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Uncharted territory

Stephanie Flanders | 17:16 UK time, Thursday, 29 January 2009

"Unconventional" monetary policy is only supposed to happen when official interest rates are at zero and plain old vanilla policies have nowhere to go. So why did the Bank of England confirm today that it was poised to buy up "high quality" corporate debt?

This is not "quantitative easing". Nor is it printing money. But, by the governor's own admission, it is highly unconventional (in fact, he says it's an "unconventional unconventional measure", but let's not go there). And it's despite the fact that official interest rates are still at 1.5%.

One answer is that this is all about confidence, and after playing catch up for so much of the credit crunch, the authorities need to do everything to show they're thinking ahead.

Another is that buying up corporate debt theoretically has a distinct objective - improving the credit environment by reducing the yields in those markets.

But there is a more general point: as the economist David Miles noted in this week's Green Budget from the IFS. The Bank may well hope to avoid taking the policy rate to zero - for the sake of the banks.

Their problem is that whenever official rates go down, they are under heavy pressure to cut lending rates in tandem, but many deposit rates are already very low and can go no lower. So margins shrink further, and the banks get squeezed even more than they are already.

The upshot: the Bank of England is likely to be doing a lot of unconventional things long before rates get to zero.

However, a senior economist I spoke to in Davos reminded me that we've heard this argument before - in fact, the Federal Reserve tried the same thing last year. It didn't work.

If the central bank is successful in increasing banks' cash reserves, overnight market rates can go down close to zero, even if official rates are still positive.

The Fed found the anomaly sufficiently uncomfortable that it fairly quickly brought the official rate down too. As it confirmed in yesterday's gloomy statement, it is going to stay there for a long time.

Economists I've spoken to here think the UK will end up in the same place. But it's possible they will be happy with overnight rates being out of step with Bank rate.

After all, the pressure on commercial lenders is to match "headline" interest rate changes. The mainstream press now pays more attention to the overnight markets than it used to, but it's hardly the stuff of headlines.

Whatever happens, it's uncharted territory for the UK's monetary policy and we are about to step into it.


  • Comment number 1.


    ....So why did the Bank of England confirm today that it was poised to buy up "high quality" corporate debt?....

    I think that they are afraid of the down-side affects of a slowing economy...

    ~Dennis Junior~

  • Comment number 2.


    ....Whatever happens, it's uncharted territory for the UK's monetary policy and we are about to step into it.....

    I think that this is going down very uncharted territory and not many people today know what is going on....

    ~Dennis Junior~

  • Comment number 3.

    Lets be really unconventional - bring back regulation into the financial markets.

    Make short selling illegal, our much vaunted financial system has been shown up for a house of cards. We need to raise interest rates, keep credit tight. The toxic banks should be allowed to go under, this would restore confidence rapidly.

    As one one other thing ~ call an election.

  • Comment number 4.

    Let us be conventional and ask what they hope to achieve?

    I've frankly no idea.

    The fact is we now have worthless money (i.e. money that is essentially free).

    They have still not understood that in order to prevent a massive surge in unaffordable long term borrowing (i.e. unaffordable mortgages) they must pre-announce higher long term rates even if the short term rates are zero. If they do not they will only re-inflate the problems that caused the credit crunch in the first place and this will be catastrophic.

    I don't think the Governor, the MPC, the FSA or the Treasury have a clue what they are doing in the UK and they should all have the decency, professionalism and honesty to resign as it seems no-one has the guts to fire them.

  • Comment number 5.

    I'm so glad these people aren't my Doctors.
    They would now have my chest open bypassing my left ventricle before seeing if the indigestion tablets they gave me had worked

    If I pull this lever what does it do I've got to been seen to be doing something.

    At what point should you stop acting and start observing the outcome of your policies and adjust.

  • Comment number 6.

    Is an "unconventional unconventional measure" a known known or an unknown known?

  • Comment number 7.

    Is this like saying "I wonder what happens if we pull this lever"?

    If one policy has already been proved to cause more issues than it solves previously I have to wonder why we would want to pursue it

    Is it once again just "doing some thing for doing some things sake"?

    I would have to say that even from your reporting it doesn't appear that anyone knows what they are doing or what to do next to solve it.

  • Comment number 8.

