MSE News: Pensions and savers hit as Bank prints more money

SallyG

The Guardian says:
"QE effectively reduces the number of gilts on the market by buying them from banks, insurance and pension companies, and pushes up the price of those that remain, thereby reducing their yields and the amount of annuity income a pensioner can buy."


BBC says:
"On the face of it, the Bank has not got a lot in return for the £125bn it has spent since the autumn, other than a pile of government IOUs.
The narrowest measure of the money supply - in effect, cash on bank balance sheets - has risen by 58% since September, as you'd expect when the Bank is handing their customers all that freshly created money in exchange for the purchased gilts. But there is not much sign of that getting out into the broader economy. Lending to households and companies has risen by just 0.2% in that time."
What are they doing with the money?
Why are they hoarding it?

bigadaj

Ok, but I think the annuity point is far more widespread and pertinent to the majority of people
Le, specifically pensioners.

An increase in a final salary cost doesn't directly affect the individual, only the company (not many of those left) or tax payer for the majority of public sector schemes, though contribution costs are rising for these.

I think the key point for most is that annuities are valued on the basis of holding a large amount of gilts, as they are considered to be secure, and qe depressing these yields means that annuity returns are ATM historic lows.when you look at Instances where you effectively hand over this large pot of cash and get a return that is barely better than a savings account, where you still have access to that cash, then it does make people question whether it is worth saving for a pension.

I'm aware that many are in drawdown now, but many people will still opt for the safe and secure option, for which they, are being excessively penalised.

bigadaj

Sally g- the banks are boosting their balance sheets primarily, because they are now being forced to by regulators to try and stop he gfc happening again.

This is prudent but the banks are still spying bonuses, speculating on their own book etc so depressing really.

Consumerist

If returns on savings are less than worthless, is it time for savers to withdraw their savings from the banks? Perhaps a run on all the banks would wake up the politicians who really don't give a fig about the prudent saver; preferring instead to back the profligate banks.

Or is this just crazy thinking?

bigadaj

A run on the banks wouldn't be helpful, however I don't understand why so many people still deal with the big four. The only positive thing about any of them is if you are low risk and get a hsbc mortgage, I can't think of any other products where you are not better off going to a building society or other provider.

If everyone moved their accounts then that would mean that they wouldn't have the boring business to bcd the casino element, and amazingly it wouldn't matter if they went under as the useful banking wouldn't be so reliant on them.

talexuser

Why does no-one publicise the fact that QE has been used in Japan for over 10 years and not really worked convincingly for growth or recovery - interest rates between zero and 0.1% and 30 trillion Yen printed. Osbourne in opposition said something like it was the last act of a desperate government (one of the few true things spoken by a politician) but quickly changed his tune 180 degrees when came to power.

Thrugelmir

SallyG wrote: »

Why are they hoarding it?

Overall money supply is contracting.

During the boom years banks leveraged up their balance sheets and created money. At the peak of 2008. Barclays had lent £73 for every £1 of capital on the balance sheet. Compare this to the late 1960's. When banks relied on deposits to fund lending on a 1:1 basis.

The real problem for the UK banks. Is that between 2003 and 2007. Banks borrowed £600 billion on wholesale money markets to fund the mortgage boom. Wholesale money markets have collapsed since, and the banks need to refinance these deposits. There#s a real issue with liquidity.

So the BOE is trying to manage the release of air in the bubble. May take some years to adjust.

jimjames

I understand what QE is and how it works. What I don't understand is WHY it works or the markets allow it to work.

If the govt has too much debt then they get the BoE to buy it up thus reducing the amount of govt debt. So far £375bn based on money the BoE has made up.

If the govt debt can be reduced by such a large amount why aren't they doing it all the time - apart from creating inflation?

MoneySaverLog

jimjames wrote: »

What I don't understand is WHY it works or the markets allow it to work.

It does NOT work....

It's an experiment....

It's failing, so they throw more money at it.

Thrugelmir

MoneySaverLog wrote: »

It's failing, so they throw more money at it.

Without QE the situation could be far worse.

The economy is extremely weak. There's no easy answers.