Who got the £375 billion?

Jegersmart

Yes, the "ownership" of the BOE(N) and ECB and IMF and Fed is always a complicated question.

My question is why do governments need to pay interest to another body (whose ownership is questionable) when they want to increase the money supply in their own economy? This is why a monetary system is inherently inflationary, this just flows down hill from there - through fractal reserve banking practices etc.

We need to base our civilisation on something other than money, perhaps something resource-based?

J

Masomnia

The Bank of England was nationalized in the 1940s (44?) by the Labour government at the time, so it is publicly owned.

Pretty much all of the £375 billion has been spent on gilts.

The reason it hasn't caused inflation is because that relies on the banks actually increasing lending, which hasn't happened. The money supply usually increases, but is shrinking at the moment despite QE.

Glen_Clark

Masomnia wrote: »

The reason it hasn't caused inflation.

If the money printing hasn't caused the inflation, what has?

Masomnia

Rising commodity prices, I should imagine. Demand from Asia, that sort of thing.

sabretoothtigger

The inflation will come from the difference between 375bn spent and the actual return they receive in the end.
QE in theory should reverse itself because the bond comes to an end pays out its cash which goes back to the BOE who then cancel it against the nothingness they created it from
So its not like Mugabe printing pension money, people spend it then it never comes back to be cancelled out. Its far harder to say

The reason it turns into like Mugabe's money will be that BOE dont get back the original value. So if the ten year bond is 1.7% return PA and also BOE paid 20% over its Par value. They'll lose vs inflation and they also lose the premium paid over Par.

How much of a premium in market, where BOE buys, do bonds run over PAR? Its massive isnt it. Thats why we get a debased currency from this I guess

Apart from the bottom, the par or return value on these is 100 I presume

So we assume the yield or coupon whatever its called, does not make up difference between purchase and bond end and thats the loss to sterling value, thats inflation. I think thats it

Masomnia

The Bank of England collects the interest on the gilts, so wouldn't make a loss if they held them to maturity (though may get a negative real return).

As far as I can tell inflation would be the result of the new cash cash pushing up asset prices, which would feed through to consumers.

Glen_Clark

Masomnia wrote: »

Rising commodity prices, I should imagine. Demand from Asia, that sort of thing.

Prices have risen against weak currencies like the Euro, and even weaker pound. (was 1.4 Euros to the pound when the Euro was introduced)

Or, to be more accurate, prices haven't risen, the value of the currency has fallen.

Glen_Clark

sabretoothtigger wrote: »

The inflation will come from the difference between 375bn spent and the actual return they receive in the end.
QE in theory should reverse itself because the bond comes to an end pays out its cash which goes back to the BOE who then cancel it against the nothingness they created it from
So its not like Mugabe printing pension money, people spend it then it never comes back to be cancelled out. Its far harder to say

The reason it turns into like Mugabe's money will be that BOE dont get back the original value. So if the ten year bond is 1.7% return PA and also BOE paid 20% over its Par value. They'll lose vs inflation and they also lose the premium paid over Par.

How much of a premium in market, where BOE buys, do bonds run over PAR? Its massive isnt it. Thats why we get a debased currency from this I guess

Apart from the bottom, the par or return value on these is 100 I presume

So we assume the yield or coupon whatever its called, does not make up difference between purchase and bond end and thats the loss to sterling value, thats inflation. I think thats it

Interesting link. So the taxpayer is paying 138.75 for gilts it sold for 100. An astronomical loss in the volumes we are talking about.
Does anyone believe the taxpayer will be able to sell them back to the market at 138.75?

grey_gym_sock

138.75 is for a gilt paying interest at 8.75% - i.e. if you could buy it for 100, you'd get 8.75% interest. interest rates were well under that before QE started, so it's not down to QE that it costs more than 100. it is more expensive than it would be without QE, but not by that much.

what you get if you buy that gilt for 138.75 is an income of 8.75 per year (so 6.24% on what you paid - 8.75 / 138.75) - that's the "income yield" in the table; followed by a return of capital of 100 when the gilt is repaid in 2017, giving you a capital loss of 38.75. the combined effect of the interest less the capital loss is shown in the "gross redemption yield" column: it's the equivalent of getting 0.77% interest per year.

the gross redemption yields in the table are all (ignoring the index-linked gilts in the bottom 2 lines) between 0% and 1%, except for a negative yield on 1 which will be repaid this year (and QE isn't buying the very shortest gilts, anyway - that 1 is probably being bought by risk-averse ppl with too much cash to divide it up into no more than £85k per bank/BS).

so, if QE concludes by "burning" the interest as well as the capital repayments, yes, they might destroy as much money as they created, or it would at least be quite close.

Jegersmart

Look, lets go back to the beginning here.

When the BOE/FEd/ECB creates money out of thin air they give that money to the government in question in return for Gilts/treasuries/whatever the instruments are called, and then the Government in question pays interest to the BOE/Fed/ECB. At this point, inflationary pressure is applied because the taxpayer is paying interest to these central banking institiutions. The Government now was £375B to do something with and however they use it, it will usually end up in a bank or banks. At this point, the bank(s) in question have received funds which increases their reserves, and because they only need to keep say 10% in reserve the other 90% is put to work somewhere. They may lend it to another bank (or parts of it) which in turn allows that bank to use 90% of the "new money" in some way - whether they buy equities, lend it to other banks or corporations or individuals and the game goes on. This is the point of "fractal reserve banking" and as you can see this increases the money suppply far more than the original £375B - to somewhere along the lines of 9 to 10 times the amount depending on what it is used for and where it ends up.

But lets go back to the first step, why should the taxpayer pay interest to the BOE/Fed/whoever when the Government decides to "print money"? At this point if you don't understand that all money currently in existence is in fact DEBT, then you will never understand that a monetary system is generally inherently inflationary from the very start.

Why does inflation happen in this case? It is because new money added to the supply devalues the the current "money" in existence. In 2007 it would take $21.60 to buy $1 from 1913 - that is an almost 95% devaluation.

The ownership of these institutions is in question because why would a Government charge itself interest if they owned the Central Bank in question? Where does this money go? Ultimately the whole system is designed to transfer wealth (tax) to somewhere else.

Why is the point of application of interest the key point here? Well, if you consider that all money is debt and interest has to be paid, there will always be more money needed to pay off the debts that already exist than the total current money supply. And that is the point. That is why we submit to labour, that is why bankruptcies and scarcity are guaranteed because they are built into the system. Profit, scarcity, competition and labour are the weapons against us, the taxpayer.

What can we do? Well the Occupy movement is a start but it is misguided. They are focussing banks who are allowed to exist and act the way they do by lawmakers. The lawmakers, the goverment, the banks and corporations are all supporting the current paradigm, which affects the taxpayer massively and negatively. The trick for them is to make sure that things never get bad enough for enough of us to rise up and take charge. If enough people stopped paying taxes for only a short time, the system would collapse very quickly. Debt and interest keep us in check.

If you watch films like Zeitgeist Moving Forward and similar, they talk about a resource-based system instead of a monetary one. Although no system would be perfect, I think that this one has some promise. Mainly because as a species we depend on the planet and the resources therein to survive, it makes sense to me to base a system on that rather than one that relentlessly transfers wealth away from labourers, whilst someone controls the money they don't need to control anything else.

"There are none as hopelessly enslaved as those that think they are free".

The monetrary system itself is the main problem here, it is the most paralysing system we have ever known, and I for one think that some centuries into the future our successors will look back at this period of humanity and wonder at the stupidity and lack of consciousness humanity displayed.

J