Credit deflation and the reflation cycle to come (part 3)

[DurhamBorn]

10 minutes ago, Lightscribe said:

She’s defo got morefatt of recent years, probably still would.  Did you offer to put some reflation into her portfolio? 

Iv known her years,shes a lovely woman,really down to earth still.She used to live just aroung the corner from me but she has sold that and had a house built in the next village.

[Axeman123]

Zoltan Pozsar has written another one of his things, just in case anyone is interested.

"War and Interest rates"

https://plus2.credit-suisse.com/shorturlpdf.html?v=58Pt-YP34-V

I will browse and edit in some thoughts.

 

[CannonFodder]

Meanwhile in Russia..

 

 

[Ash4781b]

https://www.thisismoney.co.uk/money/buytolet/article-11084499/amp/Landlord-profits-turn-negative-base-rate-reached-2-5.html
 

I’m just looking at the BTL numbers presented in the table and article. Scratching my head a bit as the numbers look really really bad many leveraged BTL going to be loss making by end of the year if interest rate rises keep coming.

 

edited twice 

[Axeman123]

1 hour ago, Axeman123 said:

Zoltan Pozsar has written another one of his things, just in case anyone is interested.

"War and Interest rates"

https://plus2.credit-suisse.com/shorturlpdf.html?v=58Pt-YP34-V

I will browse and edit in some thoughts.

Can't seem to edit, so I will quote myself instead:

Pozsar is really just copying from this thread.

He talks about the possible risks to the peak hawkish/inflation view. He asserts that the west is at (economic) war with both Russia and China, and CBs are trailing in the wake of heads of State. He states that inflation may be an intentional act of economic war against the west, and that CBs are ill equiped to do anything except reduce demand permanently to match the new constrained supply.

His thesis is that rates could go to 5-6% and stay there for the long-term, as he predicts an L shaped recession (sharp drop and then flatline/stagnation) as a policy choice until on-shoring can produce new supply. He talks about a fed "tightening campaign" as opposed to a "tightening cycle" as a more accurate terminology, reflecting that inflation is structural rather than cyclical. He interestingly mentions nominal GDP targetting (specifically downwards), which got a mention elsewhere recently. His next idea is that rates could stay high even during a deep recession to prevent a V shaped recovery, again as policy choice, and that recovery if it does come later will be driven by fiscally funded industrial policy. 

 

[sancho panza]

1 hour ago, Axeman123 said:

Zoltan Pozsar has written another one of his things, just in case anyone is interested.

"War and Interest rates"

https://plus2.credit-suisse.com/shorturlpdf.html?v=58Pt-YP34-V

I will browse and edit in some thoughts.

 

Axeman can you repsot the link,I keep trying but it's not working for me.I'd like to read that

25 minutes ago, Ash4781b said:

https://www.thisismoney.co.uk/money/buytolet/article-11084499/amp/Landlord-profits-turn-negative-base-rate-reached-2-5.html
 

I’m just looking at the BTL numbers presented in the table and article. Scratching my head a bit as the numbers look really really bad many leveraged BTL going to underwater by end of the year if interest rates keep coming.

Nice find Ash,it does overly focus on IO BTL but some high/lowlights.....key aspect as mentioend in the article is who will be able to remo.Will LL's be able to put retns up if heating bills are rocketing.Looks like a perfect storm in some respects.

 

''

• Landlords have seen annual profits nearly halve in the past eight months alone
• Rates among biggest lenders have risen from 1.25% to 3.12% since October 
• On a £200,000 interest-only mortgage, that's a jump from £209 to £521 a month

Following the base rate hike to 1.75 per cent last week, it also said that if the base rate was to reach 2.5 per cent, the average UK landlord could see their profits turn negative.

Two-year fixed rate buy-to-let mortgages at 60 per cent loan-to-value have on average risen from 1.25 per cent to 3.12 per cent since October last year, according to analysis of rates at the top 10 lenders by mortgage broker, L&C Mortgages.

The other concern is whether those coming to the end of their current mortgage deals will be able to remortgage to a new deal.

This is because lenders judge buy-to-let mortgage affordability based on a rental stress test which determines how much landlords can borrow.

Mortgage lenders require the landlord to demonstrate that their rental income would cover between 125 to 145 per cent of their mortgage payments, based on a hypothetical interest rate of 5.5 per cent.