    "So why did the Bank of England confirm today that it was poised to buy up "high quality" corporate debt?" - Stephanie Flanders

    "To reiterate, the Bank of England would start to buy...higher risk corporate would make sense for the Bank of England to buy riskier business debt, corporate bonds, from banks " - Robert Peston

    Curious contradiction.

    Now which requires less reserve capital? Thought so.

    Can we take them at their word?

    Also, if the Bank of England achieves its goal of suppressing corporate bond yields, two questions come to mind. Will private investors still buy the higher-priced bonds, or will they be squeezed out? And if the Bank of England pays above-market prices as a policy tool, will they become the new market mark for other owners? It could get confusing if banks start claiming they did not really take a loss on some chunk of debt because the Bank of England has bought a little from someone else at a higher price. Who knows what the market will make of that?

  • Comment number 9.

    - "Unconventional" monetary policy is only supposed to happen when official interest rates are at zero and plain old vanilla policies have nowhere to go. Says who ?

    Stephanie your premise is wide of the mark - this isn't monetary policy . It is a desperate government providing credit in the hope of driving an economy built on credit.

  • Comment number 10.

    Have you spotted this…

    “The International Air Transport Association (Iata) saw air cargo go into "freefall" in December, with a year-on-year fall of 22.6% in traffic.”

    Oh dear...

    I do not think any amount of quantitative easing will fix this very quickly - everyone must be destocking as fast as they can.

  • Comment number 11.

    Well the "conventional conventional" method was a load of nonsense. Managing the economy just by interest rate control? Why?

    I'm not normally one for conspiracy theories, but I can't help suspect that there was a lot of vested interest in the City in limiting the Bank of England to just the interest rate lever.

    For the last decade of growth, policy decisions by the BofE were basically a question of when to put pressure on the brakes and by how much. Instead of directly controlling bank lending (and hence money supply growth) they just kept interest rates (and hence the exchange rate) high.

    This was great for the City, sucking in "investment" money from around the globe, whilst at the same time being highly damaging to the rest of the economy (manufacturing etc) which was prevented from competing on the world market.

    So I can just imagine all the City types telling the Government how an independant BofE managing the economy by interest rates was the perfect way to run things. And the Govermnet was daft enough to believe them.

    Bring on the "unconventional unconventional" approach - it might even work.

  • Comment number 12.

    real spending power in the hands of the masses is the only way the decline will slow - public works, increased benefits/minimum wage (employers compensated) reducing prices of public services etc. More private debt is bonkers.

    Little chance - it's cold turkey all round but next time no more Mr Nice guy government draconian controls of the banking and credit sector so that thet serve the real economy.

    Ironically we have a Labour government that worships private enterprise especially finance capitalism so radical public enterprise is not likely to get a look in!

  • Comment number 13.

    Excuse me? Improve the credit environment by reducing yields? If there's a shortage of credit, and you reduce yields, it will WORSEN the credit environment. Say after me, Stephanie, "LOWER PRICES ENCOURAGE BUYING, HIGHER PRICES DISCOURAGE BUYING". See Adam Smith.

    You say this isn't "quantitative easing" (i.e. printing money) but if it's the Bank of England doing the buying, that's exactly what it is. Unless of course they are actually selling gilts to raise the money. In which case, yields on corporate bonds will still reduce (thus DISCOURAGING lending to companies) and yields on government debt will rise (thus ENCOURAGING lending to the government).

    Either way, this will make it HARDER for slightly less "high quality" companies to raise finance. Yet another own goal from a dumb government and an even dumber BoE.

  • Comment number 14.


    Hmmm it will not be long now before choice in the supermarket will be markedly less. Trust is breaking down with suppliers I have noted generally, noboddy seems confident of getting paid for anything unless Government is buying the goods or services.

    Very difficult to turn that kind of sentiment around with the momentum now behind it, one feels it has to run its course.

    Do we still have those grain and butter mountains and wine lakes hanging around europe anywhere, we may need them.

    Unfortunetely I think they have been replaced by the now unsellable mountains of recycled materials.

    It really is a bit of a mess on so many levels i just hope somewhere somebody is actually drawing up contingency plans for worst case scenarios.

  • Comment number 15.

    I thought we were showing the way to recovery to the whole world?

    We are now hearing of measures introduced days and weeks ago by other countries.

