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Easy does it: No further QE

Stephanie Flanders | 13:05 UK time, Thursday, 4 February 2010

It may not be the end of QE, but they have to hope it will be the beginning of the end. And they have to hope the Bank will will have more to show for its £200bn as the months go by.

Two observations about today's statement (see here), and a few broader implications of today's decision.

Observation One: At best, this is a very weak vote of confidence in the recovery. The paragraphs about the economy are dotted with words like "sluggish", "impaired" and "gradual". Our supply capacity is "probably impaired"; credit conditions "remain restrictive". The prospect is only for a "gradual recovery in the level of activity".

The best that the MPC can come up with on the subject of business investment is that the rate at which it is falling "appears to have eased". Likewise: "spending by households appears to have picked up a little, though that may partly reflect temporary factors".

Observation Two: They are, as expected, keeping the door open to further purchases. And the statement tries very hard to remind us that the MPC believes it is the stock of assets held by the bank that matters for monetary conditions, not the continued flow of purchases.

We'll have a good test of that this afternoon. The decision was widely expected. The stock of purchases - that is, the amount of gilts that the bank has taken out of the market - is unchanged.

That should mean that the bond market is unperturbed, and that the Debt Management Office will have no trouble shifting tens of billions of gilts over the next few months. I will be interested to see. But it would certainly be odd if the market took this as a shock.

What does this mean for the future?

One clear implication is that monetary policy has probably now been set for the duration of this Parliament. The MPC has made a habit of taking QE decisions every three months, so it can draw on the latest forecasts in the quarterly Inflation Report. If the general consensus about the timing of the election is correct, the next time the MPC thinks hard about changing monetary policy will be on polling day: 6 May.

The Bank will take issue with this assumption: in theory, monetary policy is reviewed every month. But with all the subdued language, there is surely little chance of the committee wishing to tighten policy in the next few months. And re-starting asset purchases, though perfectly possible, would be a consequential act - and send a pretty powerful signal about the state of the economy. It's hard to believe they would do that without a new set of forecasts.

Another observation would be that if this is the end of QE - and we do not know that it will be - but if it is the end, it's a pretty whimpering one. The Bank is not retiring, triumphant, from the field, the enemy slain, its job well and truly done.

m4lending480.gif

The MPC is hoping the policy has worked. It sees some signs that it has. But - as the chart above shows - the conditions for lending in this country, especially to small and medium-sized businesses, are still much weaker than they would have wanted.

Quantitative easing may well have saved the economy from a credit-led depression. We will never know. It is interesting to note that monetary conditions in the Eurozone and the US are even worse than ours. That difference may be partly down to QE.

m0_jan08.gif

But - as the statement makes clear - the MPC needs to believe there is more to come. Its members must hope and trust that the £200bn of additional cash - roughly 14% of the economy - that they have pumped in is going to do more to help the economy over the next year.

That "long and variable" lag between action and result is one good reason to pause. Interest rate changes take a long time to show their true effects. If anything, the impact of QE could take even longer to show through. At least, that's what they tell us at the Bank.

But another reason to pause today is that, if £200bn hasn't worked, you have to wonder whether there's much point pumping in a lot more.

Comments

Page 1 of 3

  • Comment number 1.

    Hi Stephanie

    Thank you for your analysis of the Bank of England's action today. I notice that you are implying they are not confident about the future and that they are leaving some options open.

    I would question your view on the gilt market,however. Just because something does not happen today it does not mean that it will not happen as the days and weeks pass.I have been following notayesmanseconomics updates on this subject and he feels that these matters can take time but like what has happened with Greece they arrive in the end. Also it was a Greek bond issue which triggered the latest moves there so I feel we should see how ours are received over a period of time.So sometimes you have to wait for the full implications of actions taken now...

  • Comment number 2.

    Can't argue with that, Stephanie. I think it is best to sit and wait to see what happens next. Funny that all the experts really have no idea what the result will be this massive amount of QE.

    I thought the BBC article on the subject was somewhat amusing this morning.

    "Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks."

    This should say "Under QE, the bank created the illusion of new money..."

    Then the article said:

    "Last week, it revealed it had spent all of the £200bn put aside for QE."

    In other words the £200Bn that never existed, but was conjured up from under a silk handkerchief, was used to cancel old debts.

    "The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month."

    It should have added: "..thereby using prudent people's income from savings to help prevent massive amounts of mortgage default by imprudent borrowers."

  • Comment number 3.

    It's fingers crossed all round, and Mervyn King can go and have a lie down for a while.
    Let's hope the value of the pound doesn't rise too much.....UK manufacturers must be loving it (providing they don't use foreign components).
    And the near-zero % interest rates?....they may have to come off very slowly, or the property market could go through the floor.
    And let's hope that mortgage borrowers, estate agents and banks are not banking on ultra-low rates to meet the repayments, or there could be more trouble.
    The price of property must not "balloon" again.....what will happen if the repayments double?
    Price it sensibly....or the "double-dip" recession is a certainty.

  • Comment number 4.

    'But it would certainly be odd if the market took this as a shock.'
    I agree but government bonds did fall straight after the announcement before recovering, this was particularly true of long-term bonds. Very strange considering that this announcement was expected.

  • Comment number 5.

    In the absence of QE effects /it's time lag, the UK is still in 'recession'.

    Labour are incapable of leading the UK to a sustained economic recovery, from a recession. This we know from history - once Labour have the economy in 'recession', the UK economy is stuck there until Labour are removed.

  • Comment number 6.

    Yes, put simply, banks, building societies and estate agents should be satisfying themselves that new mortgage borrowers are able to pay DOUBLE their current level of repayments, or the recession wreckage may get worse, and the BOE will have to start the presses again.
    Zero per-cent is a desperation measure, and property was the biggest component of the collapse.
    If we don't bear this in mind, we may be digging ourselves into another hole.

  • Comment number 7.

    Hi Stephanie,
    The Bank of England indicated three measurable initial benchmarks for QE transmission success : the depression of gilt yield ( making other riskier assets more attractive) ; portfolio rebalancing by gilt sellers- insurance companiens, pension funds and overseas investors picked up on sectoral balances ; growth of M4 excluding OFCs ; easing of credit conditions; growth of nominal demand. Could you give your "heads up" on each.

    Is the QE final authorised total £250 billions ( including the £50 billions funded by Treasury bills for private asset purchases which appear to be continuing)?

  • Comment number 8.

    It is far from clear that QE has 'worked' and if we have to wait a long time for the evidence (not forgetting Keynes remark about what happens in the long run!) perhaps it is the wrong instrument altogether. What we needed was a quick correction to the economy falling away as well as securing the stability of the finance systems. While it seems that for the time being the systems are stable (or appear to be)what gains for the wider economy?

    The government needed to stimulate the real economy - public works, employment schemes for neets, uprating benefits, increased tax free allowances, keeping VAT to 15%, allowing councils to spend their capital receipts quicker. Apart from a few gestures (scappage) Labour has chosen to outsource the management of the economy to the theorists of the MPC. About time for joined up economic policy conducted by the government.