Ray Boulger, senior mortgage technical manager at mortgage broker John Charcol, said: 'For many much higher mortgage costs will be the final straw and they will either choose to sell or become forced sellers.

'Unless rents were massively increased, large mortgages supported solely by rental income would cease to be available as lenders require rental cover of between 125 per cent and 145 per cent.

'Landlords won't be able to significantly increase rents just because their mortgage costs have shot up.'

[Axeman123]

@sancho panza https://plus2.credit-suisse.com/shorturlpdf.html?v=58Pt-YP34-V

I have the PDF otherwise

edit: try this

https://urldefense.proofpoint.com/v2/url?u=https-3A__plus2.credit-2Dsuisse.com_articles_Z7LE1AC-2DYP34_Z7LE_a3Y7Z8b3U3S2a0iHqP-2DV&d=DwMFaQ&c=dqndFQAGz2cg7ln6ll1EqkpBLZllP_GH8-2iqGbTww0&r=UG6sQuKY9-ew6b_NXbU9TRf19uROz1pbJ_om3AVIoJM&m=8i8G4bBgrGOm_LCokGtXbW6fYBYl4AC3VB17n3gFqW4&s=PJJlQTflnzStHV3_AjGiIoe4NobOfyaMcRI3fnLwvD0&e=

[RJT1979]

Was reading TOS. NATWEST offering 5x mortgages fir FTB but I just declared as moving home and got the highest ever amount back. 158k off 32k. With 0 other loans. Highest ever been offered was 120k. They are obviously dropping rules for one last pump.

[No One]

Meanwhile in America:

 

 

[No One]

In Japan, the 90s Japanese sports market is in the cusp of a crash. Skip to 19:30

 

Might be worth a post on classic cars sub forum

[spygirl]

Interest rate rise will be as useful as medieval bloodletting

Letters

https://amp.theguardian.com/business/2022/aug/07/interest-rate-rise-will-be-as-useful-as-medieval-bloodletting

 

 

 

Because Uke does not count for more than 30% price rises and ukgov is spending too much.

Thise 'poor' are a major part of the uks price rises.

[muck]

On 05/08/2022 at 23:57, DurhamBorn said:

WHT 15% ,not sure if zero on the ADRs in a pension or not.I think there will be two divis,but its hard to tell there doesnt seem to be a set time etc and changes every year.I got 3 in 3 days off TEF Brazil for some reason the last few days.

You would have received a number of smaller payments from TEF Brazil (VIVT3) on 31st July or thereabouts. These would have been JCPs (Juros sobre Capital Próprio), a kind of mini-dividend peculiar to Brazil. TEF usually announces three or four JCPs per year and then pays them out together around the end of July the year after, with one payment per JCP, i.e. not a lump sum. The proper dividend (DIV) is a larger payment and is due on 18/10/2022.

Note that JCPs are taxed at 15% at source whereas DIVs are tax-free... for now. There is a bill currently stuck in the Brazilian Senate to start taxing proper dividends as well (they're saying 10% or 15%), but doesn't look like it will pass anytime soon with the election coming up.

My thanks to everyone on this hugely informative and enjoyable thread. Compulsive reading. Cheers.

[Harley]

4 hours ago, sancho panza said:

Just had a quick look and sea of green .The really big move I'm noting is that some of the tier twos are catching bids eg Anglogold.Bottomed at $14 on the monthlies $13.50 dailies.$16.25 puts some of our calls in the money after a few months of red.Been apinful

Still some good value there imho-NCM/KGC/EGO/BVN/GOLD/NEM plus a few more

Decl:long

Biden still thinks he's bossing Putin.From what I've read our own future leader is still intending to boss Putin as well.Which you can't fault the logic of because it worked out so well for the germans last time.

Yeah there is and the stat quoted is more a function of reduced buys than excess sales.

Yep, two more PM miners came up on my screen today with several others close.  I think I bought one but didn't like the fundamentals on the other.  I'll be looking at GDX/J UK equivalents tomorrow as these were div plays.  Gold itself technically looks like it's heading down but it's also hinting at a blip back up.  Add in the silver chart pattern and the whole space could get interesting. 

[DurhamBorn]

34 minutes ago, muck said:

You would have received a number of smaller payments from TEF Brazil (VIVT3) on 31st July or thereabouts. These would have been JCPs (Juros sobre Capital Próprio), a kind of mini-dividend peculiar to Brazil. TEF usually announces three or four JCPs per year and then pays them out together around the end of July the year after, with one payment per JCP, i.e. not a lump sum. The proper dividend (DIV) is a larger payment and is due on 18/10/2022.

