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Happy QE day
To the whole of the UK: Happy QE day.
No, this does not stand for Queen Elizabeth. Just as QI (brilliant TV show) stands for Questionable Intelligence, QE stands for Quantative Easing (or Questionable Economics, I'll let you have your pick). From here on out, I shall refer to it as queezing.
So what has happened today, why is this important?
Quite simply, this is the last resort measure to kick start the failing economy. The Treasury has written out a stupendous amount of gilts and bonds (to the value of a bit over 75 bn pounds sterling in this first run) which they have put up for sale. The majority of these bonds have been bought back by the Bank of England, at face value price, which made the price plummet. It is now hoped that private investors will snatch up the rest of the bonds, which are seen as a safe haven in troubled times, and thus finance the rest of the budget and funding gap that was created by frivolous spending and bank 'bail outs'.
To put it in simpler terms, the Bank of England ran out of money, so it printed more. To do that, the treasury created this money from nothing, and taking on a large part of corporate debt (which they are trading for these bonds) to ease the pressure on banks, to encourage them to lend, and encouraging hedge funds to invest in bonds and put that value in their nearest conveniently located bank branch.
This, in simple terms, is queezing.
It's also flawed on a fundamental level.
Since the Bank of England is buying up almost all the available bonds to be able to fund itself, the price drops dramatically. If queezing works, inflation will rise slightly, the yield on these bonds will drop, and property value should steadily rise from the influx of new buyers. Since the bonds will devaluate if inflation rises (which is the point of queezing), there may be up to a 30 bn pound sterling loss on the books for the Bank of England. To offset that, taxes would rise, and the taxpayer be made accountable for 30 bn pounds sterling loss, adding to the national debt pile. Remember, this is the scenario when this scheme /works/.
If queezing doesn't work, which is equally likely, the bonds won't be worth the paper they're printed on and we're looking at a full systemic collapse and a probable IMF loan with severe restrictions on government public spending, the full collapse of the British Pound, and recession for the next few decades.
It's 50/50, the ultimate gamble. A gamble, I hasten to add, with taxpayer money and the taxpayer's future. I doubt the architects of this scheme (likened to the ultimate Ponzi scheme) will be buying any of those toxic bonds themselves.
So yes, this is the day that will be marked in history as the start of the bravest gamble in recent economic history, or the beginning of the end of the international banking system.
I doubt any bookmaker would offer bets on this one.
No, this does not stand for Queen Elizabeth. Just as QI (brilliant TV show) stands for Questionable Intelligence, QE stands for Quantative Easing (or Questionable Economics, I'll let you have your pick). From here on out, I shall refer to it as queezing.
So what has happened today, why is this important?
Quite simply, this is the last resort measure to kick start the failing economy. The Treasury has written out a stupendous amount of gilts and bonds (to the value of a bit over 75 bn pounds sterling in this first run) which they have put up for sale. The majority of these bonds have been bought back by the Bank of England, at face value price, which made the price plummet. It is now hoped that private investors will snatch up the rest of the bonds, which are seen as a safe haven in troubled times, and thus finance the rest of the budget and funding gap that was created by frivolous spending and bank 'bail outs'.
To put it in simpler terms, the Bank of England ran out of money, so it printed more. To do that, the treasury created this money from nothing, and taking on a large part of corporate debt (which they are trading for these bonds) to ease the pressure on banks, to encourage them to lend, and encouraging hedge funds to invest in bonds and put that value in their nearest conveniently located bank branch.
This, in simple terms, is queezing.
It's also flawed on a fundamental level.
Since the Bank of England is buying up almost all the available bonds to be able to fund itself, the price drops dramatically. If queezing works, inflation will rise slightly, the yield on these bonds will drop, and property value should steadily rise from the influx of new buyers. Since the bonds will devaluate if inflation rises (which is the point of queezing), there may be up to a 30 bn pound sterling loss on the books for the Bank of England. To offset that, taxes would rise, and the taxpayer be made accountable for 30 bn pounds sterling loss, adding to the national debt pile. Remember, this is the scenario when this scheme /works/.
If queezing doesn't work, which is equally likely, the bonds won't be worth the paper they're printed on and we're looking at a full systemic collapse and a probable IMF loan with severe restrictions on government public spending, the full collapse of the British Pound, and recession for the next few decades.
It's 50/50, the ultimate gamble. A gamble, I hasten to add, with taxpayer money and the taxpayer's future. I doubt the architects of this scheme (likened to the ultimate Ponzi scheme) will be buying any of those toxic bonds themselves.
So yes, this is the day that will be marked in history as the start of the bravest gamble in recent economic history, or the beginning of the end of the international banking system.
I doubt any bookmaker would offer bets on this one.
Views: 34
Replies to This Discussion
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Permalink Reply by Ullan on
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Ian = Shark said:Ullan, let´s try this you correct me if I am wrong.
The currenct crises has created deflationary process due lack of consumption in all sferes of the society, deflation as inflation is not a desired situation, one of the well known economical tools is to print more money and by doing that consumption is "reenergized" and consumers start to consume again, also if i´m not mistaken England internal rate has also been dropped some points to stimulate consumption.
Once again i see above as a tool to stimulate consumption in all UK´s niche sectors to avoid further recesion periods.
cheers
ian
You are indeed correct that this is nothing new. On the surface, at least.
The creation of new currency is indeed the best way to counter a deflation and cause a gentle and controlled inflation, which would equal economic growth. So far so good, no worries.
What is happening today, however, is that one branch of government is creating currency for the other branch to use, with no collateral to base it on. As stated, even if this scheme works as planned, it's still the taxpayers who will end up footing the bill. This is trading short term disaster for a more distant, longer termed disaster.
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Permalink Reply by Vaddix on
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Yay for the death of money!
Maybe.... Just maybe Humanity will relies how self destructive it has been With monetary systems. As so called lightworkers these time will be troubling so it is up to us to push a new system. The Resource based economy. There are very few jobs now days that cant be replaced by machinery. We have the resources the technology and manpower to Feed cloth and shelter every human on the planet.
We have to green up, No more wasting. Everything made, will be designed to be unmade and re used, and designe for top practicality and longevity. We can get energy from solar wing tide geotheramal and many i cant even count them.
We will not get discouraged, We will live through this and create a better future.
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