BOE 3rd November Rate Announcement
Discussion
OoopsVoss said:
Genuine question, is that in the BoEs mandate? Or is it FCA? Agree its a sound idea, but it feels a bit like it goes against self regulation (which might / probably have failed).
I'm very much of the view it's control credit supply - not rate setting that is the correct approach, but not sure regulatory thinking is sufficiently joined up and its very easy to hide behind "mandate". Aggressive QT, dramatically restricts credit supply, about the only (major) CB actively pursuing that IS the BoE. The Fed and ECB have chickened out on that one.
Post crisis response was paradoxical, curtail or tax banking resources BUT concurrent massive expansionary monetary policy (although the cynics might say the regs thrust was to make the banks support public sector debt balloon for bailout retribution - not sound risk reduction).
Maybe...
It's not within the BoE's grasp at all, very much govt/FCA. As per 2011 when the govt imposed on lending multiples to be pulled in by the FSA on resi loans. Or when the govt in the 90s lifted various regulatory requirements to pave the way for self cert and the subsequent asset inflation. I'm very much of the view it's control credit supply - not rate setting that is the correct approach, but not sure regulatory thinking is sufficiently joined up and its very easy to hide behind "mandate". Aggressive QT, dramatically restricts credit supply, about the only (major) CB actively pursuing that IS the BoE. The Fed and ECB have chickened out on that one.
Post crisis response was paradoxical, curtail or tax banking resources BUT concurrent massive expansionary monetary policy (although the cynics might say the regs thrust was to make the banks support public sector debt balloon for bailout retribution - not sound risk reduction).
Maybe...
The tools the BoE have today have been rendered redundant in some areas due to the proliferation of credit. Even the constituents of the CPI basket are impacted by credit as in many non staples being there due to its proliferation.
Change rates to manage fx remains key but a lot of domestic inflation looks today to actually be managed by regulation not rates. Even utility and fuel costs, which have recently been dominant the changes in inflation have a strong regulatory control, for example dropping a price cap or changing fuel duty can manipulate inflation.
The govt looks to have far more power and control over domestic inflation than the BoE. In fact, I'd go so far as to suggest that the BorE to date, over the last two years, have shown that rates no longer have any meaningful potency domestically and all they've achieved is to make the poor a bit poorer while everyone else is immune.
Now, if we were to cap the amount that could be borrowed for property purchases I suspect this would have a much stronger impact on limiting house price inflation than base rates and without any of the toxic risk of going too high. Or wind the multiple down the higher the income. Only being able to borrow £1m opposed to £1.5 on a 3x because at that level the multiple has been reduced has no negative impact on the market below but does inhibit inflationary drivers etc but putting mortgages to 6% not only screws everyone buying but also renting.
In short, I think in the 21st century the govt actually has more tools and power to push inflation towards 2% than the BoE does.
The problem still arises though that we are fundamentally pegged to the USD whether we like to admit it and there the BoE has the power.
DonkeyApple said:
The problem still arises though that we are fundamentally pegged to the USD whether we like to admit it .
No need to be so negative, at least we've "Taken back control". Even UK farmers are rejoicing in the streets after tearing away from the generous subsidies they used to enjoy but no longer wanted.Well done Boris. UK now a bigger poodle to USA than ever before. Embarrassing then and even more embarrassing today in the context of world events,
https://www.standard.co.uk/news/uk/boris-johnson-j...
Pegged? Yes, well and truly pegged.
DonkeyApple said:
It's not within the BoE's grasp at all, very much govt/FCA. As per 2011 when the govt imposed on lending multiples to be pulled in by the FSA on resi loans. Or when the govt in the 90s lifted various regulatory requirements to pave the way for self cert and the subsequent asset inflation.
The tools the BoE have today have been rendered redundant in some areas due to the proliferation of credit. Even the constituents of the CPI basket are impacted by credit as in many non staples being there due to its proliferation.
Change rates to manage fx remains key but a lot of domestic inflation looks today to actually be managed by regulation not rates. Even utility and fuel costs, which have recently been dominant the changes in inflation have a strong regulatory control, for example dropping a price cap or changing fuel duty can manipulate inflation.
