Thursday, October 6, 2011

Bailing out homeowners again

With inflation approaching 5pc, do we really want more QE?

Already, the Bank of England has bought up around 20pc of the national debt, equal to some 14pc of GDP. This latest round of QE will expand it to close to 30pc. I worry both that it will be ineffective in terms of stimulating investment and growth, and that we are now perilously close to outright monetisation of the deficit (a policy approach which all economic history shows ends in abject disaster). I worry that ultimately it's bound to be inflationary. As it is, I fear that it will again be the investment bankers who are the major beneficiaries. QE is like a drug; once hooked, it's very difficult to wean yourself off. Just how many fixes are required before you realise you are an addict?

Posted by drewster @ 05:09 PM (3217 views)
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22 thoughts on “Bailing out homeowners again

  • general congreve says:

    For God’s sake, no more QE!!!

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  • is there such a thing as Q-Weeeeeeeeeeeeeeeeeeeeeeeee

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  • little professor says:

    Merv quoted in an interview stating that inflation has peaked and that last month’s inflation figure (released in two weeks) will be the high-water market – it’s all downwards from here. Let’s see.

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  • Sky News: Fears UK Is In ‘Worst Ever’ Economic Crisis
    Ed Conway, economics editor

    Britain could be in the grip of the “most serious financial crisis ever”, the governor of the Bank of England has exclusively told Sky News.

    Sir Mervyn King said the global and UK economies had been turned on their heads in the past three months alone and said: “The world has changed.”

    His warning comes after the bank’s Monetary Policy Committee (MPC) voted to extend its programme of quantitative easing (QE) to boost economic growth.

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  • general congreve says:

    @4 – It’s all overblown, Merv doesn’t know what he is talking about, the world economy growth rate is 4.3%. It’s a fact. The modification and reduction of debt is a reality. August 2007 was a long time ago and the world has moved on.

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  • blinktoofast says:

    I need some help.
    QE made GBP:USD fall. Got it.
    QE made XAG:GBP rise. Got it.
    QE made UK bond yields fall. I don’t get it. Can someone explain to me why UK bonds look a better investment now that the value of the pound has been watered down? Either I am being thick, or the bond market is being thick. And I’m worried it’s me.

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  • blinky,
    When the bank prints money for QE, it uses that money to buy UK government bonds (gilts). That makes yields fall. The bank is interfering directly in the bond market.

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  • What effect do you see this having on gold GC?

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  • blinktoofast says:

    @7 OK, thanks Drewster. Plain old supply and demand. I will content myself with the long term effect must be to push yields up.

    @8 Mr G, it has no effect on gold or silver, but it does devalue the pound against them, increasing XAG:GBP and XAU:GBP.

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  • blinktoofast says:

    @10 Titanic Captain – You’re not talking cr4p, but you’re not quite right, either. PMs are not shares and equities and do not go up and down with the stockmarket. The recent falls are most likely a combination of the exchanges margin hikes and people buying fiat with their PMs (money) to pay off fiat margin losses on the stock exchanges (which have transactions in fiat, not in money). This buying of fiat with money temporarily increases the perceived value of fiat in real money terms. If people need to buy more fiat to cover more margin losses in the coming weeks, it might increase the perceived value of fiat further. Simultaneously, the central banks will print more fiat, reversing the trend and watering it down into oblivion to get rids of their debts whilst pretending to save the markets and the banks, and only money will be left.

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  • blinktoofast says:

    @13 Titanic Captain – Y’know what? I reckon you and I share the same sense of humour and more or less the same perception of the markets. I wish more people in my office were like you.

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  • sibley's b'stard child says:

    Fubra should really consider changing the site name to ‘Rumpelstiltskin.co.uk’ where every thread turns to gold.

    See what I did there?

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  • Sib’s – it will be interesting to see how long the Gold articles persist when the Gold bubble bursts – Emperor has no clothes sits well alongside Rumplestilskin from what I’m now hearing.

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  • general congreve says:

    @8 – Hi Mr G, I’m afraid I haven’t had time to think what this might mean for the price of gold, because been busy hatching a much better wealth preservation plan.

    What I’m doing is selling all my gold post haste and depositing the proceeds in a savings account paying negative real rates. Then I am going to build a massive paper mache pig (much bigger than the one we saw today by the way – to show them I really mean business) and I’m going to smash it up outside the BoE with a huge mallet.

    I reckon that should do it.

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  • general congreve says:

    @3 – I guess that wasn’t the same interview with Sky @4, where he conceded that inflation was likely to rise above 5% in the coming months – but that would be the peak, and it would then start falling “quite rapidly” next year.

    Would be nice to get a straight answer from him.

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  • sbc, in fairness it took until comment #8 to even mention gold.

    What would be a good name for a new site, GoldMightGoABitHigherFromHereAlthoughYou’veProbablyMissedTheBiggestGains.com?

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  • did the BOE have advance notice of bank downgrades hence the sudden QE

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  • mark – It certainly looks that way!

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  • then surely it stinks of corruption in the system???

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  • general congreve says:

    @23 – I for one am shocked!

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  • yeh me too i thought they were all so honest and decent chaps at the Bank of England

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  • Rich Kightley says:

    The point was made on Any Questions last night by Billy Bragg, “this amounts to £4000 per UK citizen, why don’t they give it to the people to stimulate the economy”.

    He has a point, there is not much chance of inflation when the world economy is on fire and sinking.

    The bankers will use 99% for speculation on fuel and food forcing up our prices, so this is a hidden tax as well as bailing out the Coalitions cousins, fathers, in-laws and next-door neighbours who work in the banks.

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