End of QE

Generali

HAMISH_MCTAVISH wrote: »

But that is not the same thing at all as assuming debt has been monetised, which is the usual tack of the QE sceptics.

The debt hasn't been monetised (GTS: this means that Government debt is swapped for freshly printed money) permanently yet however the temptation must be there to do so.

I don't believe that at anything like current yields there is an appetite for £200,000,000,000 of Gilts in the market each year. If the Government can't sell the debt then they either have to increase yields or make QE permanent by not rolling over the Gilts bought by the BoE which will monetise the debt.

baby_boomer

StevieJ wrote: »

Don't be ridiculous, it is all about the Piigs especially Greece, the Ftse is one of the best performers today

BTW youngsters are not very happy with you :eek:

"baby boomers reveal themselves to be simply the most spoilt generation in the history of the entire planet", "a parasitic generation", "thanks for looking the other way", "it's a generational mugging".

http://www.guardian.co.uk/money/2010/jan/31/unemployed-graduates-credit-crunch-andrew-hankinson

I have always agreed. Check my posts. We screwed our parents and we're going to screw our children. It's take the (previously) baby_boomer loving Guardian journos about 25 years to catch up with my opinion.

But why are you going off topic with such a cheap ad hominem line. Could it be to distract attention from your weak argument?

BTW - how do you actually know I am of the baby_boomer generation ? My advice - and that of MSE - is to stick to the arguments. If you want to discuss the role of baby_boomers, start a new thread rather than messing up this one.

StevieJ wrote: »

the Ftse is one of the best performers today

"Just" down 1.5% to complete a rotten start to 2010 . You can't be serious.

Radiantsoul

Generali wrote: »

The debt hasn't been monetised (GTS: this means that Government debt is swapped for freshly printed money) permanently yet however the temptation must be there to do so.

I don't believe that at anything like current yields there is an appetite for £200,000,000,000 of Gilts in the market each year. If the Government can't sell the debt then they either have to increase yields or make QE permanent by not rolling over the Gilts bought by the BoE which will monetise the debt.

I am pretty sure the bank of England will want and need to shrink its balance sheet. I can't really be sure over timescales though.

Sovereing debt was one of the AAA assets available last year, so I am not sure it would have been hard to shift. But I accept that attitudes to risk have moved on and it may prove harder to shift them on an ongoing basis.

HAMISH_MCTAVISH

Radiantsoul wrote: »

Sovereing debt was one of the AAA assets available last year, so I am not sure it would have been hard to shift. But I accept that attitudes to risk have moved on and it may prove harder to shift them on an ongoing basis.

I'd broadly agree with that.

Generali

Radiantsoul wrote: »

I am pretty sure the bank of England will want and need to shrink its balance sheet. I can't really be sure over timescales though.

Sovereing debt was one of the AAA assets available last year, so I am not sure it would have been hard to shift. But I accept that attitudes to risk have moved on and it may prove harder to shift them on an ongoing basis.

If AAA UK Gilts were easy to shift then there would be no liquidity problem ( a liquidity problem means that prices are either rising or falling quickly because there aren't enough people on one side of the trade).

Either there is a liquidity problem and QE is a short term solution or there is no liquidity problem and QE was a waste of time and has introduced uncertainty into a market for no good reason. If QE is meant to be a long term solution then a monetary miracle has occurred meaning the UK Government can in perpetuity spend more than it taxes and make up the difference by printing money.

Radiantsoul

Generali wrote: »

If AAA UK Gilts were easy to shift then there would be no liquidity problem ( a liquidity problem means that prices are either rising or falling quickly because there aren't enough people on one side of the trade).

Either there is a liquidity problem and QE is a short term solution or there is no liquidity problem and QE was a waste of time and has introduced uncertainty into a market for no good reason. If QE is meant to be a long term solution then a monetary miracle has occurred meaning the UK Government can in perpetuity spend more than it taxes and make up the difference by printing money.

