Who got the £375 billion?

Glen_Clark

grey_gym_sock wrote: »

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.

Some people are claiming QE won't cost us anything because the printed money is used to buy bonds which can be resold later.
The point I was trying to make is that there is no chance of the taxpayer being able to resell the bonds for as much as he paid for them.

Glen_Clark

Here we have it direct from a real wealth creator. QE is hindering investment, which is exactly the opposite of what the money printers have claimed. http://www.telegraph.co.uk/finance/newsbysector/industry/9553917/Smiths-Group-warns-Bank-of-Englands-money-printing-is-hindering-investment.html

Masomnia

Glen_Clark wrote: »

Some people are claiming QE won't cost us anything because the printed money is used to buy bonds which can be resold later.
The point I was trying to make is that there is no chance of the taxpayer being able to resell the bonds for as much as he paid for them.

Not necessarily because the gilts pay interest. The tax payer will make a capital loss, but gain the interest. If they hold the bonds to maturity then they will make a return.

grey_gym_sock

Glen_Clark wrote: »

Here we have it direct from a real wealth creator. QE is hindering investment, which is exactly the opposite of what the money printers have claimed. http://www.telegraph.co.uk/finance/newsbysector/industry/9553917/Smiths-Group-warns-Bank-of-Englands-money-printing-is-hindering-investment.html

i don't find that argument very convincing, because while QE has increased the liabilities of smiths group's pension fund (by reducing gilt yields), it's also increased its assets (by propping up the prices of shares, gilts, and most things a pension fund is likely to be invested in).

so funding their pension liabilities may have a large effect on the company, but it's not at all clear that QE has made it any worse.

businesspeople are just a capable as politicians of explaining why everything is somebody else's fault.

Jegersmart

Glen_Clark wrote: »

Some people are claiming QE won't cost us anything because the printed money is used to buy bonds which can be resold later.
The point I was trying to make is that there is no chance of the taxpayer being able to resell the bonds for as much as he paid for them.

This is all (mostly) explained in my post above.

Jegersmart

grey_gym_sock wrote: »

i don't find that argument very convincing, because while QE has increased the liabilities of smiths group's pension fund (by reducing gilt yields), it's also increased its assets (by propping up the prices of shares, gilts, and most things a pension fund is likely to be invested in).

so funding their pension liabilities may have a large effect on the company, but it's not at all clear that QE has made it any worse.

businesspeople are just a capable as politicians of explaining why everything is somebody else's fault.

There is no mandate that I know of that instructs banks in how they are supposed to be spending their enlarged reserves - this results in asset inflation across the board, not just in gilts but most other assets as well. QE is generally purely for the benefit of banks - very little trickles down to ease financial pressures and needs of individuals (who are paying for the loans the UK government made from the BOE on which it (we) pays interest).

There are many banks out there that are largely insolvent and this is the reason for QE. A short term fix for a pension fund is on the list purely for "cosmetic" purposes - you simply cannot fix a leaky bucket by pouring in more water.

As per post above there is so much misinformation going on to hide the real reasons for doing QE and using our money to bail out insolvent banks, most of the people in this thread are getting lost in the detail - and we have to change that. We have to ask and debate the key questions here first.

Anyone want to start by explaining why a government has to pay interest to another entity in order to increase the money supply in their own country or do you want to debate what the Telegraph reported who are owned by the Barclay brothers and are unlikley to address any real facts in how our economy works?

J

grey_gym_sock

Jegersmart wrote: »

Anyone want to start by explaining why a government has to pay interest to another entity in order to increase the money supply in their own country

a slightly odd way to put the question. the BOE is not profiting from this process; it is just an intermediary between the government and the buyers of new gilts: it charges the government interest so it can pay interest to the buyers.

i agree we've mainly been getting lost in the details, but i don't think that question is helping ...

the bigger question is whether QE has a positive effect overall.

the even bigger question is fractional reserve banking vs full reserve banking.

Jegersmart

grey_gym_sock wrote: »

a slightly odd way to put the question. the BOE is not profiting from this process; it is just an intermediary between the government and the buyers of new gilts: it charges the government interest so it can pay interest to the buyers.

i agree we've mainly been getting lost in the details, but i don't think that question is helping ...

the bigger question is whether QE has a positive effect overall.

the even bigger question is fractional reserve banking vs full reserve banking.

Why should the government (us) be charged interest to increase the money supply in our own country? Why does it cost us (the taxpayer) for that to happen? If you what you say is correct then basically the government borrows money from us and charge us interest for the money borrowed? I am oversimplifying this of course because it is not a necessarily a direct transaction, after all buyers of gilts or lenders of capital to the government are mostly banks (i.e. the private sector) who we bailed out in the past.....

I realise that we are talking about slightly different things here, money supply expansion and QE which are different in some ways but are funded by taxpayers whichever way you slice it - unless you have a different idea?

Application of interest is THE issue, fractal reserve banking and so on are exarcebating the problem in a monetary system.

J

Masomnia

The flip question, why should the government be able to borrow money for free? I'm not sure it's fair or legal to pay one set of bondholders but not others interest; I'd guess if the government didn't pay the interest to the Bank they'd technically be in default.

If the government didn't pay the interest, then tax payers would make a huge loss on QE, as the Treasury underwrites losses by the Bank of England. Tax payers are funding QE in that way, but benefiting in a way as the Bank of England is publicly owned we own the gilts.

Jegersmart

The flip question, why should the government be able to borrow money for free?

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Why should they pay interest to another entity if they want to print money?