  • Comment number 9.

    Where did the 200bn go? It was stated that the funds were needed to keep the banks above water so they could continue to provide loans for business. This has not happened. The public lost a good portion of their individual wealth because the banks decided to collude in a scam that any reasonable person would have seen as unstainable yet all those bight banking professionals seem to have missed. The public now faced with lost retirement and investment funds are attempting to repopulate those accounts with no assistance from the government, thus spending is down. Confidence is the thing that is missing and the confidence is lacking because both the banks and the government betrayed the people...and nothing has really changed. No one has been held accountable and the bankers have the gual to proceed with their unethical behaviors, resist any calls for change and know that they control enough votes to prevent them from being exposed for the fraud they committed. The problem is not technical, it is ethical.

  • Comment number 10.

    The Bank of England has pumped 200Bn into the economy yet the economy only grew by 2Bn in the last quarter compared to the previous quarter and this was only a preliminary estimate by the ONS. Lets not forget that the 1st quarter of the recession was also initially reported as 0.1% growth by them. Has QE worked, only time will tell but at some point the B of E will have to shed its government debt on to the bond markets, if it does this immediately who knows what might happen.

  • Comment number 11.

    o.1% rise in growth during January vs 0.1% put into QE beforehand. Result: zero sum game.
    Zero interest rates brought in to encourage lending vs Banks having no money with which to restore their balance sheets. Result: stalemate.
    low rates + QE = inflation and degree of asset bubble. Result: BoE doesn't repeat QE.
    Treasury emptied saving banker hides without reform vs Election run-in = S&P and IMF nervous.Result: BoE can't afford (and daren't) continue QE.
    http://nbyslog.blogspot.com/ you read it here first

  • Comment number 12.

    Stephanie

    Like your last sentence - there's a reality ring to it......

  • Comment number 13.


    Ms Flanders you write :

    'It may not be the end of QE, but they have to hope it will be the beginning of the end.'

    You are Madam a born optimist even to put these words in your blog. And you're squarely aligned with Mr W Churchill. But for the sake of your health I hope you do not smoke cigars.

    This stay in QE is probably not even the END of the BEGINNING.

    Deleveraging will not take place at Gov't level for the foreseeable future. Private lack of confidence is being counterbalanced by unequivocal Public policies.

    Households and to an extent non-financial firms are strong candidates for deleveraging. Regrettably for we plebs, but probably true.

    The Bank of England's decision today to pause QE is difficult to fathom. The BoE needs to support the Gov't uninterruptedly. Supporting the Labour Party in Gov't is not really the issue here...

    BUT, please, I would ask the BoE to support us first and foremost! We, the living of Britain. We, the Nation....

    Are ALL members of the Monetary Policy Committee striving to do the best for the country as a whole ?

    Does this pause in QE do more harm than good I wonder ? Or are the mixed signals today's action sends out more a result of muddled thinking ?

    QE is a servomechanism. And a psychological morale boost. Even at a hundred pounds a month. Ain't it Madam ?

    Keep interest rates low...and let 5-10 per cent inflation cure our ills.

    Ciao Ma'am


  • Comment number 14.

    With the post election environment heralding reductions in public expenditure and higher taxes consumers are most unlikely to spur demand in the economy. Likewise industrial activity will remain low. We can probably say that QE didn't make matters worse but if you can turn it on and off like a tap it probably hasn't done too much of benefit.

  • Comment number 15.

    I post this again:

    In 2009 the only large net buyer of UK fixed interest gilts was the Bank of England.

    The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks. The Bank of England has so far spent 99% on gilts and only 1% commercial debt.

    Robert Stheeman (The CEO of the Debt Management Office) told the Treasury Select Committee in November 2009 that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

    All the evidence points to Quantitative Easing being a method funding Government without officially breaking the rules.

    Pimco, the world’s biggest bond house says that it will be a net seller of UK gilts in 2010.
    The projected deficit between tax receipts and Government spending in the next fiscal year is £200 billion.

    There is insufficient time left before April 2010 to make the necessary cuts in public expenditure.

    Trying to increase tax to make up the shortfall would result in a compound tax spiral and a collapse in the economy.

    And it doesn’t look likely that the money can be raised through conventional fixed interest gilt sales.

    QE has been paused but likely only because self employed tax payments and festive VAT will carry the Government through to the end of March.

    I think Mr King’s going to have to fire up his printing press again, irrespective of who wins the next election either.

    This country has a mathematical problem to solve.
    A £200 billion mathematical problem.

  • Comment number 16.

    I suspect we will have no problems at the gilt auctions in the lead up to the next election, seeing as half our banks are now publicly owned it can be assumed that they will be under orders to BUY

  • Comment number 17.

    Tempted to say too little too late! However it is a step in the right direction. Now interest rates must be raised to rational levels. Until this is done the hole we are in is getting deeper and deeper.

    We have put off the inevitable pain, but as this depression's cause is a huge mortgaging of our future diverted to already spent current expenditure and asset price inflation there is no way we can avoid the pain (other than a big rise in inflation) and we must therefore get the pain over as soon as possible as the best way forward.

    Actions/Targets: Pay cuts all round (both private and public sectors) - as fairly implemented as possible. Interest rates up to 5 to 6 percent ASAP. Get house prices down to an average 3.5 times area personal earnings. Then and only then, provided we can keep asset prices down, we can have a recovery.

    I remind everyone that the 200 bn QE money already lost will have to be paid back by us in the end!

  • Comment number 18.

    How can you input an additional 15 percent and not have a clue if it is doing anything but get excited about a decimal point of growth.

  • Comment number 19.

    QE and near-zero % are emergency measures.
    But my fear is that an entire property market may be establishing itself based on miniscule interest rates.
    "But they wouldn't be daft enough to do that, would they?"
    You'd better believe it, they would.
    Estate agents can't really be blamed....they have a legal obligation to obtain the maximum price for the vendor.
    No, it's the banks who pull the strings and hold the key.
    And as we saw in the USA, an entire market (sub-prime) grew up around very low interest rates...
    When rates returned to normal, the crash began.
    Quantative easing only deals with EFFECTS of mis-management of the economy, but lame-duck property markets are the CAUSE of all the trouble.
    Mervyn King should now be reminding the banks that interest rates may soon start to rise.....have they got their mortgage approval policies right?... Or have the purchasers "borrowed up to the max"?
    Perhaps a million houses priced and sold, all based on near-zero rates?
    Surely the banks wouldn't be that daft......??? Would they???

  • Comment number 20.

    As an ignoramus about such matters, but interested in bank shares, because as a taxpayer I appear to own a significant share of 2 major banks,why did the announcement hit bank shares especially hard? Is that a blip or will there be a medium term adjustment downwards now that QE has been "suspended"?

  • Comment number 21.

    'But another reason to pause today is that, if £200bn hasn't worked, you have to wonder whether there's much point pumping in a lot more.'