The govt looks to have far more power and control over domestic inflation than the BoE. In fact, I'd go so far as to suggest that the BorE to date, over the last two years, have shown that rates no longer have any meaningful potency domestically and all they've achieved is to make the poor a bit poorer while everyone else is immune.
Now, if we were to cap the amount that could be borrowed for property purchases I suspect this would have a much stronger impact on limiting house price inflation than base rates and without any of the toxic risk of going too high. Or wind the multiple down the higher the income. Only being able to borrow £1m opposed to £1.5 on a 3x because at that level the multiple has been reduced has no negative impact on the market below but does inhibit inflationary drivers etc but putting mortgages to 6% not only screws everyone buying but also renting.
In short, I think in the 21st century the govt actually has more tools and power to push inflation towards 2% than the BoE does.
The problem still arises though that we are fundamentally pegged to the USD whether we like to admit it and there the BoE has the power.
Thanks for confirming.The tools the BoE have today have been rendered redundant in some areas due to the proliferation of credit. Even the constituents of the CPI basket are impacted by credit as in many non staples being there due to its proliferation.
Change rates to manage fx remains key but a lot of domestic inflation looks today to actually be managed by regulation not rates. Even utility and fuel costs, which have recently been dominant the changes in inflation have a strong regulatory control, for example dropping a price cap or changing fuel duty can manipulate inflation.
The govt looks to have far more power and control over domestic inflation than the BoE. In fact, I'd go so far as to suggest that the BorE to date, over the last two years, have shown that rates no longer have any meaningful potency domestically and all they've achieved is to make the poor a bit poorer while everyone else is immune.
Now, if we were to cap the amount that could be borrowed for property purchases I suspect this would have a much stronger impact on limiting house price inflation than base rates and without any of the toxic risk of going too high. Or wind the multiple down the higher the income. Only being able to borrow £1m opposed to £1.5 on a 3x because at that level the multiple has been reduced has no negative impact on the market below but does inhibit inflationary drivers etc but putting mortgages to 6% not only screws everyone buying but also renting.
In short, I think in the 21st century the govt actually has more tools and power to push inflation towards 2% than the BoE does.
The problem still arises though that we are fundamentally pegged to the USD whether we like to admit it and there the BoE has the power.
That means that the BoE is system constrained. It could and possible should blow its balance sheet - but can't because of financial stability concerns. That would have as big (if not bigger) impact on contraction of credit supply - but it can't. Many think they are a bunch of wallies, but they can't pull the levers they need to. They are bounded by rules that the market fully understands. the Feds problem is far, far worse. look at what happened yesterday.
What is happening at glacial pace and few probably realise, they are slowly slowly catchy monkey moving out of a cul-de-sac. The $ peg is a massive problem, but it could be solved (politically NOT by the BoE). Its a bit of a leap, but I think people are sick of populist govt here doing FA for 9 years that we might do something smart and go centrist and technocratic. Everyone else (globally) is losing their mind politically (Europe and the US are going right wing), we are coming out the other side due to something that was pretty much economically benign, but split the country in half. The Tories and Reform have f
ked themselves so hard, I hope we end up with something that resembles centrist leadership - borrow to invest, sensible tax and a party that is looking at multiple terms. Probably not the thread for that wander.But don’t markets ultimately dictate stuff like car lending?
Ie, there is a spread from kneecap finance who’ll let only idiot borrow £5,000… through to tightwads united who wouldn’t lend you £100 despite being a millionaire just because you once forgot to settle your mobile phone bill 30 years ago and don’t fit their criteria.
Ie, there is a spread from kneecap finance who’ll let only idiot borrow £5,000… through to tightwads united who wouldn’t lend you £100 despite being a millionaire just because you once forgot to settle your mobile phone bill 30 years ago and don’t fit their criteria.
Panamax said:
DonkeyApple said:
The problem still arises though that we are fundamentally pegged to the USD whether we like to admit it .
