is quantitative easing.

Whaddya reckon? Will they start printing wedge before the zero point. Stupid question maybe, but how will we know when the presses start to roll??

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I'd be interested to hear everyone's thoughts on how much closer we are to QE than when this thread started. The last interest rate reduction was less than expected by most pundits (sorry, economic commentators) and shows a marked deceleration. My guess is that the BoE (and the government) don't want to hit the zero rate to soon, as then the only option left is quantitative easing.

Whaddya reckon? Will they start printing wedge before the zero point. Stupid question maybe, but how will we know when the presses start to roll??

Just answered my own question- there's an article on MailOnline today saying that the BoE has been given the go-ahead by the Chancellor to "a £50 billion asset purchase mechanism".

Hold onto your seats. Here comes the high-powered money. And high interest rates in 12-18 months time when the Bank tries to take it back out of the system????

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Just answered my own question- there's an article on MailOnline today saying that the BoE has been given the go-ahead by the Chancellor to "a £50 billion asset purchase mechanism".

Hold onto your seats. Here comes the high-powered money. And high interest rates in 12-18 months time when the Bank tries to take it back out of the system????

"The program, announced Monday, allows the BOE to buy high-quality, private-sector assets. It can also be used for monetary policy purposes if the bank so chooses, and could be a first step on the road to quantitative easing."

http://online.wsj.com/article/BT-CO-20090119-702917.html

as soon as the BOE buy non-govt instruments to control (manipulate) money supply. then in my book, that is quantative easing.

The BOE DO PRINT MONEY to do this. It works in the same way as controlling rates with governement securities.

i.e. if BOE want to drop rates they print money, and buy a treasury bill.

to reduce money supply (thus increasing rates) they sell a tresury bill (and take the cash out of the system).

note that they do not use treasury bills to buy the 'high quailty assets', they actually print money.

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  • 4 weeks later...
Just answered my own question- there's an article on MailOnline today saying that the BoE has been given the go-ahead by the Chancellor to "a £50 billion asset purchase mechanism".

Hold onto your seats. Here comes the high-powered money. And high interest rates in 12-18 months time when the Bank tries to take it back out of the system????

bump.

"The Asset Purchase Facility, operated by the Bank for the Government, will purchase

up to £50 billion worth of commercial paper, corporate bonds and similar securities,

with the aim of increasing the liquidity of these instruments, reducing the cost of

capital to businesses and stimulating increased debt issuance."

"The first purchase under this facility was made last

Friday."

http://www.bankofengland.co.uk/publication...9/speech375.pdf

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bump.

"The Asset Purchase Facility, operated by the Bank for the Government, will purchase

up to £50 billion worth of commercial paper, corporate bonds and similar securities,

with the aim of increasing the liquidity of these instruments, reducing the cost of

capital to businesses and stimulating increased debt issuance."

"The first purchase under this facility was made last

Friday."

http://www.bankofengland.co.uk/publication...9/speech375.pdf

So how long will they be able to keep making purchases under this facility, before the Bank has to resort to a printing press?

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  • 2 weeks later...

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