    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    3 month minimum time lag to end QE effect at general election - QE is and has to be a political gimmick

    It's worked allright - its got the city, politicians, economists, part of the electorate, media including the BBC conned and confused into thinking - the UK is out of 'recession'.

    We're stuck with Labour in 'recession' - until they are removed.

  • Comment number 22.

    stumbled upon this very apt quote... me thinx it is true!

    "A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy..." - Alexander Fraser Tytler, Scottish lawyer and writer, 1770

  • Comment number 23.

    We're in the doctor's waiting room now. Fingers crossed it's not cancer.

    Where's WOTW (writingsonthewall)?

  • Comment number 24.

    17. At 3:18pm on 04 Feb 2010, John_from_Hendon wrote:
    'I remind everyone that the 200 bn QE money already lost will have to be paid back by us in the end!'

    I disagree, I think those gilts held by the BOE will never see the market. £200 billion if added to the current market held gilts, couldn't be serviced now.

  • Comment number 25.

    #15 Dempster

    Nice to see someone else with the finger on the pulse.

    Made a number of comments on previous blog entry providing a oomplementary assessment re bonds, sterling, interest rates and credit rating.....

    I've just started to count to '£200 billion' but realised at one a second that's going to take me six thousand, three hundred and forty-two days and just over 11 hours (if my maths is correct).........

  • Comment number 26.

    To 25. At 3:43pm on 04 Feb 2010, Rugbyprof

    Oddly enough a contact at my Local Authority says that they are currently organising the likely ‘required cuts’, but they’re just not publicising it yet.

  • Comment number 27.

    25 SORRY SHOULD READ 6342 YEARS AND 168 DAYS.....

  • Comment number 28.

    25. At 3:43pm on 04 Feb 2010, Rugbyprof wrote:
    I've just started to count to '£200 billion' but realised at one a second that's going to take me six thousand, three hundred and forty-two days and just over 11 hours (if my maths is correct).........

    Rugbyprof....try YEARS (6342 years)
    Do you work at the Treasury?

  • Comment number 29.

    No2 Bertram Bird wrote

    It should have added: "..thereby using prudent people's income from savings to help prevent massive amounts of mortgage default by imprudent borrowers."

    At 76 years old the ridiculously low interest rates hurt. I never had a mortgage at any more than 2.5 x income.

    I lost my house and business under Ted Heath and his 3 day week but you just have to bounce back. All it needs is a bit of "backbone"

  • Comment number 30.

    #SplendidHash
    see #27 Managed to correct before looking too much like an idiot. Thanks for the due diligence. They could definitely do with you at the Treasury......

  • Comment number 31.

    QE failed because they gave it to the banks when real economy would have needed it. Now all that money is stock up in excess reserves and banks won't lend it out. Not that they should, either. There are not enough credit worthy customers after last lending boom. The real economy, witch desperately needs more money to function properly, is left to their own devices. They keep feeding the parasite and leave host to die, everything is geared up to benefit the banks and only the banks. If any other sector would create this much havoc to the economy it would be taken over by the government and forced to function properly, but banks are left to run free and wreck up the economy.

  • Comment number 32.

    What an opportunity missed. The QE scheme seemed to hinge on the belief that the extra funds the banks have as a result of selling bonds to the BofE will follow that wonderfully fanciful route, "trickle-down".. by then being lent onward, to UK businesses and individuals.

    Yet we know that the banks, bruised as they were and now under new strictures to maintain stronger balance sheets, are actually more than happy just to hoard much of the new cash, in-house: so only a small proportion of the £200Bn will actually trickle down to you and I (and our businesses).

    If only they'd had the creativity to spend even a small amount amount of the new funds directly on investment into UK SME businesses - that could have been done by defining a "standardised" corporate bond type, which businesses would have been delighted to issue (mine certainly would !!). In that way, the Governement (in the person of the BofE) would have been taking small but immensely helpful stakes in British businesses. And what a nice positive idea that would have been.

    Hey ho. I suppose someone has to pay for the bonuses so all those Tuscan villa pools can carry on being built...

  • Comment number 33.

    RugbyProf/SplendidHash

    To rehash Liam Fox's take on the government's £799 billion of debt being "the equivalent of borrowing £1.1 million every day since the birth of Christ." -

    £200 billion of QE is the equivalent of the UK printing £42.9 million every single day since Labour came to power on 1 May 1997 (46662 days).

    I'm glad I don't work at the Treasury - sounds like hard work!

  • Comment number 34.

    To (17.) John from Hendon, since you mention paycuts, I - along with, I'm sure, vast numbers of small business owners - have already taken a pay cut of about 80% in the past couple of years, in fact I have frequently survived on absolutely zero income just to I can keep my staff paid. That what small businesspeople always do in financial crises.

    So - do you think I'm perhaps due to have some back now please ? Oh no... the QE's all been spent. Bu**er. Too late.

    At least old Fred Goodwin is still receiving his THIRTEEN THOUSAND POUNDS A WEEK pension, provided by us. I wonder if he invests any of that in small UK enterprises ? Come on Fred, tell us ?


  • Comment number 35.

    Is the 15 percent of the economy supplied by QE additive to Prime Minister 15 percent public current year deficit, in which case the total input is 30 percent, or is the QE simply way of giving Mr Brown his 15 percent deficit this year. I take it is the later otherwise the growth last declared would be 0.2 percent rather than 0.1 percent.

  • Comment number 36.

    In the middle of all this gloom car sales have just risen significantly, & only 20% via the scrappage scheme. Also the recent rise of 5% in the Industrial Purchasers Index (this is from memory)
    Spare a thought for the Irish. Really tough monetarist reaction from their government, big spending cuts straightaway and no QE. Last quarter the economy shrank by 15%, & unemployment is 12.5% Satisfaction with the government at 14%. I've posted this before but got no comments, I wonder why?
    Rgds Peter

  • Comment number 37.

    34 MikeHSurrey

    At least old Fred Goodwin is still receiving his THIRTEEN THOUSAND POUNDS A WEEK pension, provided by us. I wonder if he invests any of that in small UK enterprises ?"

    My advice is open a fruit shop in Paris or a decorators specialising in £1000-a-roll wallpaper - might pick up a bit of business from The Shed then. Well , he's got to spend it on something hasn't he? I don't imagine he'd want to leave that much money sitting in the bank...

    http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5950461.ece

  • Comment number 38.

    Arnold

    Can this number be linked back to the Da Vinci Code or maybe Nostradamus??

    Seriously, remember we have run an annual borrowing bill of approximately £190bn to £200 billion this current year.

    QE = £200 billion - any connection you think?

    The next 3 years see borrowing increasing by another £400 - 500 billion minimum so we have a total (money) debt pile at a staggering £1.3 TRILLION.

    Interest alone will be in the region of £50 - £80 billion and that's if the markets don't turn nasty over bond rates.

    Now counting at £1 per second, £1.3 trillion takes me.......to AD 43,233 (splendidhash - please check?)

