King Boosts New Stimulus Package to £300bn

HAMISH_MCTAVISH

Sunday Times.......

..... is reporting that Merv has told the UK banks to run down their cash reserves in a surprise U turn that will raise the value of last weeks 140bn lending package for the economy to £300bn.

Analysts estimate the radical shift in cash reserve policy will see an additional £150 released to mortgage and small business lending, in addition to the £140bn announced last week.

Allowing UK banks to hold less on deposit and carry less in Gilts could lead to a huge move in financial markets, with banks using the cash to buy mortgages and corporate bonds.

Much of the money created through QE could then move from the banks balance sheets into the real economy, resulting in massive levels of stimulus for the real economy not yet seen throughout the financial crisis to date.

The BOE has been the most conservative in the West during the crisis, with the amount of cash banks have been ordered to hold on reserve a key bone of contention.

"I am now holding so much money in cash reserves I could lose every single big commercial deposit and every short term funding line and still have billions and billions and billions left in reserve." said one bank CEO. "That money is just dead. It does not move through the economy."

If the Times is right, this is a major Game-Changer.

Interesting times ahead for sure....

Generali

I think that this shows the fear about what is going in the Eurozone right now, especially as the Greek election is today.

Reserve increases have been an overreaction anyway IMHO. The problem wasn't so much that reserves were too low as that they were held in assets that had little or no actual value as it turned out.

Better, IMO, to force banks to keep reserves in cash or on deposit at the Central Bank. At least that way if the value of the reserves is eroded, e.g. via inflation, the value of the liabilities falls too.

Generali

PS I would never say, "I told you so" but I did say that Basle III would be a dead duck once people worked out the impact of it. TBH, I thought it would take a little longer than this.

moneyinmypocket

Good news, well needed shot in the arm lets get things moving

brit1234

moneyinmypocket wrote: »

Good news, well needed shot in the arm lets get things moving

All this might do is delay what is going to happen anyway. Recovery will only come when the books are balanced.

DiggerUK

brit1234 wrote: »

....All this might do is delay what is going to happen anyway. Recovery will only come when the books are balanced.

Everything they do is an attempt to buy time, and they will not bring about a recovery.
For a recovery they need a stable currency, and an expanding productive base. Both are nowhere to be seen.
..._

ILW

Any revision on where he expects inflation to be in 6 or 12 months?

Carl31

Where at any point during this financial crisis ,uk or otherwise, has throwing money at the problem fixed anything? They should be looking at how to generate cash from the structure in place

Releasing value tied up in assets would be a start. Wasnt it reported that theres £5 trillion tied up in property in this country? A fifth of that released back into the economy would certainly get the ball rolling

HAMISH_MCTAVISH

Generali wrote: »

I did say that Basle III would be a dead duck once people worked out the impact of it.

Yes, I was thinking that as I typed it. Good call on your part.

You don't happen to have next weeks lottery numbers do you?

TBH, I thought it would take a little longer than this.

Until the last week or so, I'd written off this government as being doomed already. They're just running out of time to turn things around decisively in the wider economy before the next election.

I'm not so sure now though....

This is a big step that could actually work, and unleash a lot of the QE money into the economy that the banks have just absorbed so far.

And the heartening bit is they've explicitly stated that they expect the banks to significantly increase mortgage and small business lending in order to get the money, and it'll be monitored/enforced.

This reaction by Merv on bank reserves clears the way for that to happen, and eliminates the final excuse the banks have not to do so.

Of course, a lot will depend on what happens to Europe in the coming days and weeks. If the Eurozone implodes, then this may only keep lending at current levels.

If the Europeans can get their act together and things don't implode, this could lead to a pretty big increase in mortgage and business lending, and a much more rapid recovery in the housing market and wider economy that we've seen so far.

It will be absolutely fascinating to see if they can pull it off....

But it does finally seem that they've realised the current lending famine is unsustainable, and they're toast politically if it continues much longer.

moneyinmypocket

brit1234 wrote: »

All this might do is delay what is going to happen anyway. Recovery will only come when the books are balanced.

How's the 50% drop going Brit?

ILW

Why will chucking all this money at the banks make them decrease their deposit requirements?

That seems to be the only issue to many.