Sunday, August 9, 2009

David Smith turns bearish?

Quantitative easing clips the wings of rising pound

The decision to announce an additional £50 billion of asset purchases came as a big surprise to the markets. I have to say that, armed with the publicly available information on Thursday morning, I would not have done it. I can see the argument for a degree of overkill. I share with Sushil Wadhwani, a former MPC member, a slight sense of unease. The Bank has expanded its balance sheet enormously, giving it a potential exit-strategy headache when the time comes. You expect central bankers to be cautious about this kind of thing. Thursday’s decision was not cautious.

Posted by little professor @ 12:03 PM (1932 views)
Please complete the required fields.



8 thoughts on “David Smith turns bearish?

  • He’s still droning on that the house price correction is over, even when he failed to even acknowledge it in the first place.

    Reply
    Please complete the required fields.



  • He doesn’t seem to address questions like “Having started down the QE road, what happens when we stop?”

    or “If house prices have stabilised, how do ordinary FTB’s find the money to buy their first home?”

    – Very myopic..

    On the first point, I think the markets were suckered into believing the guff about helping the banks, and didn’t cry foul on the matter of debasing the currency. This second tranche will begin to look more like an exercise in buying Gilts, because no-one else will. However, we’re still in the holiday season, and some data has been looking encouraging, so market ire has been modest.

    Give it a couple of months, when QE is up to £175bn, and wait for round three. I doubt then that the ‘help the banks’ bit will wash, and the markets will see the BOE as merely compensating for the inability of the DMO to sell government debt.

    Then, I think, the QE skeptics voices will be heard, and the markets will start to worry – and want to know what the end game holds in store. Without clear answers, or a credible forward stategy, the markets are likely to then punish Sterling.

    Reply
    Please complete the required fields.



  • We are talking about an engineered recovery. The markets are not allowed to heal themselves like it happens in Europe. Engineering process requires 50 billion QE every month. Flirting that much with inflation it may be dangerous as inflation is not easy to stop. It looks like they are doing the complete opposite to the rest of the world.

    Reply
    Please complete the required fields.



  • David Smith, in his child-like way, has at least admitted what has happened; remember this is the man who was simply unable to grasp that the property market was heading for a huge smash. As a forecaster he is terminally useless so ignore him.

    Reply
    Please complete the required fields.



  • stillthinking says:

    There is no exit strategy for QE, King said so himself. The first mechanism they will use should(?!) inflation return will be interest rate increases, that mechanism immediately breaks the ability to sell back the gilts without making an additional pure printed permanent loss. Simply, gilt buyers paid 100 at a yield of 4%, then they sold these back for 104 yield 0%, assuming the bank attempts to sell them again at yield 4%, the status quo is maintained apart from the original purchasers being freely funded 4%, which is BoE printed money they can’t get back. If the yield subsequently goes higher then the loss is worse because they will have exchanged 4% yield for 6% while being paid the original 4%.

    Thats the scam. BoE haven’t cheapened borrowing costs at all! The lenders just get it in a different form as capital profit.

    They just took the costs upon themselves and printed it out. There is no low yield government debt, just the payment mechanism moved from the treasury to printing. For 150 billion at 4%(or whatever), we still ended up with a hidden 6 billion payment in one year! which is spread amongst the population by devaluation of existing money.

    Reply
    Please complete the required fields.



  • stillthinking says:

    Lets not forget, even in a deflationary environment you can skank the general population by not allowing the value of money to increase to its natural market determined level, even if its value does go up it didn’t go up by the right amount, and that loss of purchasing power is born by the savers/workers.

    Reply
    Please complete the required fields.



  • The BoE are taking us all for mugs!

    Reply
    Please complete the required fields.



  • vacuouspolitician says:

    Ordinary people will lose out. When the counting has stopped and the dust has settled it will have cost ordinary people a packet.
    Penfold should have been sacked. Absolutely useless…what a bumbling old dinosaur. No direction. Always behind the game. Mugged by all those city spivs. Not convinced he hasn’t got a vested interest either…

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>