    Where's a wormhole when you need one? I can see plenty of blackholes at the moment........

  • Comment number 39.

    That should have been 4662 days since Labour came to power on 1 May 1997 - not 46662 days! Good job I DON'T work at the Treasury!!

  • Comment number 40.

    #36

    Trust that you're not feeling lonely there Peterinoxford?

    Car sales have been ok though Toyota have probably put paid to any further growth. I see the scrappage scheme has been extended because take-up was below £400 million set aside. But rather than save the money its more send, spend, spend....

    Ireland - yes tough - let's see real estate bubble, insufficient industry to support rampant consumerism, too high public sector costs - sound familiar?

    They just have to dig in and get through - not pretty. They didn't do QE because they can't - see Dempster commment at #15.

    Our day of reckoning is coming soon so I wouldn't get too comfortable with Schadenfreude just yet............

    And just think we've been able to pluck £200 billion from the tree at the bottom of the garden with no cost to help us through........yeh right.......no such thing as a free lunch......

  • Comment number 41.

    37 rugbyprof
    "we have run an annual borrowing bill of approximately £190bn to £200 billion this current year. QE = £200 billion - any connection you think?"

    Hmmm... Not sure I've got this right but...

    1. The Treasury gives BoE permission to create £200 billion QE money.
    2. BoE spends £200 billion on bank bonds to inject money into economy.
    3. However, banks do not lend the money to businesses/individuals due to concerns about future losses.
    4. FSA tells banks to increase their liquid assets/security to guard against future losses.
    5. To improve their liquid assets/security, the banks buy govt bonds/gilts from the Treasury...
    6. ...which the Treasury is only too happy to sell in order to raise finance for govt spending.

    So, to my naive understanding of things...

    ...the Treasury sells its bonds to the banks who buy the bonds with money they got from selling their own bonds to the BoE who bought the banks bonds with money the Treasury said it could create. If you see the BoE as an extension/tool of the Treasury (which is how it is acting here) then this is just a circle of paper money between two parties - the banks and the govt - and neither of them has any real money.

    The music hasn't really stopped yet cos the BoE is still holding onto the banks bonds. Just have to hope everyone finds a chair under them when the music does stop.

  • Comment number 42.

    #24. Dempster wrote:

    "... I think those gilts held by the BOE will never see the market. £200 billion if added to the current market held gilts, couldn't be serviced now."

    Sorry, I don't think you can have it multiple ways. Either QE did something to money supply or it didn't. The consensus is that QE did indeed expand the money supply. Now this expansion will have to be recovered - as I see it this is borrowing from future income.

    Alternatively QE did noting at all - if so what was its purpose and why did the printing of money bother economists so much?

    So the hole is indeed deeper by 200 bn, sorry. You may of course be right about it being unaffordable - in which case the UK is already inevitably going to default on its sovereign debt, or we will have to be rescued by the IMF (not having the strength of the Euro Zone around us!).

    Is the UK economy already, by virtue of 'un-recoverable'(see above) QE, a dead man walking?

    I don't think so myself, but the path to recovery from this depression will be extremely long and difficult and twenty to thirty years in duration (See my previous comparison with the Long Depression of the 1870s -1873 to 1896 in the UK.) This is I think the best outcome as I don't much like the complete destruction of money resulting from the other 'choice' of hyperinflation. Not gloomy - but realistic!

  • Comment number 43.

    Can I just throw in one point about QE which does not seem to get discussed, which is that at least one small benefit of it was that it saves us the whole of the interest cost on £200Bn of governmental funding. Here's the logic :

    Since the £200Bn QE is created by the BofE effectively out of the air, as an increase to the 'root money supply', it costs them nothing to do so.

    Then, when they use those QE funds to buy back interest-bearing bonds most of which are in fact Treasury bonds (gilts) issued by the government as part of its normal financing, the BofE, as then owner of those gilts, becomes the recipient of the interest paid on them. By us (i.e. the governement).

    But of course, the BofE "is us", too. So - the govt is in fact, receiving interest (via those gilts) on the money which it has borrowed .. from itself.

    So we've kept costs low (as compared with 'normal' govt borrowing from commercial sources) by borrowing money from ourselves. You do wonder which planet we've strayed to sometimes.... :-)


  • Comment number 44.

    #25 Dempster

    Unfortunately, the £200 billion will need to be paid back at some point (unless we want Zimbabwe style inflation). The question is when rather than if. The BOE will need to sell the bonds on top of all the extra bonds the government will need to sell. The money received will then be destroyed/vanished away? as if it never existed.

    Given the laws of supply and demand, the extra supply of bonds without a corresponding increase in demand will lead to lower bond prices and hence higher interest rates for the government.

    These extra costs will be passed on to us in the form of higher taxes and interest rates and greater decreases in public spending in the future than there would otherwise need to be if the deficit is allowed to spiral even more out of control.

    #19 Steve Wo
    I agree entirely. Cutting interest rates to zero should have been an emergency measure to enable overstretched homeowners to stay in their homes. Not an excuse to start the merry go round all over again. Worryingly it looks like there is a lot more pain to come from the housing market.

  • Comment number 45.

    #41 Arnold

    I think that's about right......

  • Comment number 46.

    John from Hendon,

    Why specifically do you feel [ @ 42.] the expansion in the money supply (represented by the QE) 'needs to be recovered' ?

    Stephanie's figure about the overall scale was an interesting one - the £200Bn is roughly 14% of GDP. So that's like saying we've increased the scale of the UK monetary economy, entirely artificially, by about 14%.

    Is that not equivalent to "invisible devaluation" (of the pound) of about 14% ? Since some would say the pound is probably too strong, that suggests we will see the pound weaken over the coming year from the current $1.62 or so to maybe $1.35 or so : except the USD will probably weaken too, reducing the effect.

    If the pound does weaken, it will hugely assist exporters, whose product will look much more competitive abroad, just as they are trying to recover sales - just what we need (I speak as an exporter).

    And conversely, the same effect will make all those German fridges and Chinese flat screens much more expensive, and keep a lid on imports, just what we need to help with the balance of payments.

    What's not to like ? I'd leave the money supply expanded.


  • Comment number 47.

    42 # JFH

    I think you have to see the money raised purely to finance gilts issued to cover for borrowing......

    M4 didn't increase as the propoenents said it would but there are mixed messages from on high regarding the aims of QE (those stated and those of a more hidden agenda) and certainly in its 'effectiveness'.

    I am resigned to seeing it as nothing more than a funding scam. I'm trying to find some light from the gloom you portray but its difficult.........

  • Comment number 48.

