Third, there are signs that the Treasury and the Bank of England think that things will be extremely difficult post-Brexit. There are provisions in the new arrangements for ‘collateral haircuts’. In other words, if this new lending is asset-backed, as is likely, then the Bank is anticipating falls in asset prices.
Fourth, it would seem as if the Bank is being given more opportunity to decide when, and if, quantitative easing will be unwound. The interest rate at which it may consider beginning this process has been reduced from 2% to 1.5%. In my opinion that suggests it is very unlikely that this will happen any time soon.
Fifth, the coincidence between £435 billion of QE funding and a new £500 billion lending pot backed by £1.2 billion of new capital suggest to me that the new lending is almost entirely dependent upon realisation of QE bonds now held by the Bank. In other words, all that is being said is that if there is substantial demand for bonds post Brexit as the saving community head for safety during the course of an economic crisis then the Bank will be allowed to sell its bonds held under the QE programme to meet that demand and will then be allowed to lend back the proceeds into the commercial banking system to make good the liquidity crisis that would otherwise arise.
I stress, this is a first reaction to a quite complex set of new measures which superficially, and as reported on all the media, make no sense at all. Unpacked as I present the above they do, however, have a coherent logic, albeit that the logic in question very clearly suggests that the Treasury and Bank of England are in practice planning for a hard Brexit and a consequent credit crisis for which they are creating the possibility of emergency liquidity funding for commercial banks.
If I am right then I also offer three other ideas. The first is that the Treasury so lacks confidence in the government that it is outsourcing the saving of the economy. Second, this is dangerous: the Bank will, no doubt, deliver another emergency package that will favour the City and those who are associated with it. Thirdly, democracy is imperilled once again.
The referendum – recall, democracy – decided upon Brexit. It’s possible that this could be rocky. So, contingency plans for a rocky road to a democratic decision isw democracy in peril.
But then for the Great Tuber perhaps it is, his definition of democracy being all do as he says.