If QE Was Withdrawn....

srcandas

dktreesea wrote: »

The only reason Spanish citizens are forced into this situation in Spain is that their version of social welfare has out of work benefits that run out after two years and no housing benefit.

And 27% unemployment as opposed to 8% possibly

dktreesea

bowlhead99 wrote: »

Yes, sorry - as a catalyst for goverments to stop QE, I'd meant lower unemployment, not lower inflation - just typed a completely different word, now edited! Inflation is not going to go sharply lower while QE is going happening - quite the opposite.

The point was (and intended to be a general global view, wider than specifically the UK): too much QE for too much longer, assets bubble more, inflation rises - simple economics. But governments and central banks don't want to stop the QE until they've "fixed" lack of employment and growth, and are less concerned with inflation as a by product - UK under Carney may replace the monthly BOE inflation target (which is never met anyway) with something that looks at unemployment just as much, while in Japan, Abe's appointment of Kuroda and his two deputies has the specific goal of producing positive not negative inflation in the drive to growth.

So, I don't see the QE taps going off particularly soon - again, this general environment of QE around the world which is causing the very visible asset price rises, rather than specifically the UK elements of it which might (if the decent bits of economic news from this week continue) seem to be able to be scaled back a little perhaps.

As you say, there are some signs that QE might have started to fulfil its purposes and we might not need too much more of it to stay afloat. This week there was some new cause for cheer every single day, whether it was PMI manufacturing figures where nearly everyone in Europe released numbers ahead of expectation, including ourselves, or the improving trade deficit etc. But of course there are negatives here and there too, and all this needs to be sustained for some time before we are out of the woods.

Meanwhile, the world markets remain jittery and ready to drop on any mumurings of QE going away, creating perverse situations where good general economic stories cause price decreases because the market is afraid they'll give cause to turn the taps off a little.

The only reason the QE taps are off at the moment is because government gilts are oversubscribed. It reminds me of what Schiller called irrational exuberance. So what they are being indexed to inflation? There must be an expectation of an appreciation of the pound from its current lows over the period of the bond, otherwise how are the investors going to offset the negative real rate of return? And yet the government's spending suggests not only a continued depreciation of the pound well into the future, but a possibility that the BofE is going to have to turn the QE tap back on if at any point their gilt sales are undersubscribed. How anyone would want to invest in a gilt, let alone to the extent that they are oversubscribed, is beyond me.

I don't see the government spending less that it has coming into the coffers any time soon. The population is still rising at a rate of knots. For all their talk of restricting the access EU citizens who live here have to our benefits system (and therefore the access of returning British citizens from the EU, given EU laws that say you can have whatever social security system you want provided its applied to everyone equally including your own citizens), they don't appear to have actually done anything towards this.

Meanwhile our interest bill goes up and up. 0.5% on over a trillion isn't exactly a small amount. And that's only the interest rate for relatively recent gilts. There's plenty of other public sector borrowing that's at higher interest rates than 0.5%.

The public sector net debt, as per the government's own figures, is set to rise from £1.189 trillion in 2012/13 to £1.637 trillion in 2017/18. And this is meant to be the austerity government?! You've got to be kidding me!

dktreesea

srcandas wrote: »

And 27% unemployment as opposed to 8% possibly

Even if there was 27% unemployment here, people might still not lose their housing if the government gave homeowners housing benefits to cover their mortgage interest, as they have done in the past. A lot of the people out on the street in Spain are renters, - no housing benefit and, if you are unemployed over two years, no unemployment money either. So if you can't pay you're homeless.

JohnRo

dktreesea wrote: »

..if the government gave homeowners housing benefits to cover their mortgage interest, as they have done in the past

Isn't that more or less what QE is, in effect.

grey_gym_sock

dktreesea wrote: »

Meanwhile our interest bill goes up and up. 0.5% on over a trillion isn't exactly a small amount.

yes, it is - it's negative in real terms. i thought some of the public debt is a bit more expensive than that, but the overall interest rate is approximately 0 in real terms.

also, 1/3 of the interest isn't a cost at all, as we're paying it to ourselves. you can't owe money to yourself.

yes, there are a very few big problems, but the current cost of servicing the public debt isn't 1 of them.

dktreesea

JohnRo wrote: »

Isn't that more or less what QE is, in effect.