    40. Rugbyprof
    Thanks for your reply & concern, no I'm not lonely at all. I sometimes think there is a strong puritanical strain in the British that approximates to: 'If its not hurting then its not working', now where have I heard that before?
    I thought UK deficit was about 78% of GDP, compared to USA 83% Germany 82% & Japan 132%. Haven't heard much about their international credit rating being downgraded, & the Japanese fund theirs OK (I stand to be corrected about Japan although their debt is about right last time I looked.)
    My old economics teacher told me about the role of ecnomic stabilisers in the economy: I'm sure you know in a boom that the tax take rises as earnings cross thresholds acting as a dampener on demand. Well in a recession the size of the public sector acts as a cushion to preserve important spending power (as does the dole given to those with a high propensity to consume)without which business bankruptcies would soar past the record number achieved by Messrs Lawson & Major. For a recession the number of firms failing has been relatively low. Don't fall into the trap of thinking I'm an unquestioning Labour supporter, I cannot forgive Gordon for selling all that gold so cheaply!
    Incidentally just up the road from me BMW (Minis) have just restored an extra day plus an extra shift. Lets hope the low pound keeps those exports growing yum yum.

  • Comment number 49.

    MikeH #43.

    Yes - clever isn't it?

    But there's no such thing as a free lunch so where are the adverse consequences going to manifest themselves? More asset bubbles or sharp rate rises?

  • Comment number 50.

    A little noticed news item has been that households borrowing resumed over the December period. Paying down debt actually cuts the amount of money in circulation, which is not what we need as a response to a Bank credit crisis. That heralded the END of families' Quantitative Tightening by paying down their debts. Hurrah!
    Whilst paying down debt was the correct policy response for each family and firm, it was very bad news for our national economy as a whole. Debt reductions mean that the amount of money in circultation goes down, dragging down sales of goods and services with it. That difference is because nations can't escape from the implications of everyone's cuts in spending. Which consequence is further cuts in output and jobs, leading to further declines in both confidence and spending. QE was designed to offset the decline in spending until it got back to normal - which the December borrowing figures suggest has happened. So now was exactly the time to pause QE ... hopefully forever.
    The MPC's policy of creating money by buying bonds was, of course, done with the prior approval of HM Treasury. Which means that the Government shares the blame or credit for the outcome.
    So far, the net effect is that the UK has far lower unemployment than our neighbours in Europe and in North America, and domstic demand has held up well too. And this despite the dire predictions of both the OECD and the IMF that Britain's financial industry made us especially vulnerable.
    I'd welcome a rise in Bond interest rates as I'm waiting to buy an Annuity which rates are tied to Bond interest rates. But I doubt if those rates will rise much in the foreseeable future.
    Most others are less eager to see a rise. For them, there's good news:
    As at today, Government Bond interest rates have fallen by two basis points and following the Bank's announcement. Which indicates that QE is no longer needed as the fall in consumer confidence is now over. Bigger hurrah!

  • Comment number 51.

    #32 is right.
    The QE money hasn't got to where it should have gone. While no-one was suggesting a return to a lending free-for-all, banks have failed to play their part over the last year and have continued to starve businesses of credit, even in many cases withdrawing existing facilities and/or charging rip-off arrangment fees and extortionate interest that bears no relation to base rate. After the election we're going to have massive deflationary pressures brought about by spending cuts and tax rises. And that coupled with this continuing arrogant, profiteering attitude of banks will lead to a double-dip. Caledonian Comment

  • Comment number 52.

    #48

    Hi PIO

    Good to see BMW increasing production (used to live not far from there).

    It's ifficult to make a call yet on the firms failing. As most accountants point out a majority of SMEs go bust upto 18 months after a recession has ended (not usre if ours has quite ended yet).

    There's also a huge tranche who have been using the government special tax deferral scheme (about 400,00 I think - I may be wrong?).

    Clearly this is another pull on tax revenues (effectively a short-term subsidy). The issue will be how many will survive when this finishes and how much tax will be written off?

    Yes - public sector infrastructure can be a means of maintaining against the harsher end of recessionary impact but its cost and resource allocation need to be taken into account. If we hadn't borrowed so much it would be ok. But we can't afford the borrowings and thus inevitably like any company one has to look at the cost base to prune.

    Over-reliance means that growth coming out the other side is sluggish at best due to constraints on the natural enterprsie economics and issues with available skilled employees being available.

    There are issues with Japan at the moment as I think forecasts are showing 180% GDP.

    The problem with UK is we're going to get close if not exceed 100% GDP and our structural balance as an economy is much weaker than those you mention......

  • Comment number 53.

    23. At 3:35pm on 04 Feb 2010, plamski wrote:
    We're in the doctor's waiting room now. Fingers crossed it's not cancer.

    Where's WOTW (writingsonthewall)?


    Who's WOTW ? Never heard of him

  • Comment number 54.

    48 Peterinoxford

    I think you are confusing deficit with total debt. Debt figures don't look too bad in comparison with other countries. It is the much larger deficit that means we are heading to a much worse place than other countries (I'm not including Greece). By the time we have reduced the deficit down to zero by possibly at the end of the next 2 parliaments, we will have crippling debt repayments to look forward to for the next few decades.

    We could learn a few things from Ireland. Ireland have had the guts to tackle their deficit head on. Their government shouldn't be worried about approval ratings, because the average Joe public does not have clue what is best for the economy.

  • Comment number 55.

    37. ArnoldThePenguin wrote:

    ...£1000-a-roll wallpaper - might pick up a bit of business from The Sh(r)ed then.

    Mr Penguin are you not confusing wallpaper with thistle motif lavatory roll ? An easy error for a Penguin to make !

  • Comment number 56.

    53. At 7:11pm on 04 Feb 2010, rvaucbns wrote:
    Where's WOTW (writingsonthewall)?
    Who's WOTW ? Never heard of him
    ---------------------------

    He was an active poster here with a very engaging style of writing and with useful insights.

    Here - http://www.bbc.co.uk/blogs/profile/?userid=13830115

  • Comment number 57.

    Few things to say at this juncture,

    Sell, sell, sell as the stock market has obviously taken the news badly today and the share bubble is burst.

    Double dip is now and absolute given, beyond any shadow of a doubt.

    Soveriegn debt is the only game in town for the next few months, personally I doubt it will get as far as the UK as the damage will be done before then when Spain takes the hit

    Does anyone have any ideas about the best safe haven for cash?...and I mean more than 50k

    Please return WOTW asap as your badly missed.

  • Comment number 58.

    50 leftie

    I wish I shared your optimism about the strength of the economy. Unfortunately, unemployment is a lagging indicator. (Are we even out of recession yet?) Once the 'non-jobs' start to go in the public sector, I would expect to see the level of unemployment increase a lot more.

    The biggest lie we will probably hear this election, (with a nudge and a wink), is that the economy will grow its way out of trouble so spending won't need to be cut too much. I don't blame them for doing this as it is their job to talk up the economy. Confidence is a fragile thing after all.

    p.s. I would wait a few years to buy your annuity to reap the rewards of loose monetary and fiscal policy.

  • Comment number 59.

    #48 Peterinoxford. The UK deficit is more or less in line with other major failing economies. However it is on a much faster upward trajectory. Also government debt can only be repaid from government revenues - mostly taxation (although supplemented by privatizations). Unfortunately the tax paying base of business and households are also running heavy deficits.