No need to be so negative, at least we've "Taken back control". Even UK farmers are rejoicing in the streets after tearing away from the generous subsidies they used to enjoy but no longer wanted.Well done Boris. UK now a bigger poodle to USA than ever before. Embarrassing then and even more embarrassing today in the context of world events,
https://www.standard.co.uk/news/uk/boris-johnson-j...
Pegged? Yes, well and truly pegged.
Slightly off topic, but found this map correlating Mad Cow Disease and referendum results. Looks a 100% match to my untrained eye.
https://x.com/TerribleMaps/status/1776557414822576...
Mr Whippy said:
But don’t markets ultimately dictate stuff like car lending?
Ie, there is a spread from kneecap finance who’ll let only idiot borrow £5,000… through to tightwads united who wouldn’t lend you £100 despite being a millionaire just because you once forgot to settle your mobile phone bill 30 years ago and don’t fit their criteria.
What do banks / Finance companies exist to do? Its curry to a pisshead argument. The later argument is just about calibration of business model and auto-approval. They don't have people climbing over every Mickey Mouse loan request, its computer models. Signed off by, guess what regulators (it allows for over extended muppets as loss provisions)...Ie, there is a spread from kneecap finance who’ll let only idiot borrow £5,000… through to tightwads united who wouldn’t lend you £100 despite being a millionaire just because you once forgot to settle your mobile phone bill 30 years ago and don’t fit their criteria.
Is this a bit worrying for us here and in general?
https://www.theguardian.com/business/nils-pratley-...
Underperforming/under valued as it's on the wrong stock exchange, is this just evidence of the underlying value of things being not as important as where it is, who has access etc? Show/sentiment/appearance before all else?
https://www.theguardian.com/business/nils-pratley-...
Underperforming/under valued as it's on the wrong stock exchange, is this just evidence of the underlying value of things being not as important as where it is, who has access etc? Show/sentiment/appearance before all else?
Scootersp said:
I think the later? all those trillions (an extra one every 100 days) need to find a home somewhere?
Not sure the Federal government is punting on the SPX....(its a trillion of additional government debt every 100days)I suspect Shell's rational is multiple - they perceive they'd see an improved valuation on the NYSE due to size / risk. But I think a big part is still the UK/EU regs.
OoopsVoss said:
Not sure the Federal government is punting on the SPX....(its a trillion of additional government debt every 100days)
I was being semi flippant, but where does that Trillion end up, if governments are broke hence the need for the new trillion, then they don't have it? The cost of living crisis, mortgage rates conversations suggests the majority of us don't, so who does? It's out there somewhere it has to end up as 'excess' for someone surely and then as it's excess it gets put into something else, property/stocks etc. Perhaps a lot of the trillion leaves the US but even some of that probably gets back to the US markets?
Why would the receivers of the excess not do with it what we all do re index funds etc?
Scootersp said:
I was being semi flippant, but where does that Trillion end up, if governments are broke hence the need for the new trillion, then they don't have it? The cost of living crisis, mortgage rates conversations suggests the majority of us don't, so who does?
It's out there somewhere it has to end up as 'excess' for someone surely and then as it's excess it gets put into something else, property/stocks etc. Perhaps a lot of the trillion leaves the US but even some of that probably gets back to the US markets?
Why would the receivers of the excess not do with it what we all do re index funds etc?
They are issuing debt to pay off what is maturing for starts, they need more debt to service the higher interest rates / yields demanded. Medicare / Social Security system there is going bust and will be in the next 10 years or so. They need to pay the budget bills, its to stay afloat.It's out there somewhere it has to end up as 'excess' for someone surely and then as it's excess it gets put into something else, property/stocks etc. Perhaps a lot of the trillion leaves the US but even some of that probably gets back to the US markets?
Why would the receivers of the excess not do with it what we all do re index funds etc?
The money buying the debt comes from:
1. The state governments. A high proportion of US debt is actually held by the states themselves. So its always worth keeping that in mind (I mean it would be sensible in the UK if local authorities were made to buy Gilts instead of spivy windfarms - but hey ho).
