BOE could launch further QE in order to keep rates low

Graham_Devon

michaels wrote: »

I'm not asking you to like it and a 'solution' not involving QE would be great but I don't see any other better options. The problem is the defict and the debt. Trying to solve these via fiscal tightening appears to make things worse, the deficits do not seem to fall as reduced economic output leads to greater unemployment and reduced output also makes the debt to GDP denominator worse, the only mathematical 'cure' would appear to be 'growth' whioch is easier to say than acheive.

Given neither QE nor the consequences of no QE appeal, do you have any suggestions?

Could raise rates up to 2% or so.

It's got to be done at some point. Delaying the pain via another dose of QE will do just that, delay it, but ultimately make it twice as painful further down the line.....at which point, presumably, the idea would be more QE and so on...

OffGridLiving

Graham_Devon wrote: »

Could raise rates up to 2% or so.

It's got to be done at some point. Delaying the pain via another dose of QE will do just that, delay it, but ultimately make it twice as painful further down the line.....at which point, presumably, the idea would be more QE and so on...

Sorry, I'm confused. What problem are you trying to solve by raising BoE rates by 2% or so?

princeofpounds

Sorry, I'm confused. What problem are you trying to solve by raising BoE rates by 2% or so?

How about vast distortions in the price of money that lead to perverse investment incentives on an international scale and people plowing money into uneconomic and/or risky assets that would not wash their own face in an environment where money was not being printed like it was newspaper?

Graham_Devon

OffGridLiving wrote: »

Sorry, I'm confused. What problem are you trying to solve by raising BoE rates by 2% or so?

The FED are looking to cut off their bond buying programme. This will put pressure on their (and our) interest rates. If the BOE choose a time when confidence is returning and the FED is tapering it's bond buying programme to expand our programme in order to buy some time to keep interest rates low, we will pay even higher borrowing costs, due to the risk associated.

We'll be back to square one pretty quickly, yet behind the curve of the FED.

The longer we have rates at this level, the harder it is to pull them and the increased risk people are taking. If the economy is recovering it would be absurd to ramp up absolute emergency monetry policy.

The longer this goes on, the higher and higher the price we pay as a country on our debt costs (and living costs) as other lose confidence in our ability to do anything but default.

Look at Greece. They will now need yet another bailout. It's a continuing circle. Greece are small enough for the ECB to continue bailing it out. But the UK?

wotsthat

Graham_Devon wrote: »

Does this not go against every rule in the "book" as it were?

Launching further QE purely in order to devalue sterling and keep interest rates down (thereby purposely increasing inflation) appears to be one fiddle too many?

The BoE have an inflation target. Maybe they're worried about the increased risk of deflation associated with rising rates and a still fragile economy.

Graham_Devon

wotsthat wrote: »

The BoE have an inflation target. Maybe they're worried about the increased risk of deflation associated with rising rates and a still fragile economy.

Maybe they are.

OffGridLiving

Graham_Devon wrote: »

The FED are looking to cut off their bond buying programme. This will put pressure on their interest rates.

Why would stopping QE put pressure on their interest rates?

undetterred

The OP will never be able to buy the other half of the house if IR's go up.

CLAPTON

OffGridLiving wrote: »

Why would stopping QE put pressure on their interest rates?

printing money reduces it's 'price'
the 'price' of money is its interest rate

so stopping printing money will make it more scarce and so cause its price to rise i.e. higher interest rates

Thrugelmir

lvader wrote: »

They don't have to do anything to keep interest rates low, they set the rate!

Wholesale money markets operate independently of the central banks.

Deposits will chase the best low risk high rate.