The Bank of England launched a strong defence of its bond-buying programme on Tuesday after it came under attack from Nigel Farage, leader of Reform UK, for potentially costing the taxpayer as much as £120 billion.
Well, yes, it will cost that uch. And there’s nothing anyone can do about it costing that much either. Because they made a profit in the first few years which tey then gaily spent. As there is no free lunch therefore the losses are going to come around in time.
We can sell those old low coupon bonds and take a capital hit doing QT. Or, we can ghold them to maturity and make the loss on the interest rate mismatch – BoE gets the low coupon but has to pay base rate on the central bank reserves that are the other leg of the transaction. The only way to reduce the central bank reserves that lose money on those interest rates is to sell the bonds and take the loss as a capital one.
Now, shouting about this might be good politics. But it’s worth us cognoscenti getting it right all the same. For if we don’t we’ll end in Spud levels of delusion about free money etc.
“For if we don’t we’ll end in Spud levels of delusion about free money etc.”
You were (and are) deluded about the idea that giving the politicians a ‘free money’ lever in times of crisis won’t be abused. And don’t say ‘The BoE is above all that politics stuff and will make sure all the printed money is removed from the economy’ because we all know thats bollocks. And as evidence I give you a) what the BoE did during Covid (spending shitloads of printed money to appease the politicians over their Covid psychological meltdown), b) what they did to Liz Truss (broke her government and replaced it with a placeman technocrat) and c) what they did after Covid (when they ignored the inflation they had created with (a)). Of course politicians will accept the free money when the BoE provides it, and of course they will refuse to pay the bills when they come due. What the f*ck did you think would happen?
It would be nice to see some politicians admitting “we turned on the cash fire hose five years ago, now we have to pay it back”. I’d definitely vote for someone that honest. But I’m betting on the answer being let inflation go for a while, and otherwise default on, sorry, ‘restructure’ the debt.
It’s default by inflation. Why worry that the national debt stands at 2 trillion British pesos? That’s barely enough for a pint.
@ Jim
I knew at the time that Furlough payments would (in due course) have to come out of my savings (and yours and those of a of a few million other thrifty people). I still think that Rishi made the right decision.
All I saw in furlough was a load of non-essential workers got to take a holiday whilst essential workers took the risks. Now you’re expecting them to pick up the tab. Furlough shouldn’t have been a grant, it should have been a loan.