Tuesday, February 24, 2009
BoE can’t be telling the whole truth about the gilt buyback
This pdf explores the various ways that the government can avoid deflation. There were some posts about the BoE going on a buyback of gilts which is still suggested in the media. But this article suggest that "open market operations in -any asset other- than bonds eliminates deflation..". Anyway there a number of interesting points in this, perhaps one that isn't so obviously stated is that government debt won't be reducing in the future, and gilts are going to come down in price and up in yield. Further, the intervention would ideally be against assets or foreign exchange. Foreign exchange (as deliberate devaluation) is out, which leaves assets. So asset holders (banks) could be looking at an unfair transfer of wealth away from the general population (-over- and above default covering).