Note that JCPs are taxed at 15% at source whereas DIVs are tax-free... for now. There is a bill currently stuck in the Brazilian Senate to start taxing proper dividends as well (they're saying 10% or 15%), but doesn't look like it will pass anytime soon with the election coming up.

My thanks to everyone on this hugely informative and enjoyable thread. Compulsive reading. Cheers.

Thanks for that superb explanation ,i quite like dividends coming in as quick as that.

[DurhamBorn]

This is a decent watch/listen.I think its incredible that so many on here saw the end of globalisation from different positions.Myself macro,but others spotted it for other reasons.More and more are starting to understand the roadmap we are now on.We cant know all the winners and losers,but staying de-complex seems the right policy.This still isnt a lock though,we will likely still have lots of global markets,but nothing like what we have now.The phone calls for jobs have started again,i told two in the last week phone back when the salary is 50% higher minimum.

 

[DurhamBorn]

53 minutes ago, spygirl said:

Interest rate rise will be as useful as medieval bloodletting

Letters

https://amp.theguardian.com/business/2022/aug/07/interest-rate-rise-will-be-as-useful-as-medieval-bloodletting

 

 

 

 

 

Because Uke does not count for more than 30% price rises and ukgov is spending too much.

Thise 'poor' are a major part of the uks price rises.

Someone needs to explain to the lefties who read the Guardian its about trying to slow the destruction of sterling and release capital for onshoring by destroying housing as a speculative investment.

[spygirl]

I'll copy this as it's an opinion and such a bad one -

Time to tackle the UK’s quantitative easing problem

Bond-buying programme has made Bank of England and Treasury much more exposed to short-term interest rates

https://www.ft.com/content/6956ac78-1066-4312-a636-08fa4bf7683e

The writer is director of the National Institute of Economic and Social Research and author of Money Minders: The Parables, Trade-offs and Lags of Central Banking One consequence of the Bank of England’s dramatic intervention to prop up markets and the economy since the financial crisis is that the central bank and UK public finances are now left much more exposed to rises in short-term interest rates.

The BoE’s massive programme of bond buying known as quantitative easing lowered long-term interest rates and played an important role in avoiding a prolonged depression. But the scale and structure of the intervention has thus left the mix of the UK’s debt liabilities out of kilter, and the cost of that imbalance is mounting.

In quantitative easing, the BoE set up a subsidiary called the Asset Purchase Facility to buy long-term bonds. The APF paid for the bonds with new money in the form of electronic reserves created by the central bank. In turn, it pays interest on those reserves in line with the BoE’s benchmark bank rate.

At its peak, the APF had a liability of £895bn, or 36 per cent of gross domestic product. Such a liability means that the public finances are highly sensitive to decisions made about the bank rate by the BoE’s Monetary Policy Committee.

For several years, the APF produced profits and sent remittances to the Treasury, which were spent. The total amount remitted to the Treasury has been some £120bn. Now that interest rates have started to rise and gilt prices have fallen, we calculate that the APF has incurred unrealised losses nearly as large as the earlier profits which it remitted to the Treasury.

And there are risks on the Treasury balance sheet for years to come: if the APF’s assets are held until maturity, reserve balances held by commercial banks will still amount to more than £400bn at the end of 2030. If the bank rate was 3 per cent at that time, it would imply a payment to commercial banks of some £12bn in that year alone. The buying programme also left the structure of the government’s financial liabilities with a heavy concentration at zero maturity.

The BoE is rightly now contemplating a faster timetable for reversing quantitative easing. But there is a rather more fundamental issue — the necessary speed can be achieved only if the BoE works closely with the Treasury. It is the Treasury’s responsibility to manage the government’s debt — and that includes taking the sting out of the dramatic shortening in the maturity of UK government debt caused by quantitative easing.

The Treasury ought to have prioritised the management of the risk that such huge quantities of reserves posed. At rock bottom last year, funding costs were only likely to move in one direction. And while the risk is primarily a matter for the Treasury, the BoE, too, has an interest in it for several reasons. A central bank with a very large balance sheet is likely to have its independence questioned.

There is a tail risk of fiscal dominance of monetary policy, which, if it crystallised, would undermine the BoE’s ability to meet its price stability objective. And, as banker to the government, the BoE has an obligation not to act contrary to the government’s financial interests.

