Telegraph article-bond funds..

gadgetmind

Glen_Clark wrote: »

and yet lending to business has fallen.....

I actually mean that businesses can raise capital by selling corporate bonds with lower yields than would have needed to be offered otherwise. A lot of Big Co's have issued a lot of low cost debt and even some tiddlers have been piling in via Orb.

Bank and Building Society managers tend to prefer lending on property because its less complicated for them to understand than industry. Help to Bubble has exacerbated this problem by making lending on property more attractive.

Agreed.

Expect more tears when some of these bubbles burst. London is bad but Australia is a real ticking bomb.

http://www.bondvigilantes.com/blog/2013/09/24/australian-sport-as-a-lead-indicator-for-the-housing-market/

Fingers crossed, or stuck in your ears!

slinga

But why not inject money into the economy by new construction.
There is soooo much to do to update transport, hospitals, housing.
I'd rather see that than money going through banks with QE because we all know banks are adjusting their balance sheets with it and what else???

The US QE is US$ 85 billion per month.
I know it's a bigger economy than UK but US$85 billion means one new HS2 rail per month.

How that sort of QE trickles down into the economy without banks taking a big cut is impossible, imo.

gadgetmind

slinga wrote: »

But why not inject money into the economy by new construction.

Because that only works if there are enough "shovel ready" projects that can be kicked off without being snarled in 3-4 years of planning meetings and public enquiries.

How that sort of QE trickles down into the economy without banks taking a big cut is impossible, imo.

Many different kinds of direct stimulation have been tried. The Japanese government tried giving people money, but being frugal they just saved it, so there was talk of giving everyone a shirt voucher!

Some say that PPI was a form of distribution from government into the economy: HMG shores up banks, banks get heavy pressure to pay out on any PPI claim, no matter how groundless, and money goes off the Mr and Mrs Porky Pies.

grey_gym_sock

gadgetmind wrote: »

The Japanese government tried giving people money, but being frugal they just saved it, so there was talk of giving everyone a shirt voucher!

... because then they'd be happy to risk their money, knowing that if they lost their shirt, they could use the voucher to replace it.

but seriously ... there is a limit to how fast money can be spent on construction projects, but the government would have to do a lot more before they ran into it.

they've also been discouraging young ppl from staying in education for as long (by abolishing EMA, and trebling university fees). which is the opposite of what they should be doing.

if they actually wanted more lending to small business - meaning businesses too small to think about issuing bonds on the ORB (as if you're big enough to do that, you do have options) - they could by-pass the banks, and set up an investment bank for the purpose.

1 thing 1 might learn from japan's problems is that it probably is a good a idea to make sure to avoid deflation. which is the case for QE. but you don't have to use all the money to buy gilts.

gadgetmind

grey_gym_sock wrote: »

if they actually wanted more lending to small business - meaning businesses too small to think about issuing bonds on the ORB (as if you're big enough to do that, you do have options) - they could by-pass the banks, and set up an investment bank for the purpose.

You don't think HMG owns enough UK banks already?

1 thing 1 might learn from japan's problems is that it probably is a good a idea to make sure to avoid deflation. which is the case for QE. but you don't have to use all the money to buy gilts.

Japan seems to trickle along fairly nicely but it is a lesson on what the fallout of *really* big property bubbles look like.

Their main issues (from my admittedly narrow POV) seem to be government that comes and goes via a revolving door and having lost their lead in electronics and semi-conductors almost without noticing.

BTW, here is another of my daily reads, this one about Japanese politics and culture.

http://shisaku.blogspot.co.uk/

I'm back over in Japan in a few weeks and really need to give myself a serious refresher in a lingo!

lvader

QE pays for the government deficit, without it the money is drained from the rest of the economy. The deficit is still at a level that the economy can't cope.

gadgetmind

lvader wrote: »

QE pays for the government deficit

How does it do that?

Note that the gilts that the BoE have bought haven't been monetised.

lvader

The government has to issue gilts to cover for any deficit and debt costs, these in a normal economy are bought as investments. Currently the government is issueing gilts at a rate well over 100bn a year. Assuming there is enough demand that is over 100bn going into gilts rather than the larger economy. QE takes the gilts off the market so the money stays in the economy rather than being tied in gilts.

gadgetmind

lvader wrote: »

QE takes the gilts off the market so the money stays in the economy rather than being tied in gilts.

OK, but how does this pay for the deficit?

Bear in mind that UK gilts are typically *not* bought by UK organisations.

lvader

It pays for the deficit in the sense that the government gets money from gilts sold to the BOE which it turn helps it bridge the gap between taxation and spending i.e the deficit. It's as close to a direct loan as you could possibly get.