QE3 = £75bn

Mr_Mumble

Sigh...

"The British Pound has declined heavily against all of the 16 most actively traded currencies this lunchtime, falling over 1% against the Euro and the Dollar in under a minute, as the Bank of England announced that it would resume quantitative easing and purchase government bonds to the value of £75 billion,"

The BoE haven't seen the impact of the 5% fall in Sterling vs the US over the past month so this seems ridiculously pre-emptive. Broad money + liquidity are where they should be right now. The BoE MPC seem to have fallen for the chicken licken drivel in the media. They've shot their load, what the hell happens if we do get another recession and/or we start seeing yet higher inflation?

tomterm8

kabayiri wrote: »

I'd rather they take just 10% of this £75bn, and provide it to make the largest lottery ever seen in the world.

Let people all over the globe buy tickets. It would be the media event of the century. Guarantee thousands of people becoming multi-millionaires over night. It would raise bucket loads of cash.

..course, we all will know inwardly when 'Sam Cameron' emerges with a bunch of the winning tickets, that this was down to pure luck

You could make it a billion, and throw in being the King or Queen of England for the year, plus living rent free in Buckingham palace, too.

kabayiri wrote: »

So why £75bn, and not 25 or 100 ?

Does anyone really think it will fix things?

The last 200bn didnt solve our problems , did it?

Is there another tranch of gilts they need to flog?

After all, when all is said and done, the reason for the last set of QE was that the government couldn't go to the markets to sell huge numbers of gilts, and so printed the money to buy them.

Turnbull2000

Will this cause further damage to private pensions?

Really2

Mrs_Bones wrote: »

I keep hearing the soothing sounds of the BoE saying that inflation is fully expected to go down from the start of next year. After hearing the same words for the past couple of years have to say I've given up listening to intently but I'm sure some are and some may even still believe. Question is now that the printing presses have started again will the soothing words on inflation continue? or are the conservatives up to their old tricks and hoping some won't remember the last time.

Well there is no vat increase the start of 2012 unlike the last two years.

That should be worth around a 1.1% reduction each month of 2012.

tomterm8

Turnbull2000 wrote: »

Will this cause further damage to private pensions?

"It depends."

If you are on a fixed annuity, yeah.

If you haven't cashed in yet, maybe not, if it helps the stock market stay up.

ILW

I believe Mervyn King is retiring soon and his pension is inflation linked.

Graham_Devon

On the basis that inflation is better than depression, I suppose it is just about possible to go along with the Monetary Policy Committee's decision to increase "quantitative easing" by a further £75bn.


But I worry about it. I worry both that it will be ineffective in terms of stimulating investment and growth, I worry that it is going to be very difficult for the Bank of England to unwind these now vast holdings of government debt, I worry that we are now perilously close to outright monetisation of the deficit (a policy approach which all economic history shows ends in abject disaster), and I worry that ultimately, it's bound to be inflationary.


In a speech two or three weeks back, Adam Posen, until recently an outrider on the MPC in demanding more QE, said that such fears were "unfounded" and "unwarranted", but answer me this. How's the further plunge in the value of the pound that greeted this announcement not inflationary? Even the Bank of England's own analysis of the effect of QE to date, which is based on quite questionable methodology, estimates that it has added 0.75 to 1.5 percentage points to CPI inflation for a maximum gain in real GDP of 2pc. That doesn't seem to me to be a particularly good trade off.

http://blogs.telegraph.co.uk/finance/jeremywarner/100012440/with-inflation-approaching-5pc-do-we-really-want-more-qe/


Will be interesting to read some of the articles later.

Really2

If the world economies are slowing down much like 2008, why are people worrying about inflation?

If the world goes back in to recession do people really think inflation will stay at 5% ish?

If consumption goes down so will prices, I think they have made an early move on the inevitable.

Graham_Devon

And the well respected Economist:

INFLATION in the UK is 4.5% on the official measure (and 5.2% on the old retail prices index) well ahead of the government's target. Mervyn King, the Governor of the Bank of England, must have writers' cramp from all the letters he has written to the Chancellor, explaining why the target has been missed. In the short term, inflation is likely to be heading higher, not lower, as utility bills work their way through.

So it may seem an odd time for the Bank to be announcing a further round of QE, with £75 billion being pumped into the gilts market over the next four months. That will leave the Bank of England holding around 27% of all government debt. some in the city think the Bank will got a lot higher; James Knighley at ING thinks the Bank will eventually hit £500 billion, not far short of half the total issue. Past central bank governors will be rolling in their graves at the idea. But the move will be welcomed by the British Chancellor as not only he is getting half his deficit financed for free, the move may relieve the pressure on him to reverse the fiscal tightening.

So why is the Bank doing it? It is worried about the economy.

Conversely, it is not worried about inflation.

In short, the Bank is forecasting that inflation will fall. How is its record on that front? Well, the Bank has consistently forecast that inflation will be at or below its 2% target when viewed two years ahead (indeed, it has to forecast such an outcome since it would otherwise be required to change policy).

In fact, inflation has very rarely been below target and has consistently been above it. Two years ago, the Bank was forecasting current inflation would be around 1.5%, a third of its actual level. So the message is: trust us. We've been wrong before but we'll be right this time.

http://www.economist.com/blogs/buttonwood/2011/10/monetary-policy

Graham_Devon

Really2 wrote: »

If the world economies are slowing down much like 2008, why are people worrying about inflation?

I find this argument astonishing.

How can one be so blind.

yes, inflation fell, for a VERY short period.

But look what happened after. You appear to be asking how something can happen....when it's exactly what DID happen last time QE was introduced.