I think the problem was there was too little funds available for higher risk investments. So buying back gilts freed money up to be spent on riskier assets. The fact that asset prices seems to have been rising strongly in most classes does seem to indicate to me that it has to some extent worked.

Generali

Radiantsoul wrote: »

I think the problem was there was too little funds available for higher risk investments. So buying back gilts freed money up to be spent on riskier assets. The fact that asset prices seems to have been rising strongly in most classes does seem to indicate to me that it has to some extent worked.

Look at the M4 measurement of the money supply. To my mind, that was the target of QE and the rate of increase has basically been falling over the last year, albeit in a lumpy kinda way.

The assets that were meant to be bought were loans. Those loans haven't materialised.

StevieJ

baby_boomer wrote: »

n.

But why are you going off topic with such a cheap ad hominem line. Could it be to distract attention from your weak argument?

BTW - how do you actually know I am of the baby_boomer generation ? My advice - and that of MSE - is to stick to the arguments. If you want to discuss the role of baby_boomers, start a new thread rather than messing up this one.


"Just" down 1.5% to complete a rotten start to 2010 . You can't be serious.

A classic Chewbacca defence

wymondham

carolt wrote: »

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

.. anything that gets us back to reality is a good thing, then we can see how messy this really is!

Thrugelmir

HAMISH_MCTAVISH wrote: »

All you are doing is looking at the net position, and conflating activity between the primary and secondary markets, which is horribly oversimplistic and makes the erroneous assumption that activity was conducted on a replacement basis, rather than an additional basis.

If you think for one second that the UK, or any other country with a AAA rating, would have had any trouble issuing those gilts into the face of the deepest global recession since the 30's, when investors the world over were piling into anything offering a modicum of security, you are sadly mistaken.

If we had not done QE at all, we would still have been able to offload the newly issued primary market gilts. (although granted, perhaps on slightly less favourable terms)

But all QE has really done, is replace already existing and issued old gilts, being held by financial institutions, with newly created cash which they can lend out instead.

When liquidity returns, the gilts will be sold, reducing liquidity in the markets, and the returned funds destroyed.

It is simply a liquidity solution, for a market that was starved of liquidity.

It is not monetisation of debt via the back door.

Nor is it "a loan, which has to be paid back".

QE is merely part of the beginning. Quite possibly even more QE will be required before the situation is normalised. From a personal perspective my time frame for resolution has moved far into the future.

Liquidity is the issue. I agree. Both RBS and HBOS whilst out of the operating theatre are still in intensive care. QE and the Special Liquity scheme together with other measures have enabled them to stay alive.

If they had been allowed to fail. The AAA rating afforded to the UK would have been torpedoed out of the water. So chicken and egg. The banks created the problems but we still need the banks.

You speak as if the British Empire was still in existance.

If you think for one second that the UK, or any other country with a AAA rating, would have had any trouble issuing those gilts into the face of the deepest global recession since the 30's, when investors the world over were piling into anything offering a modicum of security, you are sadly mistaken.

Its been in a long slow decline. My father when he was alive, was the FD of the last Quoted British Company to own rubber plantations in Malaysia. Of course you can guess who bought the Company and its assets. The Chinese, and that was in the 1960's. Ever since they've bought up raw materials of every description. So the changes to the world order have been coming for a long time. Short term gain vs long term control, two different ideoligies. Anyway I digress.

Without QE interest rates would have risen. QE has an inverse relationship with Gilt Yields. As prices move towards par as investors knew that the BOE would buy them. Immediately QE was suspended, yields have moved out again.

The UK economy is open, asset prices, bonds and shares, are driven mostly by overseas forces. At the end of 2008 around £800 billion of Gilts was outstanding. So to expect markets to absorb £600 billion more over the next 5 years is a tall order. Unless there is an obvious political will to do so.

As to whether QE will be "destroyed" is unknown. The BOE can use its bank balance to control inflation in the future by selling Gilts back into the market. The BOE is a Government Department at the end of the day.

One thing is for certain. QE is an art not a science. Looking at Japan, times ahead for the UK may prove just as difficult.