Interesting economics here

Pound’s going down. So, what’s the solution?

So, seventh, the answer is in the form of QE. It quite literally cannot be in anything else.

In order to increase the value of the pound we should make more of them.

Well done, vry well done that man.

Then Kwarteng could demand the Bank do £250 billion of QE (which is less than it did for Covid) to provide him with the money he needs in the next year. That would work, just as it did in the 2008 crash and in 2020 and 2021.

In that case the markets would not be asked for new money. They would not need to be spooked to the extent that they are now. The pound could stabilise, and even rise a bit.

Not an experiment I’d want to be anywhere near when it took place……

15 thoughts on “Interesting economics here”

  1. Good spat on Twitter going on. In real time between Murphy and James Meadway if an alter ego here can get it for Tim. I’ll try and capture it this evening

  2. I’ve directed Spud to the CountriesWhereSocialismWorked web-site. I’m hoping he won’t be able to find it as there aren’t any.

  3. Bloke in the Fourth Reich

    Why would you not want to be standing near such an experiment? We have been doing said experiment since 2008, arguably since 2001.

    In some ways how much money they print now is irrelevant. The oversupply is there. The last batch of oversupply created literally to pay people to stop producing wealth.

  4. The BoE is meant to be to be doing QT – selling the Gilts it had accumulated since QE began – and also doing big issues to cover the cost of the energy relief plan and both in a falling market. And Spud wants them to buy massive amounts of Gilts. I suppose it’s logical in his mind

  5. “Why would you not want to be standing near such an experiment? We have been doing said experiment since 2008, arguably since 2001.
    In some ways how much money they print now is irrelevant. The oversupply is there. The last batch of oversupply created literally to pay people to stop producing wealth.”

    But our host told us back in 2009 that QE was just a technical issue, lowering interest rates, pushing people out along the risk curve, that sort of thing. Not money printing at all, no sirree! Why we asked? Because it will be reversed of course, he confidently stated.

    Any evidence of that reversal yet, 13 years later? Nope. OK they say they have ‘plans’ to start reversing it, but not a single gilt has been sold yet. By the time that comes around they’ll have been given new orders by the politicians – print baby print! Its piss heads in charge of the brewery time – they’ll keep drinking until the place falls down around their ears.

  6. Any evidence of that reversal yet, 13 years later?

    Yep:

    Some people refer to the process through which central banks reverse, or ‘unwind’, their QE programmes as ‘quantitative tightening’, or QT.

    We announced our last round of purchases in November 2020 and that ended in December 2021. Now we have stopped reinvesting the proceeds when a bond matures. A government bond matured in March 2022, so the amount of bonds we hold has already started to fall.

    QT through not replacing maturing bonds. Active sales are expected to start next month…..

  7. Good god, it’s getting to the point where I should be stocking up on Zimbabweian Zolls.

    Hmmmm…. Where’s my Hang Seng Bank passbook….? HKD is 8.38 to the pound. I don’t know how these numbers work, is that better or worse than when it was 13 to the pound when I was there?*

    *That exchange rate was really useful, as I got paid 13 months per year, and it was a direct subsitution to ukp per year.

  8. ” Active sales are expected to start next month…..”

    If you believe that you’ll believe anything. By then the shit will have hit the fan big time and new orders will arriving from No 11………

  9. Sales of bonds are tricky because the face value of the low-rate bonds that the BoE purchased will be higher than their market clearing price. The difference between the purchase and sale price will be forever out there as excess M1. The government can be forced to pay face value for bonds by the BoE holding them until they expire.

    The Fed have been converting some of their expiring bonds into T bills with expiries in months so that they can more precisely unwind. IDK what it is the BoE is holding, but given QE started such a long time ago and continued for such a long period there should be more bonds expiring at least every few months — whether the value of expiring bonds reaches the desired level of tightening is another question…

  10. @jgh I don’t know how these numbers work, is that better or worse than when it was 13 to the pound when I was there?

    It hurts. A large proportion of my income is from the UK (military and state pension) so I am fucked, I’ve taken about a 16% cut in the last few days and since the heady days of $13, about 45%.

    It wouldn’t be quite so bad if my state pension was not fixed at the rate it was when I first drew it 19 years ago. Despite saving the government about 8000 pounds a year by not using the NHS et al, because I don’t live in odd places like Montenegro and the Philippines, no annual increments for me.

  11. @Chris: “@Jim thanks for the testable proposition”

    My statement was made on Monday evening, by midday on Wednesday QT was cancelled and the BoE had turned on the printing presses again. Less than 48 hours. Not a bad prediction, even if I say so myself…….

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