2. Pension funds / asset managers / banks. Its a AAA rated asset that is assumed to be riskless. And it pays 5%+ for no risk *not inflation adjusted. The spiviest investment product in the world - the Money Market Fund had at least a trillion of additional US inflows in 2023, they will gobble up a lot of that supply. Really, no government debt has an issue being bought up UNLESS it losses its Investment Grade rating and falls outside the asset managers waterfall (hence the focus on Italy)
I might be being thick here......
They get it from the institutions you mention (so some of it goes to them in interest)
They need it to pay for stuff "Medicare / Social Security system"
let's break that down into the very basic split, peoples wages associated with that, and goods and lets pretend it's all pharmaceuticals.
The people spend it all on essentials and non essentials but it's all spent (let's assume)
So that extra money goes to the those that ultimately profit from those businesses including more directly the amount going to Pharmaceuticals.
There is some excess resulting from this isn't there? as it moves through the system and is spent by those that have to, it ends up with those that don't have to.
If you don't have to spend your money on something then you invest it, buy assets, stocks, property etc? This is broadly why the S&P chart/graph looks like it does no?
They get it from the institutions you mention (so some of it goes to them in interest)
They need it to pay for stuff "Medicare / Social Security system"
let's break that down into the very basic split, peoples wages associated with that, and goods and lets pretend it's all pharmaceuticals.
The people spend it all on essentials and non essentials but it's all spent (let's assume)
So that extra money goes to the those that ultimately profit from those businesses including more directly the amount going to Pharmaceuticals.
There is some excess resulting from this isn't there? as it moves through the system and is spent by those that have to, it ends up with those that don't have to.
If you don't have to spend your money on something then you invest it, buy assets, stocks, property etc? This is broadly why the S&P chart/graph looks like it does no?
The US govt is borrowing the money.
Institutions are willing to lend money to the US govt for a fee (interest) and the regulations tell us its a risk free asset.
There a vast array of different institutions buying up the debt - often pension funds as its the lowest risk that yields a return. You wouldn't want to be all in risk assets - so they spread the risk to govts; that are low risk. Likewise there are foreign institutions etc, its massive sums the Global Wealth management business is probably well over $120trillion. Then you have banks that can use it to offset all manners of resource requirements. The market to consume it is colossal - but people are now grappling with the debt sustainability issue.
The money that the government is then spending (if not paying off maturing debt) then makes it way through the economy ending up in people pockets, profits, saving etc.
Institutions are willing to lend money to the US govt for a fee (interest) and the regulations tell us its a risk free asset.
There a vast array of different institutions buying up the debt - often pension funds as its the lowest risk that yields a return. You wouldn't want to be all in risk assets - so they spread the risk to govts; that are low risk. Likewise there are foreign institutions etc, its massive sums the Global Wealth management business is probably well over $120trillion. Then you have banks that can use it to offset all manners of resource requirements. The market to consume it is colossal - but people are now grappling with the debt sustainability issue.
The money that the government is then spending (if not paying off maturing debt) then makes it way through the economy ending up in people pockets, profits, saving etc.
Scootersp said:
I might be being thick here......
They get it from the institutions you mention (so some of it goes to them in interest)
They need it to pay for stuff "Medicare / Social Security system"
let's break that down into the very basic split, peoples wages associated with that, and goods and lets pretend it's all pharmaceuticals.
The people spend it all on essentials and non essentials but it's all spent (let's assume)
So that extra money goes to the those that ultimately profit from those businesses including more directly the amount going to Pharmaceuticals.
There is some excess resulting from this isn't there? as it moves through the system and is spent by those that have to, it ends up with those that don't have to.
If you don't have to spend your money on something then you invest it, buy assets, stocks, property etc? This is broadly why the S&P chart/graph looks like it does no?
This is what I was talking about earlier on in this thread. Money gets "printed", flows into the economy and markets go up with gdp while govt debt mountain grows. What's driving the economy is that debt.They get it from the institutions you mention (so some of it goes to them in interest)
They need it to pay for stuff "Medicare / Social Security system"
let's break that down into the very basic split, peoples wages associated with that, and goods and lets pretend it's all pharmaceuticals.