    They may or may not be good ideas. But what works for one may well be disaster for another-surely not all economies are the same.

    We need creative thinking, not protection of our big corporations.

    This unconventional stuff could be viewed as a knee jerk response to the need to be seen to be doing something.

    When are there going to be measures to help people and small businesses-precious little has appeared so far.

  • Comment number 16.

    The plan to buy "high quality" corporate debt is, indeed, uncharted territory. Obvious problems include:

    1. What appears to be "high quality" today may quickly turn bad, even very bad. After all, only 8-12 months ago investors were paying several pounds for shares that are now worth only a few pence.

    2. Although the plan may pump some money into the economy the biggest problem is, surely, the bad debts.

  • Comment number 17.

    Morning Stephanie,

    "However, a senior economist I spoke to in Davos reminded me that we've heard this argument before - in fact, the Federal Reserve tried the same thing last year. It didn't work."

    Did you ask the question why the Federal Reserve scheme along these lines didn't work?

    From what I have heard, the initial 350Billion dollars of the TARP were wasted...gone...didn't do anything at all. The reason the USA gave up this policy was that someone did some sums (good old math, as they call it) and realised that the sums of money which would be necessary were too big , even for the USA!
    They therefore had to change tack.
    Doesn't anyone in the BOE ever listen to Blomberg news and analysis?

    We have wasted 37Billion pounds, allegedly given to the banks and no financial journalist has ever enquired nor published what the money was actually spent on!
    I think the taxpayers of this country deserve an answer, don't you?

  • Comment number 18.

    I'm interested in the use of language here.

    "Plain old vanilla policies" comes across as an attempt to talk down well thought out and respectable economics, in favour of
    "uncoventional policies" which are not backed by any reasonable economic theory.

    So, reasonable theory is played down by painting it as boring, do nothing, or worthless; thus paving the way for increasingly desperate or even dangerous measures which are talked up to make them sound exciting, do something, worth a try policies.

    In short, our government has lost control of the economy, and doesn't know how to regain it.

    Allowing retail banks to borrow money from abroad without sufficient control of the money multiplier caused massive asset price inflation in the US and UK. In an attempt to avoid the resulting problem of potential bankruptcy, both the US and UK governments are asking the rest of the world to lend them huge sums to fund stimulus packages.
    Does the rest of the world have such huge sums to lend, and is it willing to lend?

  • Comment number 19.

    Uncharted Territory? We need a different map!

    It seems to me it may be that is not liquidity that is the problem, but demand. People will not buy products, even though they have to cash to do so.

    (see #10 above)

    But nothing is even being talked of at the present time to boost demand - the last effort was the Bush give away directly to taxpayers last autumn/fall This failed as most people saved their dollars.

    If we are entering the unconventional why not try giving away time limited vouchers to taxpayers that can only be exchanged for goods when purchased in a limited time. These vouchers could be spent on things people wanted and when into the supply chain exchanged for real cash. The advantage is that the government does not have to pick winners (which it is notoriously bad at.) and manufacturers/importers of products that people actually wanted would be supported.

  • Comment number 20.

    "This is not "quantitative easing". Nor is it printing money."

    Then where is the money coming from? Is the Bank of England just sat on some huge cash mountain that nobody knew about previously? They are certainly NOT sitting on a mountain of gold because Brown sold most of it at rock bottom prices!

    Stephanie, the public rely on journalists to take the government to task and scrutinise what they are doing because it will affect us for years to come. Someone of your calibre should be digging a bit deeper rather than just reciting the government statements.

    So where is the money coming from?

  • Comment number 21.

    You mean "uncharted", surely?

  • Comment number 22.

    #13 - thuis looks like quantiative easing to me too - the BoE can only be paying with hard cash, which it prints, credits in its own bank or swopping for gilts, which it effectively prints too. Alla re as good as cash.

  • Comment number 23.


    A minor pedantic point.

    Do you really mean plain old vanilla policies?

    We old-timers remember when they were called plain manilla policies because they were written on old manilla envelopes !

    Best wishes.


  • Comment number 24.

    Whilst the BoE is supposed to be independent, they are planning to use/effect the national wealth. Therefore, we, as the people, have a right to know what the criteria will be by which they plan to evaluate "high quality" corporate debt.