    Government, business, and househld debt all sums to an aggregate of about 460% of GDP. (That is the official GDP - which is itself heavily ramped by all manner of dodgy counting practices)

    Economic textbooks do indeed talk about public spending acting as a counter balance to private sector contraction. However they had in mind infrastructure projects and not diversity co-ordinators. A lot of what was public sector infrastructure - elctric power supply and distribution, water companies, railways, ports, gas transmission etc have all been transferred into the private sector.

    One consequence is that the UK is certain to run out of electricity in the next 7 to 8 years. Instead of attending to this problem government money is being used to boost consumption and to maintain a housing bubble. When you have aggregate debt of 460% of GDP how smart do you need to be to work out that now is not the optimal time to ramp up the consumption of crap - especially when the vast bulk of that crap will be imported from the far East.

  • Comment number 60.

    #46. MikeHSurrey wrote:

    "What's not to like ? I'd leave the money supply expanded."

    There was, a while back, a short 'unmissable' black and white television programme featuring one H. Wilson who delivered the 'pound in your pocket' speech - your suggestion has about as much merit as his did! - sorry...

    Also

    #49 Rugbyprof wrote:

    "...a free lunch so where are the adverse consequences going to manifest themselves? More asset bubbles or sharp rate rises"

    What do you mean 'going to' there are already two bubbles directly consequent on QE - 'Share Prices' and 'House Prices' in 2009/10! Both will have to be / will be reversed one way or another as they are dependent on ever more QE - and now that has stopped!

    Lunch has just got much more expensive!

  • Comment number 61.

    #50 leftie. Yep the UK has lower unemployment than many other economies. The current government has also significantly increased expenditure on health care.

    And yet...The UK has 3 times as many people per capita as Germany who are classified as too sick or too disabled to do any work at all. How can this be?

  • Comment number 62.

    60 JFH

    You've spotted them as wel. Don't forget real estate as well due to interest rates being kept too low (and people still buying on affordability at x times rather than actual discounted rentable value).......

  • Comment number 63.

    Ref 54 Dr Doom.
    I take your point about debt/deficit.
    But disagree about your comments re: Ireland. I don't think guts is the problem here. Ireland is in very deep recession, exacerbated by severe cuts means the productive end of the economy is being beaten to its knees. Plummeting tax revenues, plus zooming social security payments means the pain they are going through will be prolonged & debt repayment lengthened unnecessarily. And what will be left to carry on? Baby & bathwater spring to mind. I think ideally growth should fund debt repayment from a position of relative strength, if possible.
    You are well named.
    Best wishes Peter

  • Comment number 64.

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

  • Comment number 65.

    46. At 6:09pm on 04 Feb 2010, MikeHSurrey wrote:

    I like your reasoning Mike, I just hope you are right, you just keep that money supply going. What I personally would like to see is an expansion of a high value-added industrial base to replace our productive capacity destroyed by the Blessed Margaret, then not updated/replaced by North Sea revenues which she dished out to her chums. I wonder if 'leftie' agrees?
    Rgds Peter

  • Comment number 66.

    Please note that UK is never going to default on their sovereign debt as its issued in its own currency so in the final analysis it can always just print money to pay the debt. Countries which have actually defaulted have had to do so because they have issued debt to be paid in another countries currency. Usually US Dollars.

  • Comment number 67.

    .......you see Steph, this is where you totally misunderstand Governments. It is precisely because QE isn't working that will persuade politicians that this is because enough of it hasn't been done, not the way around that you think!

  • Comment number 68.

    No further QE because everyone apart from the village idiot is shorting UK gilts. I think it is time to abandon Sterling and switch to the Euro.

  • Comment number 69.

    House price inflation was 0.6 last month, with 0.5% interest rates

    what does that say about asset prices running away.

    when might the £200billion start to be run back down , and at what rate ?

  • Comment number 70.

    "But another reason to pause today is that, if £200bn hasn't worked"

    It has worked. It stopped the banking system from melting down and causing another 1930s depression. It was preventative, not a remedy.

  • Comment number 71.

    Dear Stephanie,
    none of this QE is reaching unemployed people, self-employed people struggling to run a business, people unable to pay mortgages even at the current low rate of interest. Instead of adopting QE, the time and effort of civil servants should have been addressed towards regulating bank activity. Ensuring that the bad mistakes to the past six years are redressed. But of course, most of the banks belong to the government now so their policies CANNOT BE WRONG! And to adopt this massive casino style attempt to kick start the economy without the approval of parliament...... THAT IS NOT DEMOCRACY......
    To write about economic policy in this way is to tacitly condone QE
    Please stop it!

  • Comment number 72.

    #70 So you think we have avoided a depression?? You just need to be a little more patient but I can asure you it's coming.

  • Comment number 73.

    #72 Alex Exeter

    I should have said delayed. You are unfortunately quite right. It was wrong for many to assume that developing market growth would help tilt net global growth into the positive.

    Things are very bad. What we will all have to do is abandon market fundamentalism and adopt the kind of stance the British took post-WW2. This means conserving, clubbing, working together. We need to retool and redeploy. It will cost.

    We went down the wrong path, collectively as a society, and we must pay the price. We must put legislation into effect that prevents these mistakes from ever being made again. The prevailing establishment must be held accountable - and that includes all political parties and civil servants and bankers and financial and corporate bosses complicit in the paradigm to date.



  • Comment number 74.

    8. At 2:15pm on 04 Feb 2010, watriler wrote:
    It is far from clear that QE has 'worked' and if we have to wait a long time for the evidence (not forgetting Keynes remark about what happens in the long run!) perhaps it is the wrong instrument altogether. What we needed was a quick correction to the economy falling away as well as securing the stability of the finance systems. While it seems that for the time being the systems are stable (or appear to be)what gains for the wider economy?

    The government needed to stimulate the real economy - public works, employment schemes for neets, uprating benefits, increased tax free allowances, keeping VAT to 15%, allowing councils to spend their capital receipts quicker. Apart from a few gestures (scappage) Labour has chosen to outsource the management of the economy to the theorists of the MPC. About time for joined up economic policy conducted by the government.

    >>>>>>>>>>>>>>>>

    Sorry watriler but your definition of the 'real economy' is a bit odd - the real economy to my way of thinking is people making things, adding value, selling things, EXPORTING things, NOT the government piling up even more debt to give the illusion of an upturn. With a long term structural deficit of approx £100bn per annum UK plc cannot afford to spend even more - we need to cut but try to do it in a way that spreads the pain - overall the economy will struggle to grow but we can cut down the bloated public sector and encourage industry by sensible legislation, cutting of red tape etc.

  • Comment number 75.

    #72 ALEX EXETER,

    You don't need to wait for the depression you are already in it! All of the focus (QE, interest rates, etc.) have been focused upon dealing with a short term reseccion and that's why they are not working.

    Today the Bank started to signal that the 'green shoots' were themselves both stunted and very very tender! We need much longerterm actions to be taken, nationally, regionlly and globally before the effects can start to be ameliorated.

