What will happen when QE stops.

ad9898_3

I'm just intrigued by what the board thinks will happen to the economy/housing market when this stops. The BoE bought £3.5 billion worth of gilts yesterday and is planning on another £3 billion tomorrow, this must have effect when it stops.

My feeling is the small amount of optimism that has being going through the media is riding on the back of QE, net debt currently stands at £774.8bn, 54.7% of GDP. At some point the borrowing and QE has to stop, but what will be likely scenarios when it does ?

inspector_monkfish

they put another 50p in the meter, and do it all again.....;)

StevieJ

It will be reversed to counter increasing liquidity, providing it is not election time

Broken_hearted

the dust clears and we realise we are truely f u c k e d

Thrugelmir

ad9898 wrote: »

I'm just intrigued by what the board thinks will happen to the economy/housing market when this stops. The BoE bought £3.5 billion worth of gilts yesterday and is planning on another £3 billion tomorrow, this must have effect when it stops.

My feeling is the small amount of optimism that has being going through the media is riding on the back of QE, net debt currently stands at £774.8bn, 54.7% of GDP. At some point the borrowing and QE has to stop, but what will be likely scenarios when it does ?

QE is to support bank liquidity. The wholesale money markets have dried up in relative terms.

No difference at all to housing market.

Large companies are raising capital by having rights issues to replace bank debt. So will continue as currently. In the main contracting and reducing their cost base.

Quite possibly leave us with a jump in inflation.

Generali

As StevieJ implies, QE will have to be reversed. So how will that reversal happen?

The Government will issue debt but no money will appear in it's bank account as a result. The liability will be very real from the POV of the taxpayer - there will be an interest bill to be met as well as some debt being repaid (presumably) now and again.

How will you feel when your taxes rise with nothing to show for it? Just the warm feeling in your tummy that you get when you know that the monetary base is just a little more secure. Yeah I thought so - there are no votes in sound money until sound money is long gone.

Then you're screwed and you realise your mistake too late.

That's the risk of QE.

Lotus-eater

Generali wrote: »

As StevieJ implies, QE will have to be reversed. So how will that reversal happen?

The Government will issue debt but no money will appear in it's bank account as a result. The liability will be very real from the POV of the taxpayer - there will be an interest bill to be met as well as some debt being repaid (presumably) now and again.

How will you feel when your taxes rise with nothing to show for it? Just the warm feeling in your tummy that you get when you know that the monetary base is just a little more secure. Yeah I thought so - there are no votes in sound money until sound money is long gone.

Then you're screwed and you realise your mistake too late.

That's the risk of QE.

I don't understand how this works, if I don't understand it... and I'm interested in it. What is your average man in the street going to think about it. If it's not about how Ronaldino from BB is going to cost £50 millions it's not worth thinking about.

Mind you, I'm still not sure I absolutely understand how QE works either maybe it's saying something about me :rotfl:

inspector_monkfish

Thrugelmir wrote: »

QE is to support bank liquidity. The wholesale money markets have dried up in relative terms.

.

There are plenty of liquid Banks out there. Its just that instead of lending the cash to each other, they are choosing to give it all back to the Central Banks.

So the QE money goes full circle.

Thrugelmir

inspector_monkfish wrote: »

There are plenty of liquid Banks out there. Its just that instead of lending the cash to each other, they are choosing to give it all back to the Central Banks.

So the QE money goes full circle.

Agreed. But in simplistic terms doesn't this "cash" enable them to balance their books. As there isn't the wholesale money markets to borrow from.

On lending I read that the remaining UK banks in the mortgage market still had an exposure of 4 times their total capital and reserves alone.

inspector_monkfish

Thrugelmir wrote: »

Agreed. But in simplistic terms doesn't this "cash" enable them to balance their books. As there isn't the wholesale money markets to borrow from.

On lending I read that the remaining UK banks in the mortgage market still had an exposure of 4 times their total capital and reserves alone.

Absolutely true.
Books are balanced right up until as late as possible, then any excess liquidity is off loaded back to the Central Banks.

The Bank I work for is a relativley small player in the InterBank Markets, but we have just offloaded almost £2billion to BOE, about USD1billion to the FED, and about EUR500million to ECB. They are keeping it nice and warm for us, until we need it all or some of it back!

So goodness knows what the larger players are doing....

This is all cash we have picked up from lenders that don't have the ability to lend to Central Banks, so have to give it to the likes of us.


I wouldn't know so much about the mortgage market.

Generali

inspector_monkfish wrote: »

Absolutely true.
Books are balanced right up until as late as possible, then any excess liquidy is off loaded back to the Central Banks.

The Bank I work for is a relativley small player in the InterBank Markets, but we have just offloaded almost £2billion to BOE, about USD1billion to the FED, and about EUR500million to ECB. They are keeping it nice and warm for us, until we need it all or some of it back!

So goodness knows what the larger players are doing....

This is all cash we have picked up from lenders that don't have the ability to lend to Central Banks, so have to give it to the likes of us.


I wouldn't know so much about the mortgage market.

Are you trading repos or money mkt if you don't mind me asking?