End of QE

carolt

Forgive me if this is being discussed elsewhere...but surely the biggie story of the day, and I couldn't spot it on here.

Thoughts, everyone?What will happen now...?

We seem to be in one of those interesting pause moments, when everyone stops and looks to see what's going to happen next.

Pause may last till after the election. And then... :question:

Cleaver

carolt wrote: »

Forgive me if this is being discussed elsewhere...but surely the biggie story of the day, and I couldn't spot it on here.

Thoughts, everyone?What will happen now...?

We seem to be in one of those interesting pause moments, when everyone stops and looks to see what's going to happen next.

Pause may last till after the election. And then... :question:

Isn't it it the classic 'take the stabilisers off the bike' moment? I guess two scenarios are possible when you remove the stablilisers: a) the kid isn't ready to cope on two wheels, the bike falls over and the kid smashes their face in, or b) the kid carries on biking (maybe with a bit of an initial wobble) and rides off happily down the street not needing any support.

Oh, and just incase anyone needs help - bears support a) and bulls support b). Because it is just that clear cut.

Dan:_4

carolt wrote: »

Forgive me if this is being discussed elsewhere...but surely the biggie story of the day, and I couldn't spot it on here.

Thoughts, everyone?What will happen now...?

We seem to be in one of those interesting pause moments, when everyone stops and looks to see what's going to happen next.

Pause may last till after the election. And then... :question:

Nothing will happen.

And after a few months I will enjoy resurfacing all those posts about QE temporary maintaining house prices, and they will crash the second it's withdrawn rubbish.

System

The QE has stopped but the money is still in the system. I'd only expect a change is the money was also being withdrawn

Cleaver

Dan: wrote: »

Nothing will happen.

And after a few months I will enjoy resurfacing all those posts about QE temporary maintaining house prices, and they will crash the second it's withdrawn rubbish.

I understand the concept of QE, but I can't really see the link between money creation and that keeping house prices high (I'm not saying there isn't a link, just that I don't get how there could be one. Maybe someone can explain).

I kinda understand more how QE helps banks and the general financial market to buy assets, which boosts the financial markets, so maybe this is the link in a roundabout way? Seems a bit tenuous, but as I say, maybe someone can explain it to me.

Cleaver

Joeskeppi wrote: »

The QE has stopped but the money is still in the system. I'd only expect a change is the money was also being withdrawn

Isn't the key that the money created by QE has to be re-paid? And presumably this needs to come through some pretty severe tax hikes or public spending cuts? As an effect of this people have less money in their pocket, unemployment may rise and as a by-product the appetite to take on big loans to buy big houses isn't as strong as it was previously.

Although I enjoy discussions like this, I am acutely aware of how out of my depth I am. Think I might pop in to The Arms and start a thread about who would win in a fight between a toddler with a knife and a drunk, angry cat. Or something.

Radiantsoul

Cleaver wrote: »

I understand the concept of QE, but I can't really see the link between money creation and that keeping house prices high (I'm not saying there isn't a link, just that I don't get how there could be one. Maybe someone can explain).

I kinda understand more how QE helps banks and the general financial market to buy assets, which boosts the financial markets, so maybe this is the link in a roundabout way? Seems a bit tenuous, but as I say, maybe someone can explain it to me.

QE increases the amount of cash that banks have. And as banks have more money to lend and they will lend more to people as mortgages. This will result in an increase in the demand for housing and hence a rise in prices.

aelitaman

Radiantsoul wrote: »

QE increases the amount of cash that banks have. And as banks have more money to lend and they will lend more to people as mortgages. This will result in an increase in the demand for housing and hence a rise in prices.

If they did this then I agree. But they did not as the previous thread on net mortgage lending highlighted. The banks just put the cash on deposit at the BoE earning interest.

Cleaver

Radiantsoul wrote: »

QE increases the amount of cash that banks have. And as banks have more money to lend and they will lend more to people as mortgages. This will result in an increase in the demand for housing and hence a rise in prices.

That seems to make sense, thanks.

I guess the simple economist in me wants to ask whether mortgages really dried up that much to the point where QE had a significant impact? I know there was a stage where some 10% deposit and some other FTB products disappeared, and I know sub-prime products are not really available anymore, but for most standard borrowers hasn't there been available products all the way through the recession?

Thrugelmir

Cleaver wrote: »

I understand the concept of QE, but I can't really see the link between money creation and that keeping house prices high (I'm not saying there isn't a link, just that I don't get how there could be one. Maybe someone can explain).

I kinda understand more how QE helps banks and the general financial market to buy assets, which boosts the financial markets, so maybe this is the link in a roundabout way? Seems a bit tenuous, but as I say, maybe someone can explain it to me.

QE has allowed the Government to continue to borrow money without tapping the money markets or raising taxes. So people have more money in their pockets than they otherwise would, so are able to buy assets if they so wish , with the added advantage that interest rates are low if they can borrow the money.

So this tax year around £180 billion has been added to the UK's credit card. All of which will be paid back in the future.

Cleaver

Thrugelmir wrote: »

QE has allowed the Government to continue to borrow money without tapping the money markets or raising taxes. So people have more money in their pockets than they otherwise would, so are able to buy assets if they so wish , with the added advantage that interest rates are low if they can borrow the money.

So this tax year around £180 billion has been added to the UK's credit card. All of which will be paid back in the future.

Thanks Thrugel, I pretty much thought that was the case.

However, if we pay that money back over the next decade or two via increased taxes and public spending cuts will this really be a catalyst for a sudden, large tumble in house prices over the next year or two? It just sounds more as though house prices won't be allowed to spiral up and up like they have over recent years if that scenario plays out.