Who got the £375 billion?

antrobus

JohnRo wrote: »

Any way you slice it QE is the transfer of wealth from those forced to use monopoly money legal tender buying, selling and trading goods and services to those given the new stuff created from thin air.

Can you point to an audited list of what exactly it is the BoE has bought from their retail banking proxies with the hundreds of billions of pounds they've put on the nations tab ?

I have no idea of what you're talking about, but something tells me that you don't either.

However, the question posed was; what was the mechanism for undoing QE? And the answer is that you sell gilts.

antrobus

talexuser wrote: »

I...with a pretty unconvincing euro crisis excuse rolled out (how much do we export to Greece?). ....

It's a Euro crisis. Greece isn't the only country that uses the Euro.

grey_gym_sock

at least it is a real crisis this time ... unlike when european politicians were calling it a crisis when countries didn't vote they way they wanted in referendums.

but getting back on topic (or nearer to the topic), the idea that the banks would lend lots of money to businesses in return for bailout money was always implausible ... partly for the good reason that they are broke and need to rebuild their balance sheets ... partly for the bad reason that they're still pouring money into bonuses and gambling (a.k.a. proprietary trading) ... the story about lending more to businesses was just a cover to make the bailout acceptable to the public (and not entirely successful).

Jegersmart

antrobus wrote: »

You sell gilts.

Sorry, I don't understand. Also, please answer my question as to why when the BOE create money out of thin air why it HAS to charge the government (us) interest on such a transaction in order to make it "reversible" as you state....

Thanks

J

gagahouse

Jegersmart wrote: »

Sorry, I don't understand. Also, please answer my question as to why when the BOE create money out of thin air why it HAS to charge the government (us) interest on such a transaction in order to make it "reversible" as you state....

Thanks

J

He means the BOE can sell the gilts back into the open market or hold them to redemption to reverse the QE. Of course you have to understand that UK QE involves the BOE buying Gilts from the banking sector (increases base money but not broad money) and the household / corporate sector (increases both base and broad money) from the already issued secondary market. They do not buy Gilts from the govt in the primary market, this is completely false as it has been described in this thread previously.

60 The objective of Quantitative Easing is to boost the money supply through large-scale asset purchases
and, in doing so, to bring about a level of nominal demand consistent with meeting the inflation target in the
medium term. Under this policy approach, the MPC uses the quantity of reserves (as well as the rate earned
on them at the Bank) directly as a tool of monetary policy. The MPC sets a target for the stock of asset
purchases financed by the creation of reserves. This target is achieved by purchasing or, in the event that the
target is reduced, selling assets through the Bank’s ‘Asset Purchase Facility’, which, because of the risks
posed to the Bank’s balance sheet, is indemnified by HM Treasury.
61 The Bank purchases these assets predominantly from non-banks, but banks act as intermediaries in the
process. The Bank pays for the assets purchased by creating central bank reserves and crediting the
accounts of the banks that act as intermediaries. Those banks will in turn credit the accounts of the non-banks
from whom they obtained the assets. They will either spend the money on goods and services, which directly
adds to overall spending, or purchase other assets, which will tend to boost the prices, and hence lower the
yields, of those assets more broadly. In the event of asset sales, in response to a reduction in the target, the
Bank would debit the accounts of the institutions it sells the assets to, reducing the stimulus to nominal
demand.

http://www.bankofengland.co.uk/markets/Documents/money/publications/redbookqe.pdf

Jegersmart

gagahouse wrote: »

He means the BOE can sell the gilts back into the open market or hold them to redemption to reverse the QE. Of course you have to understand that UK QE involves the BOE buying Gilts from the banking sector (increases base money but not broad money) and the household / corporate sector (increases both base and broad money) from the already issued secondary market. They do not buy Gilts from the govt in the primary market, this is completely false as it has been described in this thread previously.



http://www.bankofengland.co.uk/markets/Documents/money/publications/redbookqe.pdf

Thanks for that, so in the case of QE anyway, the BOE will create money it does not have to buy taxpayer debt from mainly non-banks who will then use the money to buy other assets which will usually result in the money ending up in a bank somewhere whose reserves will be increased and then is able to create more money. In the meantime, the BOE will be the holder of the Gilts and the taxpayer will pay BOE the interest owed, in effect paying interest to an entity we apparently own? Later, the BOE may sell the gilts to someone else who the taxpayer will pay the interest to until maturity. Does the BOE which we apparently own pass the interest from the taxpayer back to our own government so that at some point when the gilt matures and the debt has to be repaid that that money is used (partially at least9 for that purpose? Is that right according to your understanding?

In any case, a Gilt or Treasury has interest applied whether it is sold to the market or to the BOE - and that interest has to be covered by the taxpayer regardless.

Just one point, in the exerpt you quote it says that the BOE may buy Gilts (for example) from mostly non-banks - but you state above that it is mainly from banks. Which is it? I don't think it matters tbh but just for consistency's sake.