A year ago, economists Bill Allen, Philip Turner and I proposed a swap of a large part of the central bank’s overnight liabilities to the banks for a portfolio of short- and medium-term government bonds.

The central bank’s balance sheet would shrink, and the maturity structure of the government debt would be less risky and more transparent. And there would be demand from banks for the gilts to meet regulatory demands for holding high-quality liquid assets, mainly reserve balances and government securities.

How far the government yield curve would be affected by such an operation would depend on many factors. But such swaps have been successfully carried out in the past, most notably after the second world war.

The operation we proposed should be the beginning of a medium-term plan to lengthen the maturity of government debt. That might lift long-term interest rates somewhat but it would also mean that the central bank would raise short-term rates by less.

Interest rates are still very low and inflation is high. It is possible that global long-term interest rates are at the beginning of a sustained upward trend. This would happen just when the UK government is less prepared than it has been for decades. It has much more very short-term debt, and a much-depleted cushion of long-term debt. We need a clear debt management plan now to correct this

Comments-

(Edited)

 

I have been warning about this in FT comments for over two years now: https://www.ft.com/content/18ade542-d2a9-438a-ba5c-37b51475993b?commentID=8671ded3-874f-4538-ba82-25dfe7cfe64d , which I believe to be the origin of NIESR's interest, so I feel especially qualified to comment.

 

I am afraid that the "solution" suggested by NIESR is no more than a short-term fix (as I did explain to them), and can probably be expected to cheat the banks, whose participation in QE was largely involuntary.

 

Essentially NIESR's proposal involves compelling the banks to swap their reserves asset, presently paying "Bank rate", for fixed term assets with an average maturity of around two years. If that swap is done at a fair market price, it will merely lock in the expected path of Bank rate over that period, which is as likely to result in a larger loss on QE as it is to reduce the loss. There are two weaknesses of NIESR's proposal.

 

First, the only way that such a scheme can be expected (in the mathematical sense) to save public sector interest outlay is if the swap is forced on the banks at a below-market rate of interest. Assuming that rising market interest rates increase banks' funding costs, being stuck with the below-market return asset reduces bank profitability. However, UK banks are already heavily taxed, with a special levy and a corporation tax surcharge, meaning that they are not highly profitable - banking sector pre-tax profits are volatile, but they average something like £20-30bn per year. Already, the UK authorities have struggled to get "challengers" to enter a supposedly oligopolistic market. Perhaps the banks would be able to pass this on to their customers, but, especially if recovered through higher bank charges, this would amount to a highly regressive tax.

 

Second, the average maturity of the QE gilts portfolio is about fourteen years, so the proposal would only reduce the interest rate exposure taken by the QE portfolio by something like one sixth (another way of looking at this is that the scheme only locks in the public sector funding cost for the average maturity of the swap).

 

Ironically, the NIESR proposal represents more of the kind of smoke and mirrors and dishonest financial management that has led us into such a mess - imposing costs (probably on the public) in an obscure way, loading the cost onto a group for which the public are unlikely to have much sympathy, and short-termist.

 

Let our public finance be honest for once. About half of the QE portfolio was accumulated because politicians elected by the present generation chose to alleviate the economic distress caused by the pandemic by borrowing, which was fair enough, and (arguably reasonably) in order to mitigate the stress this appeared, in March 2020, to be placing on the gilts market, the borrowing was QE'd by the BoE. The natural and responsible action to take now that the pandemic seems to have receded, is to unwind that pandemic intervention, by the BoE selling down some of the gilts (especially when with CPI inflation standing at 9.4%, BoE tightening is already behind schedule, or inadequate, anyway), and ideally raise taxation so that the present generation at least begins to pay down some of the pandemic intervention.

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JS

 

5 DAYS AGO

 

reply In reply to Tim Young

Let our public finance be honest for once.

Good luck with that.

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F2020

 

4 DAYS AGO

 

reply In reply to JS

Tim is way more optimistic than you and me.

So I second that - good luck.

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CFO Guy

 

5 DAYS AGO

 

reply In reply to Tim Young

Excellent comment.

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Tim Young

 

4 DAYS AGO

 

reply In reply to CFO Guy

Thanks for your appreciation.

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ArioMike

 

5 DAYS AGO

 

reply In reply to Tim Young

Send this to Truss, Tim?

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The Ferryman

 

5 DAYS AGO

 

reply In reply to Tim Young

Before I even opened the comments my first thought was that we need Tim Young on this one!

