BoE hands QE income to Treasury

cloud_dog

Bank of England hands QE income to Treasury

Just read this article on the BBC......... and a thought sprang to mind.

So, if the Government/Treasury are paying the coupon to BoE because they have bought up the debt, with money the BoE invented, and then they are giving the coupon back to the Government/Treasury........... They have invented money which hasn't cost them anything, and there isn't a cost associated with the money (coupon) so..... Its not really costing us anything?

Nicholas-bloody-Parsons

"Not cost anything". That is, apart from being inflationary. Perhaps if you dont buy stuff and have had an above inflation pay rise....

cloud_dog

Nicholas-bloody-Parsons wrote: »

"Not cost anything". That is, apart from being inflationary. Perhaps if you dont buy stuff and have had an above inflation pay rise....

You say that but..... on the whole we haven't experienced inflation. Yes, there have been pockets of inflation but not whole-scale price inflation which we have experienced previously. Additionally, we have not seen wage inflation, which is the logical escalation of inflation which causes an economy to become uncompetitive.

When all this started I was a big believer that inflation will be 'coming down the tracks' but its not really happened. Primarily this is because all of this money has not found its way in to the economy, it has merely gone in to the coffers of financial institutions to re-finance them.

I believe inflation will arrive in abundance IF this additional money is not removed from the 'economy' at the right time.

Edit: not had a pay rise in 4 years. Sounding like it will be 5 in a few months.

Glen_Clark

cloud_dog wrote: »

.. on the whole we haven't experienced inflation.

I'll have a glass of whatever you are on :beer:

grey_gym_sock

3% is quite low compared to recent decades. yes, it may be understated, but the real rate is still not very high.

i suspect this is the first stage in a process which will eventually lead to the conclusion that there is no need to sell off the gilts that have been purchased and then cancel the money that was created.

if we weren't in a depression, it would probably have led to very high inflation. but we are, and it hasn't.

the depression is the bigger problem.

Jegersmart

cloud_dog wrote: »

Bank of England hands QE income to Treasury

They have invented money which hasn't cost them anything, and there isn't a cost associated with the money (coupon) so..... Its not really costing us anything?

What? The government has to borrow to pay the coupon.....so whichever way you slice it, the banking system bleeds us for something....I wonder how much interest the BOE is paying to the Government for having its own coupon which it paid itself through other borrowing sitting there with them for a length of time?

I would love to be a bank.........

J

Linton

In my view the 3% annually or so price rises we have experienced arent inflation in any real sense as they have not been associated with higher wages. Higher prices yes, but this is more due to global supply and demand of raw materials than an excess of cash. If anything I would suggest we are in a deflationary period as cash is being sucked out of the economy to refinance the banks.

MrMalkin

Linton wrote: »

If anything I would suggest we are in a deflationary period as cash is being sucked out of the economy to refinance the banks.

I sort of agree with this, and this is why I always find it annoying when people talk about 'cranking up the printing presses' whenever a new round of QE is announced. One of the hidden successes of the BoE is how they've steered us away from outright deflation, which is almost always worse than inflation.

cloud_dog

Jegersmart wrote: »

What? The government has to borrow to pay the coupon.....

But they are getting the coupon back which means they use this to pay down the money borrowed to pay the coupon in the first place.

cloud_dog

Glen_Clark wrote: »

I'll have a glass of whatever you are on :beer:

Feel free to validate where we have suffered sustained inflation. There have been pockets of inflation (energy, sugar, wheat crops; which does feed in to other areas) but I stand by my comment 'on the whole' we have not suffered excessive inflation.

We haven't really suffered significant inflation since the early 80's.

gadgetmind

HMG have effectively borrowed money from future generations.

Nice.