That £65 billion bailout

The Bank of England chose not to buy any bonds yesterday under its emergency two-week operation to calm gilt markets, turning down offers from traders looking to sell £2.2 billion of debt.

Having bought only £22 million of UK government bonds on Monday, the latest lack of intervention suggests that the Bank has so far succeeded in halting a dramatic sell-off without having to spend anywhere near what it had originally set aside.

Oh. Right. How’s this?

IT’S CALLED EXPECTATIONS MANAGEMENT

No, really:

This isn’t to say that everything is hunky dory, nor to prance with glee at the joyousness of monetary policy. It is though to point out that central banks work by expectations management. If they’re independent and the markets trust them to remain so of course. Failure to understand that means that monetary policy will remain a complete mystery – as, unfortunately, it seems to be for many people.

13 thoughts on “That £65 billion bailout”

  1. I seem to have missed the front-page headlines celebrating the (paper) profits the Bank of England has made via this operation: “Liz ‘n’ Kwasi Hammer the Speculators”.

  2. The Conservatives are almost bound to lose the next election as a consequence of QE since Brown Saved The Wold, Net Zero, uncontrolled mass immigration, their complete mishandling of Covid, the Ukraine War, and the Quisling antics of the anti-Brexiters.

    This frees them to have a couple of years simply applying conservative policies as widely as they can. Frinstance announce that they’ll reduce everybody’s cost of living by abolishing the TV licence to be followed by flogging off the Beeb. Stop HS2. Drill and frack like mad. Sink the invaders’ boats in the Channel, or send them to South Georgia. And so forth. I don’t suggest the return of capital or corporal punishment but just about anything else that the Beeb and Guardian hate should be adopted.

    Instead the backbenchers demonstrate that what they need is a good machine-gunning. Creeps!

  3. “IT’S CALLED EXPECTATIONS MANAGEMENT”

    So when does the QT start then? Or is that on hold permanently? What expectations can we have that the BoE care one jot about reducing inflation to their statutory target?

  4. California will start handing out $1,050 stimulus payments to residents this week to combat inflation

    Headline from Fortune Magazine yesterday. Governor Newsance strikes again!

  5. I wonder if Liz and Kwasi are regretting their cowardice in the face of the media onslaught yet…

    I’m prepared to give them the benefit of the doubt and call it pragmatism rather than cowardice, Julia. The whips would have been telling them (correctly) that removing the 45% band wouldn’t get through the Commons, and losing a whipped vote at this stage would be bad, if not downright catastrophic.

    If you want to accuse Tory MPs of cowardice on this topic, I’m right there with you.

  6. @Boganboy: I was strolling at the Ekka one arvo and a young man said, a little too loudly, to his damsel “Look at that old Bushie.”

    One of my proudest moments.

  7. “However, after the news of zero purchases yesterday, 30-year gilt yields nudged back above 4 per cent, prompting speculation that the Bank will not be able to sit on its hands for much longer.”

    £22million one day, followed by zero the next isn’t even far away from the apocalyptic prophecies of last week; it’s an entirely different economic climate.

    If those predictions had any remote credibility, then we simply couldn’t be having this conversation now. Instead there are a few bond traders bitterly regretting themselves taking their positions from excitable leftists at the FT. More fool them; more fool their employer.

  8. @Ironman: your comment makes me wonder whether we’ve just seen a second Project Fear.

    Or rather a third, since the Covid Project Fear should be on the list.

  9. Independent of a call to the Regulator?

    Why shouldn’t the BoE independently introduce universal, unconditional, infaltion-indexed, generous, money-printed basic income?

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