    GB can stand up in Davos and plead for countries to cling to globalisation. However, he is singing the wrong tune and nobody is listening! It is somewhat hypocritical of him. He is demanding that UK banks lend and that they limit their lending to UK companies. That is the start of protectionism.

    Let's not be meely-mouthed and admit that we are at the start of a depression that will last for many years. We therefore need to identify which sectors of the economy and individual firms we, as a state, are going to protect and invest in.

    I know that many economists have blamed protectionism for prolonging The Great Depression. However, there is no way that you are going to be able to convince the man in the street that his national wealth should be shared with foreign countries whilst he looses his job and home! If GB sticks to this plan he will find that the rest of the world has gone protectionism and that he has totally alienated the populace. This will leave fertile ground for the far right.

    Call it protectionism or economic strategic planning BUT we must start the process as a matter of urgency.

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 26.

    Hi Stephanie,

    The mythologies floating around our political and economic leaders is almost comical. Ben Bernanke's status of being "the expert" on the 1930s recession, does not mean his insights are correct. Many people thought Alan Greenspan had mystical powers (pre-2008). Surely, the truth is something more mundane and more disturbing. Most of the discussion at Davos and in high government offices is largely politics driven, more than economics. Gordon Brown is desparate to cling on to power, so he, Darling and the BOE (not so impartial as we are supposed to think) try desparately to sound "in command or leading" whilst his populariy rating is growing somewhat lower by the day.
    The truth is that they are lost! People who are lost are not terribly good at making good decisions, especially if they lack the basic skills of survival, which our illustrious leader exhibits daily.
    Radical solutions are not likely to be forthcoming from a bunch of people who by definition consider putting on a coloured tie a radical departure from convention!

  • Comment number 27.

    An off beat thought - almost all economists believe that protectionism lowers economic output. This means lower production and consumption than would otherwise be the case, leading to lower useage of the world's diminishing resources. Sadly, this will strangle the developing economies, who will be unable to export to us in quantity. Many of these happen to be also the dirtiest producers in environmental terms. Result - the West will sit pretty and the rest of the world will continue in poverty.

  • Comment number 28.

    John from Hendon #19: Well said that man! As you suggest, time-limited vouchers would be the answer. Let the people buy cheap cars (say 30% off) rather than funding car makers for filling car parks. If the government is worried about creating a market in car vouchers, they can insist on controls: vouchers assigned to registered driving licensees; transfers prohibited within 18 months. Maybe at least 50% of the rest has to be a cash payment. Get real cash flowing again, not the Monopoly money from the government.

  • Comment number 29.

    We need to help the banking system first. My solution.1 Abolish the mark to market rule for banks. 2 Mark down the bad debts over 25-30 years.The bank should pay off 3-4% of the debt each year,plus the interest.3 The government should give help to do this if needed and audit it. 4 To recapitalise the system the banks should increase Tier 1 at the rate of one half percent per year. This all should be helped by the government/bank of england. Over a period of 25-30 years most of the property debts should be profitable. This will relieve the pressure on banks to hoard cash and cost much less than current plans.

  • Comment number 30.

    Ah yes, but the deposit rates are close to zero because the banks insist on obscuring the cost of banking services through the "free banking" concept.

    Force banks to pay (as a minimum) the risk free overnight interest rate on all secured deposits. This will not only give you better monetary control, but also encourage saving, and force banks to charge for services seperately and thereby compete on efficiency not consumer inertia.

    You have minimum wages for labour, why not minimum interest rates for capital?

  • Comment number 31.

    Stephanie, I really don't care any longer to hear the opinions of "a senior economist" you met in Davos. Almost all economists - senior, junior, academic, Treasury, Government, Opposition, BBC - have lost credibility. They have all been surprised by the "sudden, unexpected" collapse of World markets, money and confidence. We, the public, have been watching with panic for years. Economists talk a special language, so that they sound impressive, but they really don't understand simple economics. "Instruments," "easing," "fiscal stimulus," blather, blather. What about "ooh, where's the money coming from to pay for that?" Economists should have been auditing governments, banks, markets; instead they've talked them up and up and up. And you and Evan Davies and many other journalists are as guilty as any.

  • Comment number 32.

    They need to print physical notes and coins.

    Creating more debt just makes the debt hole bigger.