  • Comment number 76.

    RE: 63. Peterinoxford

    "I think ideally growth should fund debt repayment from a position of relative strength, if possible."

    Nice idea. Sounds virtually painless. Almost as if we had abolished boom and bust. I wonder if you could help me to understand how that might work? You see, according to the current government's plan we will have debt of at least 90% of GDP in four years time and the deficit will still be at least 6%. That relies on some fairly optimistic assumptions about growth and large unspecified cuts in public spending, but lets assume all that does in fact happen. Lets also assume that it will take just 4 more years to get the deficit down to 2% - so that the debt is growing at about the same rate as the economy - with total debt then at rather more than 100% of GDP. History says we can expect another recession in 10-15 years. (We'll just dismiss the doom-mongers and their talk of double-dip recessions.) So, here are my questions. When our total debt peaks at more than 100% of GDP, in about 8 years time (if we are lucky) we will have 2-7 years before the next recession hits:

    a) How much debt do you think "growth" will repay in those few years?

    b) When the next recession arrives, do we respond to it with the same tactic of limitless borrowing?

  • Comment number 77.

    The debate on this blog has been enjoyable and informative so thanks to everyone. I have found an answer to shirebloggers #7 question about the missing £50 billion. It appears that there were late developments yesterday and the Chancellor sent a letter on it to the chairman of the treasury select committee. Here is where I discovered this http://notayesmanseconomics.wordpress.com.

  • Comment number 78.

    @Stephanie

    Is there any chance you could include footnotes on the graphs you include in your blog explaining what they show, or at least defining the abbreviations or quantities. Google isn't terribly helpful at decoding terms like "M0" and "M4"...

  • Comment number 79.

    Dear Stephanie,

    You missed a trick on your QE report last night Stephanie - the racehorse QE has won 3 of 3 at short odds (the last two were odds-on). So untroubled has it been that the professional punter might place a big bet, effectively "printing money"...

    Oh the irony.

  • Comment number 80.

    This just goes to show that QE was wrong, whom much of the QE has gone abroad. what they should have done is

    1) let RBS,BOS,NR all collapse in a gental way, preseving the deposits of customers and letting the top management swing on a yard arm for there
    pensions and redunacies etc. break them up into the banks from where they come, all in an orderly fashion, that would have sent a massive message to the casiona bankers, but I fear the policy was designed to have heartland land jobs and then use the banks to direct leanding to heartland labour areas, more sovietisation of the UK.

    2) satrt on major capital projects like fast rail links. building all 12 of the T45 destroyers, start with the aircraft carriers, repair the roads improve the roads etc, This would have put the money directly into
    te UK workers, sort out the situation with illigal and imigrant worker population, get the 8.0m economicvally active to something meaningful.
    get more police to reduce crime etc etc etc.

  • Comment number 81.

    See NR blog has gone into hibernation.

    The Mod budget could be properly funded therefore rewarding resonalble with money and equipement those that have fought for the UK and flayed those that have created a casino banking system, that is still there.

  • Comment number 82.

    What does the B of E have to show for its £200 billion?

    a) happy bankers
    b) unhappy taxpayers

    as for 'results' or the philosophy of "wait and see", one year on
    we still have

    1) record unemployment in virtually every sector, except the City
    2) business confidence is still weak

    If we want a real recovery in the UK, we need to change the mind set of bankers.

    FORGET BONUSES, the REAL ISSUE is that the BANKERS NEED TO BE CONFIDENT so that business can get back to investing, employing and generating revenue.

    Just remind them that the £200 billion was 'shovelled' down their trousers whilst the rest of us went 'hungry and cold'!

    That should cheer them up.

    Perhaps the Bankers can then get back to doing a day's work instead of whingeing and whining anymore!

  • Comment number 83.

    44. At 5:58pm on 04 Feb 2010, Dr_Doom wrote:
    #25 Dempster
    'Unfortunately, the £200 billion will need to be paid back at some point (unless we want Zimbabwe style inflation)'

    I disagree, I don't think it will ever see the market. Or if it does it will be many years hence when inflation has devalued it to the point of disinterest.

    And more to the point, I struggle to see how the Government is going to fund itself through the next tax year without more QE.

    As regards QE causing inflation, QE is unlikley to do this whilst private debt is being written off at a similar rate.

    Which gives us some idea as to how much private debt actually has to be written off.



  • Comment number 84.

    66. At 8:31pm on 04 Feb 2010, Anthony_analyst wrote:
    Please note that UK is never going to default on their sovereign debt as its issued in its own currency so in the final analysis it can always just print money to pay the debt. Countries which have actually defaulted have had to do so because they have issued debt to be paid in another countries currency. Usually US Dollars.

    So inflating our way out of the problem is their untilmate solution ?

  • Comment number 85.

    To 42. At 5:40pm on 04 Feb 2010, John_from_Hendon

    See post 83

    And

    QE is about keeping the Government funded, it always has been.

    Imagine the chaos that would ensue if the Government couldn’t pay the wages of the public sector or benefits etc.

    Better to print money than preside over the disintegration of a nation.

    What they should have done of course is start cuttting public sector costs earlier, its currently only now being organised.

    Which likley means more QE next tax year because the cuts will only become fully effective in 2011 - 2012 tax year.


  • Comment number 86.

    Can the UK default on its debt some have asked?

    The answer is not technically, it can print more money and buy the gilts back.

    But then by printing more money you water down the value of the fixed interest gilt holder’s investment, and whilst not defaulting on all of it, you have defaulted on some of it.

    I think we’re living through exceptional times from a monetary point of view, but eventually things will return back to normal, which sadly is more boom and bust.

    However the day of reckoning has been put off by QE.
    Mr King has proved that short term you can get away with it.
    History points to the fact that long term you can’t.

    The full cost of this financial debacle has simply been put off until after the election.

    And oddly enough I don’t think it will matter one jot whether it’s the blues or the reds that get in power, or even it’s a hung parliament.

    The problem this country faces is mathematical one, a £200 billion per annum mathematical problem. Not exactly small potatoes is it.


  • Comment number 87.

    86. dempster
    And oddly enough I don’t think it will matter one jot whether it’s the blues or the reds that get in power, or even it’s a hung parliament.
    .........
    there will be many suggestions and varying policies to tackle the 200billion problem. all solutions will be painfull but the different political parties policies will effect what sections of society feel the pain worst and therefore it matters a great deal who is elected!

  • Comment number 88.

    87. At 09:25am on 05 Feb 2010, lefty10 wrote:
    'there will be many suggestions and varying policies to tackle the 200billion problem. all solutions will be painfull but the different political parties policies will effect what sections of society feel the pain worst and therefore it matters a great deal who is elected!'

    That’s a fair point, but ultimately all we’re likely to get are more career politicians, whether they be the blues or the reds, or even a mixture in a hung parliament.

    For a ‘Career Politician’ career comes first, and who gets hit by what’s coming is likely to be the least of their concerns.

    It’s not right of course, but that’s just how it is.

