Bank of England may shift to 'heavy-duty credit easing'

Really2

Chris2685 wrote: »

Wasn't 'eased credit' what got us into this mess in the first place?!

You could argue it was the swift withdrawal and swift reverse was which got us in to the mess.
A soft landing would have been better than crashing nose first in to the ocean.

blueboy43

Chris2685 wrote: »

Wasn't 'eased credit' what got us into this mess in the first place?!

Credit was underpriced and too easy to get (particularly consumers).

Now it is arguably overpriced and too hard to get (particularly for business).

Nothing inconsistent about that.

chucky

blueboy43 wrote: »

Credit was underpriced and too easy to get (particularly consumers).

Now it is arguably overpriced and too hard to get (particularly for business).

Nothing inconsistent about that.

when house prices are rising or high - finance is at it's cheapest and easist to get

when house prices are falling or after a correction - finance is more expensive and harder to get

ILW

Talking to some businesses I know, the last thing they want at the moment is more borrowing (at any price). Most seem to be trying to reduce exposure over the next year or so.

michaels

Very interesting comment 'at any price' - the rationale behind the BoE proposed action is that the price of credit is being kept artificially high (probably due to a lack of capital in the banking sector) for which ever these 'specific sectors' are and that therefore the targetted action would reduce the cost of credit for these sectors and that they would then chose to borrow. If your experience is correct then we are back to 'pushing on a piece of string' and further 'targeted' QE will not increase credit.

Graham_Devon

chucky wrote: »

when house prices are rising or high - finance is at it's cheapest and easist to get

when house prices are falling or after a correction - finance is more expensive and harder to get

Wouldn't we be entering into a never ending yo yo effect though is there was direct "heavy duty" credit easing thrown at the housing market?

Make credit easier and prices rise again. At some point, it becomes unsustainable, no one can actually afford it. So do you make it easier again?

As seen in the workup to 2007? The inevitable then happens again, but we have created another situation where the banks are exposed and we cannot let them fail and so it starts again...

chucky

Graham_Devon wrote: »

Wouldn't we be entering into a never ending yo yo effect though is there was direct "heavy duty" credit easing thrown at the housing market?

Make credit easier and prices rise again. At some point, it becomes unsustainable, no one can actually afford it. So do you make it easier again?

As seen in the workup to 2007? The inevitable then happens again, but we have created another situation where the banks are exposed and we cannot let them fail and so it starts again...

thanks for describing a housing cycle.

you get a pass mark on that one

ILW

Graham_Devon wrote: »

Wouldn't we be entering into a never ending yo yo effect though is there was direct "heavy duty" credit easing thrown at the housing market?

Make credit easier and prices rise again. At some point, it becomes unsustainable, no one can actually afford it. So do you make it easier again?

As seen in the workup to 2007? The inevitable then happens again, but we have created another situation where the banks are exposed and we cannot let them fail and so it starts again...

Seems crazy.

I believe if the BoE let it be known that rates were going to creep up to a more normal level of say 4 or 5 percent over the next few years and the markets were going to have to look after themselves with no more QE, bailouts etc then a long term stability may be the result.
Trouble is they all have to be seen to be doing something to justify their existenece

Generali

michaels wrote: »

Very interesting comment 'at any price' - the rationale behind the BoE proposed action is that the price of credit is being kept artificially high (probably due to a lack of capital in the banking sector) for which ever these 'specific sectors' are and that therefore the targetted action would reduce the cost of credit for these sectors and that they would then chose to borrow. If your experience is correct then we are back to 'pushing on a piece of string' and further 'targeted' QE will not increase credit.

http://www.bankofengland.co.uk/publications/other/monetary/TrendsAugust10.pdf

See chart 2.4 on page 10 and chart 3.2 on page 11 for increased margins on lending.

The reason?

Of the top 10 lenders in 2007 (link), 2 have gone bust (Northern Rock & Bradford and Bingley), Lloyds TSB bought Halifax and Abbey National/Santander bought Alliance and Leicester. The top 10 became the top 6. 3 of the top 5 are either bust or bought. Competition in retail banking has been destroyed and I leave it to others to decide where to place the blame for such a dumb policy.

Graham_Devon

chucky wrote: »

thanks for describing a housing cycle.

you get a pass mark on that one

Did you not understand the post?

Would you like me to explain it in a different way?