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Telegraph article-bond funds..
Comments
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It pays for the deficit in the sense that the government gets money from gilts sold to the BOE
My understanding of the exact mechanism differs. The BoE creates new money to buy the gilts and the only kick-back to HMG is in regards to any profits/income the BoE makes.It's as close to a direct loan as you could possibly get.
A loan from who and to who? Please explain.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
If the goverrnment has a deficit of a 100bn, it get the extra money it needs by issueing 100bn in gilts. The BoE then buys the 100bn of gilts in the form of QE. The net result is that the deficit is paid for and the BoE holds 100bn of government debt. How is that not similar to the BoE loaning the money to the government to pay for the deficit?0
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How is that not similar to the BoE loaning the money to the government to pay for the deficit?
Because the deficit hasn't been paid for as the gilts still exist as government debt no matter who actually owns this debt.
OK, so QE has allowed HMG to get issues away at low yields, but they still have to pay coupons and redeem at par *unless* the debt is monetised. If this was done, the BoE would say "yay, presses running, no need for HMG to ever cough up". This has not happened and is (I hope!) unlikely to.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
BTW, can I just add that I'm asking questions as I realise that this is difficult stuff, that I don't know all the answers, and I'm learning as I go!I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »Because the deficit hasn't been paid for as the gilts still exist as government debt no matter who actually owns this debt.
OK, so QE has allowed HMG to get issues away at low yields, but they still have to pay coupons and redeem at par *unless* the debt is monetised. If this was done, the BoE would say "yay, presses running, no need for HMG to ever cough up". This has not happened and is (I hope!) unlikely to.
If you buy a house doesn't the loan from the bank pay for it? How does the existance of a mortgage invalidate that?
Most of the gilts bought by the BoE are long term (30 years), the debt will probably roll on indefinately or simply get written off. Aternatively they could resort to more QE and even longer term gilts (100 years).0 -
If you buy a house doesn't the loan from the bank pay for it?
Yes, in some cases, but I'm more of a cash person myself.
How does the existance of a mortgage invalidate that?
It doesn't, but it does mean that you have increased your debt level. If you buy a house, you then have an asset to offset against this, but if you instead blow the money on social projects, you have nothing but debt.Most of the gilts bought by the BoE are long term (30 years), the debt will probably roll on indefinately or simply get written off. Aternatively they could resort to more QE and even longer term gilts (100 years).
I thought they were buying across the duration structure but am happy to be proven wrong.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
My understnading is that the amount of long term debt is quite unique to the UK. Even if the BoE is buying short term gilts, holding QE at the same level would mean rebuying new gilts to replace matured ones. There are no plans to repay this debt.0
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yes, i think they're buying most of the duration structure, just excluding very short and undated. (also excluding index-linked.)
IMHO, the debt has been monetized. because BoE is effectively a subsidiary of HMG. so in HMG's consolidated accounts, this debt disappears.
is that worrying? well, if you'd told me this would happen a few years ago, i'd have thought it would cause much higher inflation than it actually has. (which is presumably due to the unusual current economic conditions.)
will it be a good idea to reverse QE at some time? i don't see why. you expect the money supply to expand over time. its growth over the last few years has been achieved by unusual means. but why would you want to reverse it?0 -
There are no plans to repay this debt.
My best guess is that it will be used as an alternative to raising interest rates to keep the gas turned down as and when required (if ever!).I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »Bear in mind that UK gilts are typically *not* bought by UK organisations.
are they not? do you mean fund managers?0
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