BOE 3rd November Rate Announcement

[Panamax]

Scootersp said:

This why some people call it all a Ponzi?

A Ponzi always gets bigger and bigger.

The CBR (Central Banks Runaround) is subtly different, with some control over whether it's getting bigger or smaller, in order to juggle perceptions.

Let's revert to the subject of "stuff" which has value and then put that in the context of Putin.
a. Does he have "natural resources"? Yes.
b. Does he have people who can do work on those resources and create value? Yes.

c. Does he care about sanctions? No. See a and b above.

Ah yes, but his currency isn't worth very much. Maybe. But like any good criminal, when you can nick stuff there's no "cost of acquisition" and his selling price is all margin.

Question: So what, for instance, gives the £GBR its value?
Answer: Your future tax liabilities.

[Mr Whippy]

Scootersp said:

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?

No it’s all fine because the economy will grow more than necessary, while inflation erodes the debt to be paid back, but the premium is sufficient for you to make a return after inflation too.

It’s all fine.

We just need perpetual growth in a world popping at the seams on problems, and largely so overly efficient at making consumer products and globalised, that inherent deflation is the risk.


But it’s all fine.


We can just keep doing mega fiscal stimulus, into high inflation, with negative returns on debt, and the world itself and societies weeping at the inequality and abuses we impose on it.



I know we keep kicking the can, but anyone even taking 5% now on US debt is saying inflation will be sub 5% for at least 20 years to even get back their principal, IF they don’t even touch the yield and compound it.

With the $Tn fiscal stimulus rate I’d say this is wishful thinking. Perhaps why QT is now being tapered and hype stocks are getting bid to daft levels… the search for real yield/return… with risk ignored because CBs have bred extreme moral hazard.


Maybe if 20yr or 30yr were 10% I’d be more on board with that.

If their inflation keeps moving upwards they’re going to have trouble getting anyone to buy their debt.

And as soon as QE comes in again… oh dear.

Rock and hard place ahead.

[OoopsVoss]

Scootersp said:

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?

It's not.a classic ponzi scheme, there is supposed to be growth in there somewhere. The debt issuance is supposed to do fiscal multiplier (so borrow to invest the economy to get growth). You can also bolt on Monetary stimulus, so the Central Bank takes in the debt (through market intermedaries) who then print more electronic money to give back to banks who then lend (creating leverage growth). QE is probably more efficient in generating economic expansion as its less leggy, has no reliance on government to spend / invest AND this is the biggie - you can further leverage it. So for every 1 the Central Bank buys in, you get multiple effect through the banking system gearing it. It IS inflationary, but it's only ever supposed to be temporary. The problem is we are no reliant in it (or some economies are), they can't get out of it (which weirdly the UK or BoE is planning to do - they are talking about a zero sheet being a real possibility).

Now having your banks grow (given QE), create the demand for the additional govt dept. The BASLE rules incentives the banks to hold it, as its eligible as collateral that underpins the increased leverage / balance sheet size. Its a very well choreographed system. Think if it this way Lehman was a $700bn Bank 15 years ago and nearly took everyone out. Now they wouldn't even be a top 30 Bank. JP Morgan is probably a $2trillion plus Bank now. Growing leverage increases the demand for govt debt. Its almost a perfect circle jerk.

As to the rate you get paid, neutral rate (explained before) but generally 1 - 1.5% above inflation.

[Panamax]

All of which is why you want to own "useful stuff" and not "pure financial assets". When you own "stuff" you don't care about how its numerical value is measured or in what currency. Your "stuff" should be floating on a sea of reality, immune from inflation and other such inconveniences.

This current tidal wave of inflation, which the geniuses at central banks declared in 2022 to be "transitory" or "a short term blip" is wreaking dreadful damage at various levels of our society.
https://www.politico.eu/article/central-bank-too-b...

There's no logic behind the massive financial rewards earned by bankers simply because they're handling large amounts of money. It's the equivalent of paying check-out staff at Tesco £50,000 a year just because they handle the payment process.

[OoopsVoss]

Panamax said:

All of which is why you want to own "useful stuff" and not "pure financial assets". When you own "stuff" you don't care about how its numerical value is measured or in what currency. Your "stuff" should be floating on a sea of reality, immune from inflation and other such inconveniences.

This current tidal wave of inflation, which the geniuses at central banks declared in 2022 to be "transitory" or "a short term blip" is wreaking dreadful damage at various levels of our society.
https://www.politico.eu/article/central-bank-too-b...

There's no logic behind the massive financial rewards earned by bankers simply because they're handling large amounts of money. It's the equivalent of paying check-out staff at Tesco £50,000 a year just because they handle the payment process.

No. The private sector banks are getting paid to spin up the QE. The CB does the initial print, the banks then gear it up (so QE x 30) - go look at SPX valuations over the period from GFC. Clearest example of private sector spin up. They are NOT getting paid to simply handle cash ala a check-out clerk; but for creating additional leverage (i.e. interest on loans). It's value add, at the expense of increasing risk (which is by design anyway).