    In any event it’s usually the average Joe or Jane which tend to take the hit, it always has been, and I suspect nothing will change.

    It's just a pity the full price that has to be paid for this debacle will not be laid at the average Joe & Jane's door before the election.

  • Comment number 89.

    I would have thought that given the trouble the Euro is in, QE from the ECB must be very likely and on a grand scale?

    With this in mind, what are the issues with expanding our own currency supply?

  • Comment number 90.

    #85. Dempster wrote:

    "QE is about keeping the Government funded, it always has been.
    ... Which likley means more QE next tax year because the cuts will only become fully effective in 2011 - 2012 tax year."

    I think that you underestimate the mathematical imperative - just as the Weimar republic did, and at the same time you also over estimate the rapidity of the solution.

    It is arithmetically highly unlikely that any solution can be even enacted prior to the election of 2015 and then only after collapse of the currency and/or hyperinflation till then we will blunder on serving out the pain of the depression in a random and inequitable manner - with protected bankers and public sector workers whilst the entrepreneurial and working class suffer the main pain. This situation will be badly handled by the political class and this in itself has a reasonably probability of turning into mass protest and violence on the streets if the costs of the reconstruction are not shared equitably.

    I also do not agree that default of debt is not possible. The first symptoms I expect to see is the enforced rolling over of gilt interest payments and then gilt capital repayments into new longer dated bonds, without the option, or choice, of the lenders (and an associated currency collapse.) Then repayment may cease without any rolling over. Then we have default. The fact that we are financing, as part of the state, international banks (RBS etc.) means that any substantial downward movement in sterling will make this situation almost inevitable. The capital sums are so huge and the risks so high that there must I think be a real possibility of this occurring.

    The other factor working towards this highly undesirable outcome is that none of the political parties and the state appointed 'independent' regulators just do not have the courage to do what is necessary. It is possible we are looking at the end of the Nation - but not probable, but there is I thing a substantially increased risk of this undesirable outcome - due mostly to the lack of courage and integrity demonstrated by the regulators and economic managers of the country.

    The fools running the place have first shown themselves to be incapable of acting to prevent the bubble that they knew that they were creating, and since 2008, these same people are in post (i.e. Mervyn King) doing the same things and still lacking the bottle to do what they know is the right thing to do - instead they work toward the exacerbating of inequality and division by supporting only those who the worked closely with to create the problem in the first place - and creating two further bubble economies in house prices and equities and somehow convincing themselves that this is a good thing! The idiots!

  • Comment number 91.

    To No.90 John from Hendon.

    Fair comment.

    But I don’t fully agree. The method of default seems to have already been chosen, namely QE, and I think they’ll stick with it.

    As regards the Governor of the Bank of England

    I take my hat off to Mervyn King. He’s managed to by-pass the Maastricht treaty to keep government funded through the back door, hide a £62 billion loan to the banks, and fool a skip load of journalists in the process.

    But he doesn’t come across as being a complete government stooge.
    And he’s certainly a wily old goat, I wouldn’t want to play poker against him that’s a fact. But what’s he going to do next?

    Well he’s used his position at the BOE to keep the government funded, which despite what many may think, was likely in our best interests. So having sacrificed his reputation as a central banker once, the question is, will he do it again?
    I have a feeling he will.

    As regards the housing bubble, you have to control the creation of debt to prevent it.
    And the only way you can do that is with the creation of debt being state controlled.


  • Comment number 92.

    So Big Government and Big Business have now filled their boots and gone back to their good old ways, the little people can be left stranded, robbed and raped with a debt to pay which they never incurred with any means to pay it off already abstracted from their pockets.

    Is this where it ends? I don't think so.

    Big Government has funded itself through the current year with the view to fooling the electorate at the coming General Election. The argument will be that they have `looked after' the little people through the hard times, forgetting that `looking after' has a double meaning. They will be assisted in this regard by their paymasters in the public sector unions happy that other people were screwed rather than their members. Unemployment in the real economy will continue to climb.

    The Opposition, so committed to their focus groups will go all wobbly, back off from the necessary austerity, bottle the leadership and allow there to be a hung parliament. I can't blame the Conservatives for this as who in their right mind would want to take over a country in such a mess as this one? The interests of the party would be better served by controlling all the local councils but avoiding the big issues.

    With no government determined to grasp the nettle there will be a run on sterling, prices and interest rates will go through the roof, unemployment in the real economy will soar and the government will put up taxes. This will drive the real economy into reverse, tax receipts would collapse, so good night Britain.

    Alternatively, we elect a government to take on the vested interests in Big Government and Big Business. Where do we find one?

  • Comment number 93.

    #87 and currently the reds are supporting the bankers while hardworking
    workers of the private sector are getting all the pain.

  • Comment number 94.

    #88 you have to look at why we have career policitions , it has been
    a race between the main 3 to be gender,sexually orientation,race,equailty of alsort but strickingly not one attribute
    to be able to do the job.

    And much of this philosphly has perculated into the public sector too.

    and all this need to be reversed

  • Comment number 95.

    88. For a ‘Career Politician’ career comes first, and who gets hit by what’s coming is likely to be the least of their concerns.
    ....
    indeed. it seems a shame that politics has come to this. i cant see how any new ideas,parties especially in light of the banking crisis/recession can come through. i see many times nick clegg ridiculed before hes even opened his mouth. so its a catch 22. no system for new parties to emerge, and the lib dems for example as an alternative widely media derided! i note that question time for example has a policy of representation by proportion of the vote. that to me seems to only encourage the status quo (it also doesn't answer why they have journalists on there). It only allows new ideas to be forwarded through the narrow spectrum of the two main political parties.

  • Comment number 96.

    #77 Francesca Jones
    Thank you. Very interesting - it appears to signal a serious change of emphasis toward boosting the private economy, Bernanke's "credit easing" style.

  • Comment number 97.

    95. At 10:44am on 05 Feb 2010, lefty10 wrote:
    'indeed. it seems a shame that politics has come to this. i cant see how any new ideas,parties especially in light of the banking crisis/recession can come through. i see many times nick clegg ridiculed before hes even opened his mouth'

    Good point.
    Having looked through the expenses scandal, it would appear that proportionately the Lib Dems have come out better. Unfortunately Nick Clegg is a bit of a liability having been asked to repay £910 in gardening expenses.

    Leave him in place, and what message are the Lib Dem’s sending out?


  • Comment number 98.

    93. ir35
    would have it been better to have just nationalised the banks then?

  • Comment number 99.

    97. dempster.
    true but £910 seems minor compared to some others.

  • Comment number 100.

    98. At 11:04am on 05 Feb 2010, lefty10 wrote:
    'would have it been better to have just nationalised the banks then?'

    No, but prepackaged insolvency, protecting private retail and company deposits, whilst letting the overseas wholesale lenders whistle, would have been an interesting one. Too late now though.

    I agree that compared with many £910.00 is not a lot really.

    Vince Cable comes across well, I'll give you that.





 

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