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Bill Allen

 

5 DAYS AGO

(Edited)

 

reply In reply to Tim Young

As one of the proposers of the idea, which is set out in more detail at https://www.niesr.ac.uk/publications/qe-qt-policy-framework?type=topical-breifing , I feel especially qualified to reply.

 

The purpose of the proposal, which you don't acknowledge, is to insure the public finances against the heavy exposure to the risk that the Bank rate will rise unexpectedly fast. That risk is the result of a dozen years of quantitative easing. It might not save public sector interest outlay (though it would have done if implemented a year ago when we first suggested it), but it would insure against extremely bad outcomes. It is in a sense a short-term fix, as you say, but a short-term fix is the only kind of fix that could be implemented quickly. It could and should be followed by a longer-term programme of lengthening the maturity of government debt. The latter programme would necessarily be slower because the market for longer-dated gilts isn't as liquid as the market for shorter dates.

 

Implementing the proposal would involve a negotiation with the banks about the terms. No negotiation between the government and the banks, or indeed any other industry, is ever completely fair, in the sense that the government has the power to pass laws to get its way. I don't think that by normal standards, this one would be particularly unfair.

 

It is simply outrageous to stigmatise the proposal as 'smoke and mirrors' and 'dishonest'. We have explained it at length and in detail on many occasions. We have concealed nothing. It may appear complicated, but public finance has become complicated over the centuries. Public debt management is important, and has been subordinated for too long to a particular conception of monetary policy. It needs to be assigned a hgher priority.

 

Whatever you say about our proposal, it offers a solution of a kind to the serious interest rate risk overshadowing the public finances. The only other proposal that I'm aware of is is to cease paying interest on commercial bank deposits with the Bank of England. In the circumstances, that would amount to a default on government debt (and it would endanger financial stability). It certainly would be cheating the banks.

 

If you don't like our proposal, what do you suggest instead?

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Tim Young

 

4 DAYS AGO

 

reply In reply to Bill Allen

I would have no objection to a fairly-priced scheme to insure the public finances, which the banks are free to take or leave, but as you acknowledge, that is not likely to be the way it will be done. That is the point at which it becomes vague - how unfair will it be? To the extent that it is unfair, are the banks supposed to absorb the cost, and if so are they sufficiently profitable to withstand it, or can the banks pass on the cost to the public? I appreciate that your paper last year was just a start introducing the principles, and I am not saying that it was devised to be smoke and mirrors, but I can imagine that part of the appeal of schemes like NIESR's or NEF's for the UK economic authorities would be that the schemes would allow the authorities, primarily the BoE but HMT too, from having to be open about the cost, first of years of years of easy monetary policy, probably kept easy to blunt the consequences of people's own choices, be it chancing buying a house or even voting to leave the EU, and second of pandemic relief.

 

I explained how I would deal with the interest rate risk, which would do double-duty by also tightening monetary policy faster - just start selling down the QE portfolio. In real terms, gilts yields are still low by historic standards, so they are still arguably a good deal for the taxpayer. And, as I think we agree, a proposal to "replace a bank asset of zero maturity with assets of, say, 2-year average maturity" does little to protect public finances from gilts yields settling at permanently higher levels around something like "normal".

 

My worry is that a crisis derived from a couple of decades of ducking hard choices seems likely to be dealt with by more of the same.

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F2020

 

4 DAYS AGO

 

reply In reply to Tim Young

I agree.

The slippery slope nearly always seems to extend a lot longer than what it initially appears.

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Eren. B

 

4 DAYS AGO

 

reply In reply to Bill Allen

"ceasing to pay interest on commercial bank deposits at the Bank of England"

 

Do you mind elaborating more on why that is such a bad idea? Why are banks entilted to a guaranteed minimum rate of interest? Why does withdrawing that right, amount to a default on government debt?

 

Thank you

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Tim Young

 

1 DAY AGO

 

reply In reply to Eren. B

Since Bill has not answered your question yet, I will have a go.

 

Commercial banks hold reserves (ie commercial banks' current account balances at the BoE) to make payments between themselves and between themselves and the BoE. Since a reform of the sterling money market in 2006, banks have been paid the BoE policy rate, or "Bank rate" on their reserves, whihc is more or less a market rate of interest. Prior to that, banks minimised their holding of reserves.