    Lets go back to 1945 when we had more physical money than debt. When all the debts could actually be paid off... They can't now.

    I'll also just point out that credit is NOT as good as cash. Cash isn't destroyed when it pays a debt. It continues to circulate. Credit on the other hand, vanishes in a puff of nothingness when paying a bank loan.

  • Comment number 33.

    #29 bankinvestor, no thanks, take a ticket and wait in line.

    I have a better idea. Let people who lost money lose it and move on.

  • Comment number 34.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 35.

    The banks are completely broke. The money that is given to the banks by the government is used to pay their debts. The debtors are the persons who have saved money with the bank. They are now paying money to pay back their own debts. If this process goes on everybody will be broke.

  • Comment number 36.

    As someone who worked as an economist in academia, government and business for over 40 years, I am deeply ashamed that I was participant in a massive intellectual fraud. The panic with which the power elites in the UK, USA and other major economic powers are now facing the current economic supercrisis refelects the utter failure of economics as a science. However well-meaning they might be, the corpus of economic theory, provides no clear guidance on how they can guidance on how the world can be saved from disaster, The money spent in subsidising university education and research in economics and the outlays on official research at organisations such as the IMF and the OECD clearly been a total waste. All economics is voodoo economics. Please prove me wrong.

  • Comment number 37.

    Dear Stephanie

    One thing Old Navy Matelots are used to is unchartered waters,
    When their problem creates uncertainity, Politicians should batten down the hatches. and put the ship into NBCD STATE ALFA.
    (N) ---NERVIOUS
    (B)--- banking
    (C)--- CREATES

    Obviously Gordon Brown has just sunk the good ship Brittania, as he has lost his way, and the course he is steering has just jepordised the entirs mission.
    The Flying Dutchmann Beckons

  • Comment number 38.

    Hello Stephanie.
    What is your prediction regarding pound-euro exchange rate and UK monetary policy in the long run?

  • Comment number 39.

    Today the Building Societies Association is explicitly pleading for no more cuts in interest rates. "A further reduction in interest rates now will make people even less likely to save and disrupt further the flow of funds into the mortgage market, which is already significantly short of lending potential."

    Nice to see somebody actually understands what is going on. The credit crunch is made worse by lower interest rates (and by government borrowing, which takes money that would otherwise be available for lending to companies and individuals). Wonder if the clowns in the government and the BoE are listening?

  • Comment number 40.

    "buy up "high quality" corporate debt?

    This is not "quantitative easing". Nor is it printing money."

    Um... Steph... When the BOE buys something, it creates from nothing, the money to do it.

    This IS printing money, or the digital equivalent.

  • Comment number 41.

    Interest rates can safely be raised to 4% in the UK. The base rate is not the driver for the lack of lending - instead it is the lack of capital. So we need to encourage saving (how about scrapping the 20% savings' tax?)

    Inflation should take into account house prices and mortgages in the future for setting BoE base rates. If interest rates are not capable of suppressing house price growth bubbles in the future, then we need to consider mortgage and loans' taxes, rather than savings' taxes.

    I think longterm the £-€ exchange rate should be 1.30 in a year or so. The Euro economic area is in a mess. The longer the economic problems go on, even German exports will collapse.

  • Comment number 42.

    Hi Stephanie,

    If these corporate bonds are purchased through the APF with the 50billion GBP of Treasury Bills isnt this credit easing - investment grade bonds to be purchased to encourage new issuance, loosen capital flows, reduce risk premia in market operations. This would be Financial stability operations, as opposed to monetary operations by the MPC using central bank money which is yet to be authorised - I thought the latter was to expand money.

    To what extent are they using the APF to buy commercial paper and Credit Guarantee issuance of banks thereby injecting them with additional funds and to what extent are these market operations funding new non bank corporate issuance / reduce risk premia / encourage new non bank corporate issuance.

    Its very relevant to how we understand from you what the government are doing. The more this is fudged, the more we could be getting misleading information.

  • Comment number 43.

    This is printing money - I can't see it any other way. I think the policy now is for GB to inflate his way out of this, and he probbly believes he can control it. In contrast to deflation which the government like to broadcast as a bogeyman, I think we will ultimately be ruined by inflation - beginning in Q2 2010. After all - they have already proven their policies are reactive and not proactive.

  • Comment number 44.

