£375bn of QE?
Discussion
It would cause a right mess doing that, on one hand the economy would get a huge jump, but it would be unsustainable and cause horrific inflation.
http://www.bbc.co.uk/news/business-15198789
http://www.bbc.co.uk/news/business-15198789
Terminator X said:
I don't get it, why not just lend it or indeed give it to the entire population to spend as they wish? Where the f
k has that money actually gone?
TX.
I think you need to read up on the whole situation and basic some economics. It hasn't "gone" anywhere, in fact it has been returned with interest and a profit made on the purchases. Whereas giving it out to the population would only cause inflation and it would never be returned.k has that money actually gone?TX.
fido said:
^That. It also keeps Gilt yields and interest rates low. Both are political winners.
But we'll pay for it through eroded savings and pension returns. And general inflation.
They are also fiscal winners too as you pay less on the new debt that you issue through lower gilt yields. But yes, inflation and erosion are going to be themes which stay with us for a long time yet. Negative short term yields in Germany and Switzerland mean safety above return is a big theme - and instances like Cyprus will continue to push people that way.But we'll pay for it through eroded savings and pension returns. And general inflation.
Terminator X said:
I don't get it, why not just lend it or indeed give it to the entire population to spend as they wish? Where the fk has that money actually gone?
TX.
If you gave all the money to people to buy stuff it would just cause inflation and prices would go up because of inflation(ie lots more money around) and therefore the price of stuff will rise to equal the new amount of money in the economy. so in effect doesnt helpas both cancel each other outk has that money actually gone?TX.
its used to buy bonds and gilts
Magic919 said:
What value of assets purchased has been sold so far?
To be honest I'm not sure but I believe it is nothing. A lot will be held on to and sold much further down the curve or maybe even held to expiry. The profits have been coming from the coupon payments and the net carry on the trade, but from memory they have "made" a profit of something like £25Bn on the £375Bn so far.It's not really a profit in the long run though as when rates rise the carry will disappear.
Better than giving it to the public though!
R11ysf said:
Magic919 said:
What value of assets purchased has been sold so far?
To be honest I'm not sure but I believe it is nothing. A lot will be held on to and sold much further down the curve or maybe even held to expiry. The profits have been coming from the coupon payments and the net carry on the trade, but from memory they have "made" a profit of something like £25Bn on the £375Bn so far.It's not really a profit in the long run though as when rates rise the carry will disappear.
Better than giving it to the public though!
Where does the B of E put the money from the coupon payments?
Magic919 said:
Where does the B of E put the money from the coupon payments?
You'll love this! It's given back to the Government to spend!!!http://www.centralbanking.com/central-banking/news...
Link said:
Excess cash from the Bank of England's quantitative easing (QE) programme will be transferred to the Exchequer, the UK's Treasury announced today (November 9).
The Bank of England has so far accumulated £23.8 billion ($37.9 billion) of net income from the £375 billion ($597 billion) worth of assets it has purchased through its subsidiary, the Asset Purchase Facility (APF), since the QE programme began in 2009.
Most of this income is from coupon payments received by the APF on gilts – UK government bonds – it has purchased, which is expected to increase a further £11 billion ($17.5 billion) by the end of 2013.
Public letters exchanged between Mervyn King, the Bank of England governor, and chancellor George Osborne reveal agreement over the need to transfer the cash as the scale and likely duration of the programme has increased significantly since its inception.
At the programme's inception, the Treasury promised to fully compensate the APF for any losses amassed, to protect the Bank of England's balance sheet, in return for any profits that are made.
Osborne said the APF holding large amounts of cash was "economically inefficient", while the government was forced to borrow money to make the coupon payments. The transfer will enable the government to reduce its stock of outstanding debt, which Osborne said would create interest savings.
King, however, highlighted the impact this would have on the decision-making of the central bank's Monetary Policy Committee (MPC). Debt reduction would result in the private sector holding more money and less gilts, he said, which amounts to an easing of the monetary conditions.
"The Committee, therefore, views the use of coupon income to reduce the stock of outstanding gilts as having an effect similar to the MPC purchasing gilts of the same value," said King.
Both men acknowledged the likelihood of the transfer being reversed during the exit from QE, with King warning it would probably be the "majority" of the funds.
Andrew Hawkins, a director at PricewaterhouseCoopers, said interest rates will have to go up to a ‘normal' level before the QE is wound up and repaid. The gilts held by the APF will then lose value and be sold for a loss, he said, which would trigger a flow of money back.
"It seems to me that it is the government taking money out of one pocket and putting it in the other," he said. "Whether they take them now or later is just a matter of timing."
The current stock of excess cash will be transferred on a staggered basis, and any further profits accrued will be handed over on a quarterly basis. Gilts held by the APF begin to mature in March 2013, but the principal will be retained to enable the MPC to maintain the size of the programme without having to borrow additional funds.
Basically it's all accounting bThe Bank of England has so far accumulated £23.8 billion ($37.9 billion) of net income from the £375 billion ($597 billion) worth of assets it has purchased through its subsidiary, the Asset Purchase Facility (APF), since the QE programme began in 2009.
Most of this income is from coupon payments received by the APF on gilts – UK government bonds – it has purchased, which is expected to increase a further £11 billion ($17.5 billion) by the end of 2013.
Public letters exchanged between Mervyn King, the Bank of England governor, and chancellor George Osborne reveal agreement over the need to transfer the cash as the scale and likely duration of the programme has increased significantly since its inception.
At the programme's inception, the Treasury promised to fully compensate the APF for any losses amassed, to protect the Bank of England's balance sheet, in return for any profits that are made.
Osborne said the APF holding large amounts of cash was "economically inefficient", while the government was forced to borrow money to make the coupon payments. The transfer will enable the government to reduce its stock of outstanding debt, which Osborne said would create interest savings.
King, however, highlighted the impact this would have on the decision-making of the central bank's Monetary Policy Committee (MPC). Debt reduction would result in the private sector holding more money and less gilts, he said, which amounts to an easing of the monetary conditions.
"The Committee, therefore, views the use of coupon income to reduce the stock of outstanding gilts as having an effect similar to the MPC purchasing gilts of the same value," said King.
Both men acknowledged the likelihood of the transfer being reversed during the exit from QE, with King warning it would probably be the "majority" of the funds.
Andrew Hawkins, a director at PricewaterhouseCoopers, said interest rates will have to go up to a ‘normal' level before the QE is wound up and repaid. The gilts held by the APF will then lose value and be sold for a loss, he said, which would trigger a flow of money back.
"It seems to me that it is the government taking money out of one pocket and putting it in the other," he said. "Whether they take them now or later is just a matter of timing."
The current stock of excess cash will be transferred on a staggered basis, and any further profits accrued will be handed over on a quarterly basis. Gilts held by the APF begin to mature in March 2013, but the principal will be retained to enable the MPC to maintain the size of the programme without having to borrow additional funds.
ks!BofE print money to buy Treasury Bonds.
Treasury pay coupon payments to the BofE.
BofE give profit from bonds back to Treasury
Smoke and mirrors anyone??
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