 

So when QE began, from 2009, bond purchases by the BoE have been paid for with reserves which pay interest. Only commercial banks can hold reserves, so if QE involves a bond purchase from the non-bank private sector, the BoE pays the seller's bank with reserves, and that bank credits its customer's current account. The bank does not voluntarily take that position on; it is just an outcome of the way that payments normally work in a hierarchical system in which the central bank handles only a smaller number of net payments between banks. That means that QE has stuffed banks full of reserves assets and deposit liabilities.

 

On the other side of the banks' position is the BoE, which holds a lot of bonds - mostly gilts - assets, bearing a fixed rate of interest, against reserves, bearing Bank rate. If interest rates rise to restrain inflation, the implication is that the BoE's position will lose money hand-over-fist: https://www.ft.com/content/73920d5f-91d8-4de4-b312-5ece3a633e99 . And since the government is the beneficial owner of the BoE, that means that the taxpayer would lose money hand-over-fist too.

 

A way of avoiding such losses is, therefore, to just stop paying the banks the interest on reserves as expected. I do not suppose that paying Bank rate on reserves is laid down in any contract, and so would not represent a formal default, but I would say that it would be an act of bad faith or breach of trust. Even worse though, since, if market interest rates rise the banks can be expected to have to pay higher interest to retain their deposit funding, the banks, which are already heavily taxed and not very profitable, would either have to accept making big losses or pass on the cost to their customers.

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Eren. B

 

1 DAY AGO

 

reply In reply to Tim Young

Thank you for that explanation.

 

I still have some questions, but feel free to ignore me.

Did the BoE ever pay the Bank rate on reserves before 2006? Do all central banks do this?

 

I understand why it can be a useful policy, but it does seem rather costly and unnecessary. I had always thought that the Bank rate was the rate that the BoE would lend to banks, not the rate that banks would lend to the BoE.

 

If the shortfall between the payment of interest on the central bank reserves to the commercial banks and the interest received from gilts is made up for by printing money, is that not highly inflationary - and therefore would higher interest rates paradoxically lead to more money creation? Or does the BoE simply register it as a loss on it's books? In effect, throwing free money at the banks.

 

It all seems so silly.....

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Tim Young

 

1 DAY AGO

 

reply In reply to Eren. B

No, before that, reserves paid no interest, and banks held about £1-2bn worth. On the day of the changeover in May 2006, banks immediately chose to hold about £30bn, immediately supplied by the BoE. At the time, that quantity of reserves was about 2% of M4 money supply (ie bank deposits including time deposits).

 

I believe that the ECB always did pay interest on reserves, while the Fed did not until 2008, when they began doing QE. If a market rate of interest is not paid on reserves, you would not get to do much QE before it becomes inflationary.

 

Yes, if negative net interest on the QE programme, say in the order of £10bns per year is covered by money creation, meaning reserves paying no interest, that would be inflationary, if and when market interest rates rise significantly above zero. However, that would be not as bad as just ceasing to pay interest on the £850bn worth of reserves already held - which would be even more highly inflationary if interest ceases to be paid on that stock, and the banks are not required to continue to hold their existing stock of reserves, because in that case the banks could be expected to try to pass the reserves on. Which is why such interest-saving schemes have to be compulsory. However if net interest outlay was covered by creation of reserves paying a market rate of interest (which I am assuming that Bank rate is, more or less), that would be no more inflationary than increases in QE have been. However, that would be like a Ponzi game, and just delay facing the problem, which would be bigger by the time it was faced.

 

The NIESR proposal, which is a compulsory swap of reserves for about two year average maturity debt. How much money that will cost banks over that period depends on how much less than market interest rates the debt pays.

 

However, it is engineered, such financial repression would amount to a tax on banks.

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horshamtim

 

4 DAYS AGO

 

Since 1946 the Bank of England has been wholly owned by HM Treasury. It follows that while its degree of independence has varied since then, ultimately this is a matter of surface presentation. To a considerable extent therefore arguing about where to stick which bit of profit or loss is the sort of discussion many a corporate finance director has, albeit on a smaller scale. Ultimately the profits and losses on the bonds bought with the then newly created electronic money will end up up with the Government - unless they can find a way of palming them off on someone else.

 

In effect since QE started in the UK, the Government has only been paying a proportion of its interest costs on the outstanding debt - it pays the normal gilt coupon twice yearly to the BoE/APF for the bonds it holds, which is then recycled back to the Treasury. Depending on the age profile of its total debt, when and how the books are finally balanced could have significant impacts on different groups. The shorter duration portion of its debt will need to be refinanced at a higher interest rate, which likely means higher taxes or cuts in services.

