Bank of England fears new crisis as quantitative easing ends

JP45

Lance wrote: »

Quantitative easing is a crutch with side effects if it goes on too long. The M4 money supply, lendng, is not increaseing and so QE is not curing the patient and they fear removing the crutch will cause patient to fall flat on his face....... before a General Election. They will continue QE because they have no shots left with I.Rs at 0.5%.

It's little more than guesswork at this stage but I'm not convinced the Bank will extend QE beyond the £200bn already agreed. Part of my reasoning for this is that QE (as you say above) does not appear to be curing the patient. I reckon that rather than extend QE, the Bank will simply keep IR on hold at 0.5% for quite some time, ignoring the current spike in CPI.

The difficulty with all such forecasts is that there is an almost unprecedented degree of uncertainty at the moment as to the true impact of the current measues, let alone the future path of the economy. Here, for example, is a recent quote from Chris Giles, the Economics editor at the FT:

We don’t know how effective monetary policy is at the moment. We don’t know how sustained the recovery; and we don’t know what effect tightening the fiscal position will have. We don’t really know how effective the fiscal stimulus has been; and we don’t know whether the economic recovery last year was essentially because emerging markets were unaffected by the crisis.

To my mind, that assessment by the FT's chief economist, although not particularly helpful for those seeking guidance, is probably a good deal more realistic and honest than some of the more confident predictions made by others.

stueyhants

Without QE this year mortgage lending, business lending and other forms of lending would have dried up. The government would never have got away its deficit spending at the yields it did this year without QE. The banks would not had the chance to make a nice profit on the Gilts and Repo sales of gilts back to the BoE without QE.

I'm finding it quite difficult to understand why these so called experts are not explaining how QE has helped.

abaxas

stueyhants wrote: »

Without QE this year mortgage lending, business lending and other forms of lending would have dried up. The government would never have got away its deficit spending at the yields it did this year without QE. The banks would not had the chance to make a nice profit on the Gilts and Repo sales of gilts back to the BoE without QE.

I'm finding it quite difficult to understand why these so called experts are not explaining how QE has helped.

There is a huge difference between doing any good and helping. Also you have fallen into the same trap that caused the crisis, you forget about long term at the cost of short term gain. Also QE has masked out natural wastage and kept insolvent businesses above water. Ie QE is the mother of all moral hazard.

Maybe without QE we would actually be in a weaker position but in the medium term a stronger one? The problem comes that the current goverment is so fixated on figures improving, they cant see any larger picture.

Who knows what is better or if it has helped. The only think I can guarentee is that it's 'helped' labour's potential re-election.

Thrugelmir

stueyhants wrote: »

Interesting how none of the bulls like argue against the risks of QE ending but love to jump on a EA marketing survey!

Not as exciting that's why. The world of finance is dull and boring, and apparently has no bearing on the future direction of house prices.

bo_drinker

chucky wrote: »

what's there to argue about, we all know the risks - nobody knows what will happen on tuesday. i haven't got a crystal ball, have you?

everything indicates it will be fine

Looks like rain and drizzle..

http://orangeuk.accuweather.com/orange/index.asp?location=EUR|UK|UK153|Lugwardine

doire_2

chucky wrote: »

what's there to argue about, we all know the risks - nobody knows what will happen on tuesday. i haven't got a crystal ball, have you?

everything indicates it will be fine from all of the previous gilt sales and even looking at the greece gilts sale last week there is still an appetite - but you never know what the markets will do.

if you know and can predict what the markets are going to do could you let me know and we can make some money :T

Yet you bulls cream yourself over predictions suggesting price rises?

Oh well its only the BOE...what do they know anyway

chucky

doire wrote: »

Yet you bulls cream yourself over predictions suggesting price rises?

Oh well its only the BOE...what do they know anyway

what are you talking about??? you really struggle with basic reading and understanding don't you

do you actually know what a gilt is and how the yield is calculated??

chucky wrote: »

what's there to argue about, we all know the risks - nobody knows what will happen on tuesday. i haven't got a crystal ball, have you?

everything indicates it will be fine from all of the previous gilt sales and even looking at the greece gilts sale last week there is still an appetite - but you never know what the markets will do.

if you know and can predict what the markets are going to do could you let me know and we can make some money :T

go on doire stretch the brain a bit and explain to us all how a gilt sale works?

StevieJ

Thrugelmir wrote: »

Not as exciting that's why. The world of finance is dull and boring, and apparently has no bearing on the future direction of house prices.

Or simply the fact that once QE ends the BOE will consider that the economy is a lot healthier and stimulation can be gently removed.

lemonjelly

StevieJ wrote: »

Or simply the fact that once QE ends the BOE will consider that the economy is a lot healthier and stimulation can be gently removed.

I think the concern is, by some at least, that the withdrawal of QE will impact in a big way on the economy.

The question is will the timing be right? Whilst I assume most will accept the economy is in a healthier state than when QE started, the question as to whether the economy is healthy enough to cope with the withdrawal of QE is quite different.:)

StevieJ

lemonjelly wrote: »

I think the concern is, by some at least, that the withdrawal of QE will impact in a big way on the economy.

The question is will the timing be right? Whilst I assume most will accept the economy is in a healthier state than when QE started, the question as to whether the economy is healthy enough to cope with the withdrawal of QE is quite different.:)

That is a judgement call on the BOE.