    Low interest rates are what caused the international banking community to go on this reckless hunt for yield. It is a flawed policy and Bernanke and his predecessor Greenspan will be ridiculed in the future as the incompetents they are. None of it will make any difference because the huge amounts of liquidity being pumped into the system will inevitably lead to inflation down the road. America as the international reserve currency will be last to feel it but the UK, which has now assumed massive foreign currency obligations will be crushed by this. Once again we are locked into the dismal boom or bust scenario. Forgetr government economic data and also forget the inane witterings of the talking heads on the financial programs and the economists such as the author of this blog. The truth is in front of you. Open up your heating bills, your council tax bills, examine your weekly shopping receipts the amount you pay for public transport and then tell me do you feel wealthy.

  • Comment number 45.

    Stephanie -

    Can you please pull your head out of your Keynesian backside -

    Central banks create money out of thin air - and when they buy up corp debt can we please call it what it is... printing money.... end of.

    We need to let the banks fail, end the criminal central banking system that creates money out of debt and grapple the issuance of credit (the most important commodity on earth) and place it back in the hands of the people through our representative in Parliament (preferably backed by gold/silver).

    We are witnessing the most criminal theft of our money straight into the pockets of the international banks and the madness MUST end...

    Never EVER, in the history of the world has any country gone down the road of printing money and not created hyperinflation - didn't work to well for the Romans/Wiemar Germany/Mugabe did it.

    Seeing as you are such a fan of Keynes may i direct you to this quote from your hero:

    "The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens"

    Keynes was a communist - and if we start listening to this tosh that Stephanie is chucking out we're in a lot of trouble. We need TRUE free markets based on individual liberty and freedom of choice, not this centrally planned/manipulated economy that we have now (and have always had whilst we have had central banks) and that will lead to the yet more state control.

    Put simply Stephine, when you write articles like this that doesn't call it for what it is (theft/madness/currency destruction) one really has to question your economic/journalistic credentials...

    It's printing money... end of.

  • Comment number 46.

    Three comments:

    1. With the obvious and honourable exceptions, most contributors to this discussion seem to be economists who've learnt nothing from the debacle, not even modesty. Dogmatism still rules, apparently. That doesn't bode well.

    2. As a non-economist, I would be grateful if someone amongst you could resolve the main questions here: what is the BoE trying to achieve and how likely is it to succeed?

    3. From my no doubt naive perspective, the Government and the Bank seem to be confusing two separate problems: recession caused by insufficient demand in the real economy, and the lack of liquidity in the banking system. Of course, the two are connected, but policy-makers seem to have policy only for the liquidity issue, and are hoping presumably that this will somehow stimulate demand. Isn't this back to the voodoo economics that got us here in the first place? The big weapon that's not being used is fiscal policy. Why not?

    Over to you, guys.

  • Comment number 47.


    You have a typo, the official BofE rate since 5th Feb is 1.0% not 1.5%.

    Also, the buying up of corporate debt is not officially quantitative easing if it is funded through government debt.

    The bank of england is already using government borrowing to finance its other initiatives in the financial market and until its actions are funded by created money and not gilts, quantitative easing will not have begun.

  • Comment number 48.

    No. 46

    You ask "what is the BOE trying to achieve?".

    It's called 'monetizing debt' - put simply, the banks have lost a ton of money and the BOE will just print the money to make them whole again. The people pick up the tab through inflation down the road.

    If this sounds unfair/criminal it is because it is. The citizens of the UK are susbsidizing the banks losses.

    You go on to ask - 'how likely are they to succeed'... this depends on your view of success... they can certainly get rid of the debts and free up credit - but the price of a loaf of bread will be £200+... they will crush this country with inflation.

    I suggest you do your research about money as debt (the only way money comes into existance is because someone somewhere has borrowed it from a bank). If you can understand what money is you will start to see the criminal scam of the central banking system for what it is and what we need to do to fix it.

    Hope this helps.

  • Comment number 49.

    It is surprising that anybody thinks that supplying money into the system will solve the destruction of trust which has taken place. It simply will not happen. Take a look at the stuff which is still selling in the face of the recession such as the growth in fair trade, reported today. This is a motivated purchase. I do not see many motivated purchases.

