Wednesday, September 12, 2012

£31bn slush fund sits untouched amid austerity carnage

The UK government's rainy day fund

What happens to the redeemed value of bonds purchased by the BofE's asset purchase fund company under QE? You'd have thought the money gets paid to HM treasury and is put to use on schools, hospitals and so on. But apparently £31bn is sitting in an account at the Bank of England, accounted "owed to HM Treasury" and is just sitting there, doing nothing, while the economy goes down the drain. Follow the links to the BofE report and see it with your own eyes... Is the easiest place to hide something ... in plain view?!

Posted by nickb @ 02:44 PM (1874 views)
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8 thoughts on “£31bn slush fund sits untouched amid austerity carnage

  • NickB, that £31 billion is not sitting anywhere, it no longer exists.

    The BoE is merely one sub-department of the Treasury, it cannot really “owe” the treasury anything. It’s like you owing Mrs B some money, on the consolidated balance sheet of Family B, that money is irrelevant because it’s a minus on your side and a plus on hers.

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  • Mark,
    Then why account it at all?
    N

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  • You could be right; I’m just being provocative to see if someone has an answer… Who owns the asset purchase fund company? What happens in other QE systems? (wilson claims it would be transferred and spent)

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  • “The BoE is merely one sub-department of the Treasury, it cannot really “owe” the treasury anything. ”

    That is correct, but in that case the £350bn of Gilts the BoE bought doesn’t exist either – since that is Treasury ‘owing’ the BoE.

    So why are the papers still worrying about debt reduction by the end of the parliament? It’s already been achieved.

    It is important at this point to realise that both points of view are correct. There is a consolidated government sector balance sheet – comprising of the government departments and the BoE. On this balance sheet the whole of the Asset Purchase Company’s activities vanish, and Treasury deficit is directly offset by the increase in ‘Other Assets’ at the BoE.

    Which just shows you that Gilts are not real debt. Nothing has to be given up to deal with them. They can be dealt with via a simple accounting entry in the government sector.

    But there are also the individual balance sheets of HM Treasury and the BoE. And on these balance sheets the Gilts do exist and so does the cash balance in the opposite direction.

    And its also important to note that cash balance is no longer going to the private sector – which means they have less money to spend.

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  • “Who owns the asset purchase fund company?”

    “Bank of England Asset Purchase Facility Fund Ltd (BEAPFF) is a wholly-owned subsidiary of the Bank. The investment of 100
    ordinary shares of £1 are held at cost on the Bank’s balance sheet.

    HM Treasury have indemnified BEAPFF and the Bank against any loss arising from the activities of BEAPFF and in return will
    receive any surplus. The Bank has not consolidated BEAPFF in its financial statements as it has no economic interest in its
    activities.”

    Bank of England Annual Report and Accounts 2012 pp73

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  • NickB, fair questions.

    “Why account for it at all?” I have no idea. Presumably to maintain the pretence that QE is anything more than swapping long term for short term borrowing (not necesarily a bad thing if you can gamble on short term rates staying low)??? But to be honest, it is a nonsense trying to account for such fantasy numbers.

    “Who owns the asset purchase fund company?” The BoE in turn set up an asset purchase company, it is all part of HM Treasury.

    “What happens in other QE systems?” I do not know and I do not really care. It appears that they all do different fantasy accounting things depending on who they want to hoodwink but it all boils down to nothing.

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  • Hi Mark,

    How will they reverse the QE if and when the economy starts growing again? Is there no exit route?

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