QE3?

[superfrank]

Shilling Says Fed Action Won't Make Much Difference
http://www.bloomberg.com/video/shilling ... gi0Ww.html

good vid. good quote from the Dallas FED guy, "monetary ritalin".

[Iron]

QE could fund a £20bn tax giveaway - http://www.telegraph.co.uk/finance/econ ... eaway.html

[superfrank]

QE could fund a £20bn tax giveaway - http://www.telegraph.co.uk/finance/econ ... eaway.html

The Government could fund a £20bn tax giveaway to boost growth next year by releasing the profits made by the Bank of England’s money-printing programme, a leading economist has suggested.

you couldn't make this stuff up!

profits from QE??!!

let's take a simple example:

- central bank prints another £100Bn

- central bank lends funny money to private banks at 0.5% interest

- private banks buy govt debt yielding 2.5%

- annual 'profit' for BoE £500m

- annual 'profit' for private banks £2Bn

it's just a ponzi scheme.

[Iron]

- central bank lends funny money to private banks at 0.5% interest

Are you sure about that? I thought that the way QE worked was that the B of E credited itself with £x, and then used that money to buy back government debt.

Jeff

[superfrank]

that's the way the FED and ECB have done it, not sure about BoE.

but it makes no difference - it's still monetising debt and there are no real profits... just dilution of currency and reduced purchasing power of those who hold them. it doesn't matter for your talented bankers who can keep up because they are at the top of the ponzi.

[staker72]

Ferro is correct, arguably QE reduces banks earnings as it the yields (interest) it receives on Govt gilts is reduced. That is partially countered by the increased value of existing gilts held and strengthens reserves. In effect the Govt is lending itself it's own money dirt cheap. The ECB is doing a form of QE by lending to European banks in the way superfrank suggests to buy their govt gilts buts thats europe and arguably a weaker banking system

[Iron]

It seems to me that it is possible to profit from QE in the short term. If you reduce the purchasing power of a pound by printing more pounds, existing bondholders will get a lower return on their bonds in real terms. That's great if you're about to start living within your means as a country, and you won't have to use the bond markets ever again. But the risk has to be that the bankers you shafted will require higher interest rates in future to buy UK government debt, and that's when things could become messy IMHO...

Jeff

[superfrank]

bankers don't get shafted - they only buy govt debt when they can sell it on at a guaranteed profit (the guarantee comes from the central banks who agree to keep buying).

the biggest losers are pension funds who are getting artificially reduced yields for the risk they take holding govt debt (and at the same time losing because of the inflationary impact of printing money).

the plan of QE is to force down yields of govt debt (unsustainable even with QE) and force the real money into riskier investments to boost asset prices (and prevent the necessary deleveraging after the biggest credit bubble in history). more kicking the can down the road to protect asset prices for the rich at the expense of the asset poor/young/unborn.

[Iron]

bankers don't get shafted

Surely they do get shafted some of the time (as with Greece, for example).

Let's say that Sachs owns (say) 10 billion pounds of UK government bonds. The B of E launches some QE, during which they buy back some bonds, and Sachs makes a nice profit on those bonds. But if the B of E bought back (say) 3 billion pounds of Sachs's UK bonds, Sachs are still sitting on a pile of bonds that have been devalued by QE...

Jeff

[superfrank]

Bank of England defends QE but admits rich benefit most
http://www.bbc.co.uk/news/business-19356665

"By pushing up a range of asset prices, asset purchases have boosted the value of households' financial wealth held outside pension funds, although holdings are heavily skewed, with the top 5% of households holding 40% of these assets," the Bank said.

it goes without saying that all of the (unelected) MPC are in that top 5%.

it would be nice if monetary policy was run for the benefit of all of society rather than just the lucky few.

[superfrank]

Does the Bank of England Worry About The Cantillon Effect?
http://www.zerohedge.com/news/guest-pos ... lon-effect

Q. "Here are a few questions for Britain’s monetary overlords at the BoE:

Are you concerned about the long-term social and economic implications of a monetary policy that enriches the rich over and above everyone else.

Public Answer: We are deeply concerned and as soon as the recovery is stable we will end this policy.
Private Thought: ROFLMAO!

Are you familiar with the concept of the Cantillon Effect whereby the creation and allocation of new money transfers purchasing power to whoever it is allocated to? Did you consider this effect prior to embarking on a program of quantitative easing to the financial sector?

Public Answer: We are not familiar with this effect nor its raminfications but will study it.
Private Thought: The Cantillon Effect is the foundational paradigm for our money allocation you ninny!

Given the financial sector’s awful track record in terms of blowing up the economy, fabricating LIBOR data for its own enrichment, and neglecting cash-starved small businesses, is the financial sector an appropriate allocator of new money?

Public Answer: It was a crisis, we had to act, the financial sector could not be lost.
Private Thought: We are the financial sector, and the financial sector is us - Siamese Twins joined at the hip, or did you miss the "Bank" part of "Bank of England?"

Now that the empirical record shows the policy of helicopter-dropping cash directly to the financial sector disproportionately favours the rich, have you considered changing course and adopting a different monetary policy that doesn’t favour any particular group?

Public Answer: The cash is vital to restore employment and retain a standard of living for the middle class.
Private Thought: Change course? Not favour the rich? Are you mad!?!? Full steam ahead to Xanadu!

[superfrank]

Fed’s Bernanke: QE has and can work more
http://www.marketwatch.com/story/bernan ... -101031933
Fed chairman expresses “grave concern” about the labor market

so to justify more printing he's gonna use unemployment this time...
asset prices falling > QE1
asset prices rising; no growth > QE2
asset prices rising; growth; unemployment too high > QE3
...
the rich aren't rich enough, the poor aren't poor enough, the young aren't shafted enough and the unborn don't matter > QE4, 5, 6

[Iron]

Mario Draghi defies Germany with launch of 'fully effective backstop' for euro - http://www.telegraph.co.uk/finance/fina ... -euro.html

'Mario Draghi has defied German opposition and launched an “unlimited” bond buying programme by the European Central Bank (ECB) that he said would provide a “fully effective backstop” to the stricken eurozone economies.'

Jeff

[superfrank]

so we've now got the FED, BoE and ECB monetising govt debt with bond buying.

the FED will probably announce QE3 next to weaken the dollar, then more from the BoE to weaken the £, more from the ECB... rinse, repeat.

QE won't stop - the printing press is the easy way out in the short term, and the short term is all they care about.

[to75ne]

how long is the "short term"?
ever since this feck up began the "short term" is always cited
it seems to me to be a very long short term
when does this short term actually become the long term?