    It is interesting that the one big ticket product you could select as the icon of the last 100 years - the automobile - is one of the products with the biggest problem. Tell me do you not find that very telling. You think it is just the supply of credit. No. The car is the central icon of an entire consumer culture, it has almost been a religion, and it is in trouble. But that is a coincidence - A temporary problem. I think not.

    Too many people appear to think that the matter is simply one of the supply of credit or debt whichever you wish to call it. It is not.

    Destroy trust, destroy the reward for effort and you change the landscape. Put question into the issue of sustained commitment which is central to certain products and lifestyles and you destroy the movement to that commitment. Some products demand a continued relationship with the supplier beyond the initial purchase. When the supplier puts their integrity and continuity into question the arrangement starts to breakdown.

    The changes we are seeing are not reversible. Parts may be but never the whole. If anybody wants to see a return to yesterday, hope is fragile etc ie a yearn for return, it simply is not going to happen.

    The idea that the economy, which is actually people, will act like some herd, or a push - me pull - you system, and pumping money will solve the 'problem' is somewhat flawed. That assumes that people are going to respond as they previously did. Tell me do you think you are going to behave in exactly the same way.

  • Comment number 50.

    "The Bank may well hope to avoid taking the policy rate to zero - for the sake of the banks."

    Maybe, partly, but more importantly you don't want to drop interest rates any further for the sake of the pound.

    Perhaps someone up there is understandably getting worried about the pound collapsing under the mountain of government deficit.

  • Comment number 51.

    And £150 billion of brand new pound notes about to hove into view courtesy of the insanity of Mervyn King. The road to Harare is open.
    My guess is that the Golem will claim this is an attempt to lessen the real size of Sir Fred's pension. Look, "court of public opinion", by printing all this money it makes existing money less valuable, so Sir Fred's £703,000 per year is going to be worth a lot less.
    But seriously, this is insanity.
    The price of oil is on the rise, the price of foodstuffs are on the rise and these clowns are talking about trashing the value of sterling. Inflation is still at 3%, the upper limit set by the Treasury.
    Hyper inflation here we come.

  • Comment number 52.

    I am somewhat surprised that Broon didn't tell the American people "This is no time for novices".

  • Comment number 53.

    Explanation of Quantitive Easing rational.
    More Labour voters likely to have no savings, live in council property or have unsustainable mortgage. Savers and houseowners more likely to be Tories. Simple my dear Watson.

  • Comment number 54.

    I wonder if this high quality corporate debt just happens to be bought from companies with large number of staff in Labour-held constituencies? Also, if its such high quality, surely investors ought to be queuing up to purchase it?

    As an aside, I was wondering if anybody else was surprised that Broon didn't mention to the Americans that "This is no time for a novice"?

  • Comment number 55.

    #6 threnodio

    Damn I was about to crack a similar Rumsfeldian joke - but foiled again!

    Stephanie one or two things that to me should probably be appearing in the murky gloom and aren't are:

    1. if there was a UK recovery on the way for 2010 I assume there would be the proverbial microscopic green shoots but we still don't seem to have bottomed out yet.

    2. if the G20 was going to come up with a genuine magic solution to reform there wouldn't be the divisions as with France right now

    Therefore if the markets and the public don't buy 1 (the recovery) and 2 (reform) isn't going to happen soon nor guarantee further problems aren't going to reoccur then confidence won't return and we will have deflation continuing.

    So in a nutshell after everybody saying that we should avoid the mistakes of the Japanese ten year stagflation stint isn't that what we are probably heading for?

    I also assume that the more we have to borrow to get out of our very own hole/elephant trap will increase the scale of a future inflationary battle?

    As ever I think Brown and Darling almost verge on fraud as they still use the "global phenomenon" ruse and then quietly try to introduce regulation that would at least have significantly mitigated the economic devastation.

  • Comment number 56.

    #14 "Do we still have those grain and butter mountains and wine lakes hanging around europe anywhere, we may need them."

    The "butter mountain" has melted and the "grain mountain" was eaten by "rats" during the food prices speculation in the last year or two but the "wine lake" is still there. However, is is being slowly displaced by the "motorcar landfill" !!

    I hope this is helpful to you !!

  • Comment number 57.