The people spend it all on essentials and non essentials but it's all spent (let's assume)
So that extra money goes to the those that ultimately profit from those businesses including more directly the amount going to Pharmaceuticals.
There is some excess resulting from this isn't there? as it moves through the system and is spent by those that have to, it ends up with those that don't have to.
If you don't have to spend your money on something then you invest it, buy assets, stocks, property etc? This is broadly why the S&P chart/graph looks like it does no?
leef44 said:
This is what I was talking about earlier on in this thread. Money gets "printed", flows into the economy and markets go up with gdp while govt debt mountain grows. What's driving the economy is that debt.
That's what I was alluding to too, and 3 trillion a year is massive, if the governments are going into so much debt and largely us in the middle aren't nominally better off, then the new money is not in the government coffers, certainly after 100 more days and the average American citizen hasn't saved their portion (many of them are increasingly in debt) so then the 'top' have it, or other countries have it, and they are more likely to reinvest into the stocks or Gold other assets etc.leef44 said:
This is what I was talking about earlier on in this thread. Money gets "printed", flows into the economy and markets go up with gdp while govt debt mountain grows. What's driving the economy is that debt.
They are not actually printing Money, that's QE where the Central Bank increases it balance sheet taking in the bonds and flowing out USD. The US govt is issuing the additional 3 trillion of debt, which has to find buyers. Currently the Fed is shrinking its balance sheet, albeit slowly - approx half the rate the BoE is. I suspect its unlikely they can continue to shrink hence at some point the Fed does start to absorb the additional debt. Since QE should only ever be temporary, this is starting to look like monetary financing...
What matters is the "stuff" that money represents. It's "value" in monetary terms is different from its value in real world terms. And inescapably, doing work on stuff tends to increase its real world value - quite simply "value creation".
If you double the amount of money in the system then the real world value of stuff doesn't change but its monetary value will logically double. Central banks can play tunes on this to their hearts' content so long as they don't pull down the whole house of cards by destroying confidence.
If you slash the supply of real world stuff (thank you Mr Putin) then real world prices will rocket as demand outstrips supply. The idea there's anything a central bank can do about that by fiddling with interest rates is pure pie in the sky.
You then get to the question of market volatility and that tends to be most extreme around ephemeral concepts as opposed to useful stuff. Hence luxury brand values may bounce around quite a lot, Bitcoin can be all over the place but stuff like shares in Tesco just keeps on going.
If you double the amount of money in the system then the real world value of stuff doesn't change but its monetary value will logically double. Central banks can play tunes on this to their hearts' content so long as they don't pull down the whole house of cards by destroying confidence.
If you slash the supply of real world stuff (thank you Mr Putin) then real world prices will rocket as demand outstrips supply. The idea there's anything a central bank can do about that by fiddling with interest rates is pure pie in the sky.
You then get to the question of market volatility and that tends to be most extreme around ephemeral concepts as opposed to useful stuff. Hence luxury brand values may bounce around quite a lot, Bitcoin can be all over the place but stuff like shares in Tesco just keeps on going.
OoopsVoss said:
They are not actually printing Money, that's QE where the Central Bank increases it balance sheet taking in the bonds and flowing out USD. The US govt is issuing the additional 3 trillion of debt, which has to find buyers.
I'm trying to understand the chicken and egg nature of this, lots of the buying has to be done with money from previously issued debt, no?So every 100 days there is 1 trillion dollars that comes out of the woodwork to buy US treasuries? That Trillion goes into the system and then at least some of it (or previous debt issuance) works it's way back to buy the next Trillion, and this happens over and over, and the treasury holders are happy getting 5% of whatever, despite that interest also coming from that or future Trillions borrowed.
The bond holders are all due back their original amount lent out at some point and until then they get the 5%, but when the time comes the debt is rolled over and interest received at a revised rate of the time?
This why some people call it all a Ponzi?
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