Thursday, July 19, 2012

A case for credit force feeding

Fog of uncertainty over QE3 effects

Regarding the problems with more QE, Hirst notes: "If, however, the MPC is still labouring under the belief that the transmission mechanisms that allowed QE1 to succeed are still in place then they could be in for an unpleasant surprise. Whereas during the financial crisis the systemic risks had frozen credit markets and confidence had all-but-evaporated, the problem now is how to move money off corporate balance sheets. With Europe still hanging like a sword of Damocles over the corporate sector, this may yet be some time in coming." From this perspective, more stimulus in the form of bungs for builders (Funding for Lending Scheme) seems plausible.

Posted by quiet guy @ 09:01 AM (1129 views)
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3 thoughts on “A case for credit force feeding

  • general congreve says:

    It’s all bluff. The policy of QE has nothing to do with stimulating the real economy, it is all about making banks solvent, which in turn keeps house prices high (by locking in previous bubble HPI into the economy) because banks don’t have to recognise loses and sell property portfolios that are deep underwater.

    What I didn’t know, was that they’ve been throwing money at corporate bonds too! I heard they’d been thinking about it, but unless I’ve missed something, this table shows they’ve chucked hundreds of billions on corp bonds to bail out indebted corporations too. No wonder they say our corporations are flush and sitting on tonnes of cash. I guess this is where the money is coming from to keep the likes of Debenhams (£1Bn in debt), Thomas Cook (£1.2Bn+ in debt), Home Retail Group (Argos & Homebase = £2.5Bn in debt) humming along while smaller high street retailers collapse into the dust around them.

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  • general congreve says:

    @1 – Sorry, meant to say hundreds of millions for the corporations, not billions. I do believe this is another example of the merger of state and corporations aka fascism. Not that we need another example, the banks are more than example enough on their own.

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  • general congreve says:

    Ref my ‘QE locks in HPI’ point @1, here’s a quote by Detlev Schilchter from an article I have just been reading, that explains it very nicely:

    At the present stage of the credit mega-cycle, more monetary accommodation helps the banks fund overpriced assets and bad loans on their balance sheets. Various ‘bubbles’ – which are uniformly the result of past monetary expansion – are thus sustained and even inflated further. Market forces that would adjust prices, reallocate assets and bring the economy back to balance are thus weakened or impaired completely.

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