    Could you say when having to have a second home came into being,i can see in the past with travell problems but not to day.Or is it a labour greed thing,to grab as much as you can before being outestead,and couldnt careless about the people.There is no reason why they cant have a flat or hotel,because they have giving the country to the eu which i dont agree with, trade with but keep our own way of life.Because evey country lives we dont need most off the mps in office now
    yours sincerly billmccreery

  • Comment number 58.

    #18 "Does the rest of the world have such huge sums to lend, and is it willing to lend?"

    Yes to the first; no to the second. The Chinese have at least $1 trillion to lend but they will only lend in proportion to their IMF voting rights ! Since Britain has a greater percentage of the voting rights than China, China may not lend to Britain !!

    This is the other issue that has to be settled in the G20 meeting - just who has the whip hand !! Both Russia and Brazil have come out on China's side and India is sitting on the fence and has an uncomfortable feeling, fundamentally speaking !! Many of the rising stars of the developing world are also on their side and Japan will play a waiting game before they act. Of course the Japanese will be cautious since failure means being presented with a short sword on a piece of white silk and an invitation to do the honourable thing !!

  • Comment number 59.

    I agree with a lot of the comments from the gang of one.....

    My simple point/question is that I do NOT believe the numbers, they just don't seem to add up to me. The multiple 100's of BILLIONS of £/$ being provided at taxpayers expense to Banks all around the world.

    The Sub-prime problem can NOT be the only source of these amounts of money now being LOST. There are not that many people in America.

    So where has all the rest gone what else have the BANKS been doing?


  • Comment number 60.

    #32 You truly do not have a clear idea of what cash really is, do you ?? Cash is merely a physical manifestation of debt, a promissory note !! If you look at a (BoE) 20 quid note, just under where is says Bank of England in large letters, in very small print, it says - I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF TWENTY POUNDS !!

    This means that the notes and coins are not really worth anything and the only real value is what the issuing bank says it is worth. If the issuing bank keeps producing cash without the equivalent resources to back it up, the value of the cash will be worth less and less until it becomes valueless !! To find out more, ask any Zimbabwean !!

    BTW, what I said about coins are not always true as the Italians discovered in the 80s and the Indians do now !! In each case, people have discovered that the metal of those coins are worth more than the face value of the coins themselves and so proceeded to melt down the coins for their metal !! Much more of this quantitative easing and the Brits will make the same discovery soon !!

  • Comment number 61.

    #36 "an economist in academia, government and business for over 40 years,"

    For an an economist in academia, government and business for over 40 years, your grammar is wanting unless English is not your first or even second language !!

  • Comment number 62.

    #55 "So in a nutshell after everybody saying that we should avoid the mistakes of the Japanese ten year stagflation stint isn't that what we are probably heading for?"

    Actually, no !! For all that their interest rate was/is at zero (0), the Japanese are still a major manufacturing nation. Not so Britain !! What I foresee is inflation and, maybe, even hyperinflation, but not stagflation !!

    Brown has destroyed Britain's economy and Britain will never become a major economic power again without a major miracle !!

  • Comment number 63.

    Hi Stephanie,

    But this isnt new news, is it? Charlie Bean said that BoE were buying corporate debt before 16th February under the APF. He said the objective was to boost the availability of funds to corporates by buying their debt with the aim of increasing liquidity in these bonds, reducing the cost of capital to business and stimulating issuance. At that point, he reckoned illiquidity accounted for 2.75% percentage points interest rate spread over government debt - all designed to have a "powerful impact on the cost and availability of funds to corporate borrowers." Bernanke called this "credit easing", didnt he. This brings us back to real costs of funds and the lending capacity shortfall - credit demand outstripping banks ability or willingness to lend leading to high real interest rates for credit.When will we be told what the Banks Lending Panel Forum are telling the government about this crucial number, caused by foreign bank withdrawal and the collapse of securitisation markets?

    Are they buying new issuance from corporates or existing debt with investors?

    Isnt this just a case of the government stepping in to fill the gap, after the liquidity lifeboats to banks have failed to get lending going?

  • Comment number 64.


    Forget my earlier comment - for some reason the main webpage linked me through to this outdated thread - as there was contributions yesterday I assumed this was a new story :(

  • Comment number 65.

    im so annoyed that the banks mortgage rates arent following suit. as someone whos to renew his fixed rate mortgage soon the bands are being most unhelpful at giving me a fixed rate mortgage at a decent percentage :(

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