As for Worstall, I am a little surprised by his comment. He should know how the repo market works and that this involves the technical sale to banks of gilts overnight and their repurchase with what appears to be interest credited in the morning, in this way providing the large customers making use of this facility for their cash piles with the deposit guarantee that they crave and which the government will not itself supply. The gilts remain legally in the possession of the banks and many of them will be in nominee names and some will be borrowed (this being a feature of euro repos now, I believe) but the fact that nominal ownership does not reflect beneficial ownership of use of an asset was something I thought he would be familiar with. Apparently not.
Umm, repo is selling gilts to banks? Rilly? Why would that help someone park money overnight?
Walk through it. I’m a corporate treasurer with a pile of cash. I want a safe home for it in the short term. I could, of course, just stick in the bank. But, hhmm, no. Not safe perhaps, interest too low maybe.
So, instead, I go sell a gilt to a bank and get a bigger pile of cash that I’ve got to put somewhere.
That doesn’t work, does it?
I might go and buy a gilt of course. But if I did that I’d probably not be buying it from a bank but from a hedge fund, securities dealer, pension or insurance fund.
Do note that it’s not me teaching economics at a British university.