That rather depends on who coughs up the money to pay for it. If it's the Bank of England, sure. If it's a private comapny, or some overseas country like China, looking for a safe haven to dump their ill gotten (not because we've been fleeced with poor quality goods and lost our opportunity to make them for ourselves, but because they have paid their own citizens next to nothing to make those goods) gains onto for safe keeping, then there's no QE.

dktreesea

grey_gym_sock wrote: »

yes, it is - it's negative in real terms. i thought some of the public debt is a bit more expensive than that, but the overall interest rate is approximately 0 in real terms.

also, 1/3 of the interest isn't a cost at all, as we're paying it to ourselves. you can't owe money to yourself.

yes, there are a very few big problems, but the current cost of servicing the public debt isn't 1 of them.

Nevertheless, there is still a cash flow implication, and the interest adds to that burden. To the tune of extra borrowings of £120 billion a year. With no plan in sight, according to the government's own projections, to ever pay any of it back.

I'm all for borrowing at no real cost if the money was being spent on something Britain needs, like better infrastructure. I would like cheaper energy. That's not going to happen because we are still not investing enough in electricity production to meet the growth in the current demand. Instead we are borrowing to pay our interest bill and the part of the social welfare bill we can't afford.

When are we going to see a plan from this government to reduce the overall amount of debt instead of growing it like a christmas tree that thinks it's the beanstalk in Jack and the Beanstalk?

Ark_Welder

dktreesea wrote: »

But the flip side is did those gilts have to be index linked before investors were prepared to buy them?

Apparently not, given that the three preceding issues, all in May, were all conventional gilts and raised more than five times the amount that the IL issue raised.

http://www.dmo.gov.uk/reportView.aspx?rptCode=D5D&rptName=836f438a-e878-47e8-a946-b9c95a1b1979||GILT%20MARKET%20%2810%29&reportpage=Issuance_Calendar

grey_gym_sock

dktreesea wrote: »

Nevertheless, there is still a cash flow implication, and the interest adds to that burden.

no. there is a deficit: we're spending a lot more than is raised in taxation. but the interest doesn't add to the burden at all, because the real rate of interest is zero.

I'm all for borrowing at no real cost if the money was being spent on something Britain needs, like better infrastructure. I would like cheaper energy.

how does spending huge amounts on infrastructure give us cheaper energy? do you mean cheaper excluding the huge spending on infrastructure, but therefore not actually cheaper?

face facts: energy is going to keep getting more expensive.

dktreesea

grey_gym_sock wrote: »

no. there is a deficit: we're spending a lot more than is raised in taxation. but the interest doesn't add to the burden at all, because the real rate of interest is zero..

And it may well turn out, if the pound goes on falling, that, by the time we come to pay the money back, it's worth barely anything compared to when we borrowed the money. But my fear is that we are adding to the debt burden a lot faster than the pound is depreciating, or likely to depreciate in future years. Plus, if at some later point, interest rates go up, any future borrowing may not have a real interest rate of zero.

Surely we should be trying to wean ourself off this ever increasing debt burden?

grey_gym_sock wrote: »

how does spending huge amounts on infrastructure give us cheaper energy? do you mean cheaper excluding the huge spending on infrastructure, but therefore not actually cheaper?

face facts: energy is going to keep getting more expensive
.

We seem to have this ever increasing demand for electricity without any more capacity coming online. That seems to me to be a recipe for above inflation increases in price in the coming years. How are we going to avoid that if we don't build more capacity?

The same with the trains. Intercity train travel shouldn't be as expensive as it is. And it probably would be cheaper to send many goods by freight rather than road. But apparently the infrastructure just isn't there to support making more trains available.

As for broadband, we must have the worst broadband in Europe, it's so unbelievably slow. How much longer do we have to wait for the super fast broadband to become available?