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BBC reckons Sunak should have insured against interest rate rises

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Eleven billion lost by this failure to "insure", apparently. He should have picked up the phone and called Direct Line 9_9


...NIESR said the government should have insured the cost of servicing this debt against the risk of rising interest rates...

The man on the Clapham omnibus would come away from that believing there was a commercial policy that could have been taken out.

The study the BBC hack misread:


... As an insurance policy against such fiscal risks, and to protect the independence of monetary policy, we recommended that the Treasury undertake a large-scale swap of bankers’ reserves at the Bank of England for newly-issued short- and medium-dated fixed-interest government securities.

This would have achieved two objectives in a single operation:

  1. It would have begun the process of reversing quantitative easing, thus helping to contain the inflationary pressures that were by that time clear; and
  2. It would have given the government some insurance against the cost of rising short-term interest rates...

I'm not even sure that the study is correct, you don't reverse QE by issuing more debt and (unlike with QE) there are no guarantees that your debt auction will be successful. But that's incidental. The appalling thing is how the BBC completely missed the monetary point and presented it as if Sunak (for whom I have no respect, but still) just forgot to post a cheque to the UK's insurance company.

This really shouldn't infuriate me as much as it does -- I should know by now that we can't expect honest or competent journalism any more :(

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See -


Gormless fucking opinion.

Doesn't understand the DMO.

Theres no insurance, it's just- Should we have sold more debt at 2020s low rates?


But theres no way the DMO could have sold a fraction of the debt they are claiming, without breaking the debt market.

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  • 2 weeks later...

Ok, the niesr 'insurance' is based on the crackpot idea of an ex boe type.

Its forcing banks to swap current assets with a new one.



The NIESR plan draws on the insights of Bill Allen, an ex-BoE Head of Division for Market Operations and economic historian who wrote the definitive UK monetary history of the 1950s.

At the start of the decade Britain had debt to GDP of 175 per cent and by 1959 this had declined to 112 per cent in spite of modest growth and low inflation.

How? Allen argues that outright financial repression — monetary authorities’ direct control of banks and credit — was the answer, and that the lessons from November 1951 can be borrowed to financially repress banks today.

Specifically, NIESR argued last summer that banks should be allocated compulsorily newly created two-year gilts to the commercial banks at non-market prices in exchange for their reserves “as a means of draining liquid assets from the banking system, and of insulating the public finances in some degree from the costs incurred when short-term interest rates were increased, as they were in March 1952”. Failing to follow this plan has, according to NIESR, cost HM Treasury £11bn.

The NEF plan by contrast follows Lord Turner’s suggestion to pay zero interest on a large block of commercial banks’ reserve balances, but continue to pay interest on remaining marginal balances.

This approach has international precedent: it’s how things are done in the Eurozone and Japan. NEF reckons that HM Treasury would save £57bn over the next three years if their plan is taken up.

Free money!

Where’s the catch?

Well, the NIESR plan is . . . perplexing. The authors admit that its implementation would lead to soaring yields and could disrupt the government bond market in sufficiently unpredictable ways.

They recommend that “a modest first step could test the size of such an impact”. In a world where a central bank forex dealer calling around for live price checks constitutes an intervention, this “modest first step” could end . . . badly?

And any scheme that forces an unplanned and fundamental reconfiguration of every commercial bank’s balance sheet would pose a variety of financial stability questions. It’s probably not a stretch to argue that implementing the plan may even have triggered a financial crisis.

Still, the plan would’ve led banks’ income to be £11bn lower and the government’s income to be £11bn higher.

Comment -


Errr... so if the BoE follows the market curve and bangs rates up to 3.4% pronto, HMT is on the hook for a big bill.
But most forecasters are saying that the market curve is over-cooked.
So the £11bn which lobbyists are using to generate headlines only exists if the BoE slavishly follows the OIS curve?


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Let me get this right....the bloke who can force through IR rises...can take out insurance against interest rate rises, but didn't


Both sides of that coin are so wrong !!!

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1 hour ago, HousePriceMania said:

Let me get this right....the bloke who can force through IR rises...can take out insurance against interest rate rises, but didn't

“War is peace.
Freedom is slavery.
Ignorance is strength.
Robbery is insurance”

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2 hours ago, HousePriceMania said:

Let me get this right....the bloke who can force through IR rises...can take out insurance against interest rate rises, but didn't


Both sides of that coin are so wrong !!!


Let me provide some detail.

Someone who used to work as a historian at the BoE has come come up with an academic idea that worked after WW2, when banks were smaller and British and the economy basically closed - capital controls.

Its not insurance, not in the way that most people understand.

Its a trade.

BoE forces - and I mean forces - banks to take on loads of BoE printed bonds. And the banks 'give' the BoE their assets.

The insurance is that the banks take the downside.

This is pure financial repression which stands a snowball in chance of being carried out - bear in this is thinktank and not the BoE.

The idiot at the thinktank has looked at the paper/concept and seized on it.

In an economy that is open, and currency that floats and banking system privately owned, this stands *NO CHANCE*

Its fucking insane, much more than QE.

This is the bloke - 


Hes dead. 

His plan was purely theoretically thought experiment.







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  • 2 months later...

An ft letter on this that I missed -

Letter: The Bank of England’s QE portfolio is next big story From Tim Young, Witham, Essex, UK Share on twitter (opens new window) Share on facebook (opens new window) Share on linkedin (opens new window) Share Save JUNE 17 2022 7 Print this page Focusing on the effect of the quantitative easing hedging proposal of the National Institute of Economic and Social Research on the quantity of reserves, John Whittaker (Letters, June 14) misses the 500lb gorilla in the room, which is the huge interest rate exposure involved in QE. By my estimate (an end-February update should be published by the Bank of England in the next few days), this is in excess of £1bn per basis point (0.01 per cent) on gilts yields, less than one-seventh of which would be hedged away under Niesr’s proposal. This exposure means that the rise in gilts yields so far this year will have generated a mark-to-market loss on the QE portfolio of around £100bn, much larger than the £11bn figure, representing the opportunity loss of not hedging, that generated so much media interest. Too many commentators dismiss such mark-to-market losses on the grounds that they may never be realised. However, unless gilts yields return to the historic lows at which much of the QE portfolio was acquired, the loss will be realised. It will happen either quickly as the gilts portfolio is sold down for quantitative tightening purposes or slowly via negative net interest flows, if the portfolio is held and allowed to roll off as the gilts in the portfolio are redeemed, over their remaining lives averaging 14 years. Naturally, the loss will grow if gilts yields rise further. Nor can positive cash flow and profit from earlier tranches of QE offset the losses, especially on the half of the QE portfolio acquired during the pandemic at an average yield of about 0.5 per cent. But for its HM Treasury guarantee, the QE programme — formally structured as the Bank of England Asset Purchase Facility Fund Ltd — is now almost certainly insolvent, and no private sector enterprise in that situation would be allowed to continue with such a risky operation. Little responsibility for losses on the QE portfolio can be attributed to Rishi Sunak, since the risk-sharing arrangements between the BoE and HMT were established before his time as chancellor. Moreover the UK is not alone in this predicament — all the major central banks, including the Federal Reserve and the European Central Bank, have done QE, although the BoE’s exposure is greater because gilts are of relatively long maturity. If government bond yields return to something like normal, all of these central banks will sustain losses on QE in the order of a few per cent of gross domestic product. As public awareness of the epic scale of this fiscal impact grows, I expect it to provoke a major international story. Tim Young Witham, Essex, UK

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