Wednesday, December 23, 2009

One last QE push for 2009

Bank of England ponders further boost to quantitative easing

The Bank of England is considering pumping a further £25 billion into the economy despite the recent surge in inflation, it emerged today. An increase in the central bank’s quantitative easing (QE) program from the current £200 billion budget ‘could still be justified’, according to newly-published minutes from the Monetary Policy Committee’s latest meeting held two weeks ago.

Posted by jack c @ 11:04 AM (1943 views)
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20 thoughts on “One last QE push for 2009

  • We all knew, that once started, they weren’t going to be able to stop………

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  • The good news is that QE has little or no effect, good or bad.

    Most people seem to confuse it with reckless government borrowing of £200 billion a year (or whatever the figure is), that is what we should be worrying about. Panicking, actually.

    But, as Jack C says, once you pop you can’t stop – the Japanese govt recently announced yet another ‘fiscal stimulus’ or ‘quantitiative easing’ (or whatever) in the vague hope that it will suddenly start working in the twentieth year.

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  • Gordon or gold?

    Not a tricky question.

    Gordon or syphilis. That’s a bit trickier.

    Goodbye GBP. Goodbye savings, goodbye pensions, goodbye prudence.

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  • Most people seem to confuse it with reckless government borrowing of £200 billion a year (or whatever the figure is), that is what we should be worrying about. Panicking, actually.

    Just wait until they start using QE money to buy their govt, bonds…..

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  • The Mail is, as ever, an idiot’s paper full of nonsense. The IR is held at 0.5% and QE halted – breaking news in the FT

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  • What is the trick? Investors are no longer buying securitised mortgage products and BOE has to print money to buy these instead otherwise the banks will make no loans to buy houses? Is the taxpayer replacing the fancy derivatives now?

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  • The frightening thing is that we have been buying our own debt with the QE money. Virtually all of it has been spent on Gov’t bonds At the moment we are selling most of the debt to the BoE at some point we have got to not only stop buying new issues but also sell back what we’ve already bought. All at at a time when we’re issuing record amounts of the stuff. Two chances – Slim and Fat.

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  • @ hpw, all the QE money went into buying govt bonds, it was a paper-shuffling exercise in a closed loop between commercial banks and BoE.

    When the govt borrows new money (as it is doing), it can do it by literally printing notes and minting coins and using those to pay their employees and welfare, pensions etc, or it can issue bonds in exchange for cash, or it can create credit balances at the BoE, it’s all the same thing ultimately.

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  • Mark Wadsworth,

    I’m grateful for the effort you’ve put into balancing the argument about QE but I cannot help noticing that even the Bank of England’s chief economist has some concerns about this.

    See penultimate paragraph at http://www.ft.com/cms/s/0/7a751268-efac-11de-833d-00144feab49a.html.

    More at http://www.guardian.co.uk/business/2009/dec/02/bubble-warning-spencer-dale-bank-of-england.

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  • mark wadsworth says:

    QG, he is just waffling as well. Yes, he has concerns, and like any large scale government intervention, as a general rule the negative will outwiegh the positive, but not even he claims it has made much of a difference in the way it was promised…

    “He conceded that the small and medium sized businesses in his audience were unlikely to have been helped directly by QE – but claimed they may have benefited indirectly, for example through reduced lending rates.”

    The money wasted on propping up banks and overpaying via QE would have been far better spent on tax cuts, IMHO.

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  • @mark wadsworth – I would agree Tax cuts would have potentially been a better strategy however the Government of the day has chosen a different path – ultimately where do you think this is going to land us as an economy?

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  • mark wadsworth says:

    @ JackC, it will end in a Home-Owner-Ist death spiral, banks will be bailed out again and again, taxes will rise and rise (except for taxes on property, which will be reduced and reduced), unemployment will rise and businesses will fail, government and household indebtedness will go up and up…

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  • @12, depends who wins the election. Cameron is worth £30m, Osborne is worth £4m, they won’t want their wealth destroyed by yet more Sterling devaluation caused by reckless policy. Brown on the other hand is worth £3.50 and doesn’t give a damn.

    I don’t believe either party will allow houses to fall, but I suspect the Tories won’t burn down the rest of the economy to keep them alive.

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  • …and the pound will become increasingly worthless? and inflation will rise dramatically?

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  • @mark wadsworth – thanks for your views, looks like we are off to hell in a handacrt afterall

    Where is Smugdog with the Christmas cheer (LOL)

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  • QE pointless? Then why has the Govt done it? The doubt appears to be over the degree to which it has affected the economy. Certainly yields have stayed low, but what would have happened to them in the absence of QE? I don’t think anyone knows.

    Much as I deplore the self-inflicted state of the banks, if nothing had been done it seems very likely the whole lot would have come down and left us in total collapse. As for tax cuts, this usually leads to benefits for the wealthy at the expense of the poor, which is why the wealthy generally support them. The unredeemed Ebenezers glower about us still.

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  • Dear Alistair,
    The anticipated report of 3% inflation has just flopped on the doormat here at Threadneedle Street just as Mrs King was bring me my mid morning dargeeling and the FT. I think the explanation may be connected with the bank recapitalisation initiative you and I have been engaged in, the completely unforseeable trashing of sterling on the foreign exchange markets which appears to have resulted and the bill from Fortnums for the hampers at the shooting weekend we organised for Goldmans. If you want me to stop it, let me know.
    Yours as ever,
    Mervin.

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  • @16 “if nothing had been done it seems very likely the whole lot would have come down and left us in total collapse. ”

    Thats what this Government wants us to believe whereas I remain skeptical…They couldn’t see the disaster until it was 3 inches from their nose…what a skipload of HORLICKS!

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  • @inbreda

    “inflation will rise dramatically?”

    My best guess is “no.” I don’t expect to see any violent changes in interest rates or a sterling crash in 2010.

    What I do expect to see in 2010 is an indication of how the next government intends to placate concerns from the ratings agencies and gilts market; that might be interesting.

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  • 19. quiet guy said… how the next government intends to placate concerns from the ratings agencies and gilts market….

    By imposing savage spending cuts.

    BUT… we are in the longest recession in post-war history.

    Squaring that circle will indeed be interesting.

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