Also, you state that "They do not buy Gilts from the govt in the primary market, this is completely false as it has been described in this thread previously." and I wanted to clarify this statement as it relates presumably to my own postings earlier. I have never specified anything in terms primary and secondary markets - what I am referring to is that whether the BOE buys Gilts in any market the Gilt has interest applied which the taxpayer has to cover and as the BOE has no income as such it would have to create the money out of nothing either way and the interest would go to them (who we apparently own) hence charging ourselves interest effectively. Your comments would be appreciated.

J

gagahouse

Jegersmart wrote: »

Thanks for that, so in the case of QE anyway, the BOE will create money it does not have to buy taxpayer debt from mainly non-banks who will then use the money to buy other assets which will usually result in the money ending up in a bank somewhere whose reserves will be increased and then is able to create more money. In the meantime, the BOE will be the holder of the Gilts and the taxpayer will pay BOE the interest owed, in effect paying interest to an entity we apparently own? Later, the BOE may sell the gilts to someone else who the taxpayer will pay the interest to until maturity. 1) Does the BOE which we apparently own pass the interest from the taxpayer back to our own government so that at some point when the gilt matures and the debt has to be repaid that that money is used (partially at least9 for that purpose? Is that right according to your understanding?


In any case, a Gilt or Treasury has interest applied whether it is sold to the market or to the BOE - and that interest has to be covered by the taxpayer regardless.

2) Just one point, in the exerpt you quote it says that the BOE may buy Gilts (for example) from mostly non-banks - but you state above that it is mainly from banks. Which is it? I don't think it matters tbh but just for consistency's sake.



Also, you state that "They do not buy Gilts from the govt in the primary market, this is completely false as it has been described in this thread previously." and I wanted to clarify this statement as it relates presumably to my own postings earlier. I have never specified anything in terms primary and secondary markets - 3) what I am referring to is that whether the BOE buys Gilts in any market the Gilt has interest applied which the taxpayer has to cover and as the BOE has no income as such it would have to create the money out of nothing either way and the interest would go to them (who we apparently own) hence charging ourselves interest effectively. Your comments would be appreciated.



J

1) Yes, the coupon payments add to the BOE's equity which it then passes back on to the Treasury

2) To clarify because it is a little confusing, the BOE could buy directly from the banks existing holdings of gilts and satisfy it's demand and not need any additional from the household/corporate sector. In reality it will be a mixture of both, the bank will sell its gilts to BOE and obtain gilts from the H&F sectors which it then sells to the BOE. The banks can be direct sellers and intermediaries at the same time in such operations

3) When the bond is issued interest is owed to the private or external sector (foreign holders of Gilts). When the BOE does QE, the money is owed to the BOE who redeems the coupon payments back to the Treasury, so effectively it reduces the net interest debt burden to the taxpayer.

sabretoothtigger

grey_gym_sock wrote: »

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.

The assets are not increased, its more a case of the price has been inflated by QE. Remember when house owners 'earnt' more from their house price rising then in their jobs.
The company is correct to complain this is forcing them to rebalance funds towards something that may only be temporary and it is likely QE either reverses at best or at worst bond prices could collapse

The company would not be able to get back money put into the pension fund so this could be causing them problems hence QE is possibly destabilising business balance sheets.

Fine if they are a strong business, but a company can become bankrupt to its own pension obligations is quite possible ?

Masomnia wrote: »

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).

The obvious thing is BOE did not make us all richer by adding zeros to their bank balance and buying our Governments debt
Yet a magician can make a living out his tricks and create value out of nothing right. So I dont dismiss the BOE QE effects as zero, some will profit and others will lose

The QE will lose money for UK population as our money receives back less value.
So the gross redemption yield is less then 1% and inflation today is over 2%, if our economy were purely internal it might be these numbers were perfectly matched.
However we import, we run a trade deficit. We need oil from abroad and energy and in future this wont change.
Inflation is always going to decrease money value faster then the bond pays back money to BOE.

If we say the 8% bond matches inflation as some point. All the premium is lost, lets assume this is a fair scenario but bad outcome to QE (as opposed to our current beautiful outcome )

38% of 375bn in lost premiums and/or total return is the cost of QE. They cannot resell to market as they own 25% of all debt, they are the market - see the JPM billion losses story
Our national debt is 1tn and QE costs us not in face value but in inflation a further 143bn until QE is zero.
So maybe thats 14bn of lost money for the next ten years the UK population pays in higher cost of petrol, food or whatever we dont make ourselves

So thats £226 extra bills per year for every person young or old. Thats how much poorer UK got in 3 years of QE and doesnt realise it yet.
Of course I presume magic isnt real and who knows for sure, I surely misconstrued some detail or sleight of hand

[I presume losses will be lumpy, some years -£1000 and others we lose little]

Glen_Clark

The biggest losers from QE will be those who hold only fiat money - the poor.
The gainers will be those holding other assets. Agricultural land has doubled in value since QE began as people seek safe havens. As tenant farmers face rising rents they are demonstrating for higher food prices - another thing that will hit the poor hardest as the greater percentage of their income goes on food.

Jegersmart

so why does the Government need to pay interest to the BOE when they create money?