 

One of the good things (!) George Osborne did was to take the opportunity to shift a lot of short term and variable rate Government debt to long term fixed rate debt with a low coupon. If interest rates do not return to their abnormal lows during QE, inflation will significally reduce the real value of that debt over time - which is potentially bad news for all the banks, pension funds, and investors who bought them. The argument put out below that it doesn't matter whether Government debt is short or long term is simply wrong in this respect - and it is the countries with a significant percentage of short term Government debt which are most at risk of defaulting.

 

There is also the point that borrowing to find long term assets - infrastructure and the rest - is a different proposition to borrowing to fund current expenditure.

 

The truth is no-one knows how to unwind QE on this scale without significant problems.

[spygirl]

In short, the banks blew themselves up in part due to piss poor regulation - not really BoE fault but ...

As the banks blew themselves up, a large part of UK tax revenue fell, leaving a bloated public spend, so QE rolled out.

This continued for 10y as the rest of world, well, US, was in same boat.

Low IR kept it ticking over, although the low IRs kept banks in a basket case.

However, inflation roared back. Fed has woken up and is raising IRs, causing bond prices to fall potentially bankrupt BoE - or at least cause a lot of problems.

And now the clever people at nsier, whod have cheerleading their genius Brown n his big bank, big taxes model, have come up with a clever solution by dumping bonds on the banks.

However banks are still basket cases, and, if they did, would just cause more expense on the productive bit of UK without addressing the root cause, which is the unproductive bit that got us in this mess.

 

[XswampyX]

13 minutes ago, spygirl said:

However banks are still basket cases, and, if they did, would just cause more expense on the productive but of UK without addressing the root cause, which is the unproductive but that got us in this mess.

It's so much worse. 

10 years of funny money, paying funny companies, to produce nothing. It would be funny if it wasn't so serious.

Why make anything when you can print the 'money' and buy it from some where else?

We ignored the fundamental problems and kept taking the pain killers.... and then dropped dead.

 

[Loki]

1 hour ago, No One said:

In Japan, the 90s Japanese sports market is in the cusp of a crash. Skip to 19:30

 

Might be worth a post on classic cars sub forum

Very interesting thanks 

[JMD]

8 hours ago, DurhamBorn said:

I decided to offload a third of my HL today,just under 20% profit in a few weeks on a big holding,keeping the rest and bought the asset manager Ninety One plc with the proceeds.I like their growing profile in EMs.

DB, I like the idea of buying asset managers especially ones having exposure to em debt, but do you think it's also worth considering buying funds that directly hold EM sovereign bonds? Only I was today reading about the Templeton EM bond fund recommended by Gavekal (they are long EM debt markets). Unfortunately this particular fund is not available in UK but looks good example type to buy because appears to only hold sovereign bond debt and no corporate bonds (portfolio section allows download of all holdings) although I do note the fund remit unfortunately allows it to buy corporate bonds. 

L&G and M&G do similar funds that can be bought here. But wondered what your general thoughts were, eg. do the asset managers perhaps offer a potentially lower risk/higher(leveraged) reward?

        https://www.franklintempleton.com/investments/options/closed-end-funds/products/555/SINGLCLASS/templeton-emerging-markets-income-fund/TEI#distributions         

[JMD]

7 hours ago, CannonFodder said:

Meanwhile in Russia..

 

 

Gerard Depardieu did go to live there some years back but I notice he's now returned back home to France!?

[nirvana]

not sure Uncle Dave's plan is gonna make it 

edit: to add to that, why do you think THEY continually push the value of Gold lower?

TO SHOW THE POWER OF THE MIGHTY DOLLAR!!! You might not like it, but maybe that's just it.....

ALL's FAIR IN LOVE AND WAR......DXY has found a new support level at 105.5.......never mind Dave 

[M S E Refugee]

https://www.ishares.com/uk/professional/en/products/251824/ishares-jp-morgan-emerging-markets-bond-ucits-etf

https://www.ishares.com/uk/individual/en/products/296441/ishares-j-p-morgan-em-bond-ucits-etf-gbp-hedged-fund

Are these fund worth a punt?

It looks like it pays out monthly.

[M S E Refugee]

Britons turn to cash amid cost-of-living crisis https://www.rt.com/business/560474-britons-cash-living-crisis/