Credit deflation and the reflation cycle to come.

[King Penda]

3 hours ago, Thorn said:

Do you still see house prices sliding DB

a debt jubilee might backfire if the little people think they will get it,im presuming its for countrys and conglomerates,im thinking of something else and its a bail in.i thought they had now got the paperwork in place for such a thing and didnt they test it out in cyprus.dont they say the builders thus house prices are the first to go down in a rescession and the first to start recovering comeing out

[Yellow_Reduced_Sticker]

16 hours ago, DurhamBorn said:

Just got a £15 lump of topside of beef joint for £3.50,5% steak mince £1 a pack instead of £4,packs of 4 chicken fillets £1,potatoes 20p,sprouts 10p,carrots,10p,cabbage 15p,3 pizza 30p,im cooking a dinner for 8 sunday after the football with the beef,it will cost £5 for 8 ,double cream 10p,just made some butter with it.

Freezer is rammed,thats 2 full,but im off to see one in the morning £40 for a big one on Gumtree,i need 3 now ,there was 5 lots of milk 10p i could of had,wont slip up with lack of space next time 

 

@DurhamBorn,  Just love these types of posts from ya, EVEN more than your knowledgeable Macro-Financial Cycles posts!

 

I did Tescos on Thursday, got their at 7:15pm (on my push-bike) they usually start around this time up to 7:30 pm, well bugger they done the fruit/veg...however there was a huge spillage, in the area and when i went over to que up at the freezer section, a friend that i know told me there had been fighting...yep romanians again!

 

So far at this store we've had a person get a knocked out tooth AND one person getting a BLACK eye!

 

Check this video out its Yellow Reduced Sticker Vultures are TAME compared to my local store!

https://www.youtube.com/watch?v=VoYCgcYql_Q

 

Anyway did well at the freezer got my BEST ever deal on British organic mince pork 3 packets, £5.50 reduced to 55p ...Plus salmon pack £4.40 to 40p Mackerel 2 quid down to 20p Puka pies 42p bacon, chicken, ham packs all @ 80% off...won't have to go now for a week or so as freezer is full! 

[Yellow_Reduced_Sticker]

16 hours ago, leonardratso said:

steady there, sounds steep. £5 for 8 people, surely you can include the dog and maybe next doors cat in that (not to eat of course, but to feed). Anyway, thats enough of me reading about your extravagant decadence, im off to the town square to see if i cant make a whole piece of bread from the crumbs left over by the pigeons that people have been feeding them today.

'old gil's gonna make it this time'

@leonardratsoJust loving this!

[leonardratso]

30 minutes ago, Yellow_Reduced_Sticker said:

 

@DurhamBorn,  Just love these types of posts from ya, EVEN more than your knowledgeable Macro-Financial Cycles posts!

 

I did Tescos on Thursday, got their at 7:15pm (on my push-bike) they usually start around this time up to 7:30 pm, well bugger they done the fruit/veg...however there was a huge spillage, in the area and when i went over to que up at the freezer section, a friend that i know told me there had been fighting...yep romanians again!

 

So far at this store we've had a person get a knocked out tooth AND one person getting a BLACK eye!

 

Check this video out its Yellow Reduced Sticker Vultures are TAME compared to my local store!

https://www.youtube.com/watch?v=VoYCgcYql_Q

 

Anyway did well at the freezer got my BEST ever deal on British organic mince pork 3 packets, £5.50 reduced to 55p ...Plus salmon pack £4.40 to 40p Mackerel 2 quid down to 20p Puka pies 42p bacon, chicken, ham packs all @ 80% off...won't have to go now for a week or so as freezer is full! 

15% fat.

My old man 'gawd rest 'is soul' was an ex hungarian pig farmer, as a result as kids our fridge and larder was aways full of euro meats and sweets/other food  from poland/france/germany/russia etc etc, very wide and varied, some was nice and unusual, some was awful but he liked it (like haggis), i remember one of his favourites was called 'lardo', it was basically a block of pig skin with the subcutaneous fat still attached and then cut off at the muscle, hell the stuff still had the pig hairs on the skin, he used to hold it over the gas hob to burn them off. Anyways i see 15% on fat on pork products but i reckon he was eating lardo at probably 99% fat, hahaha, he was a constant atkins diet without realising it. 

BTW check out the price of 'lardo', he considered it peasant food at the time (70's/80's), strange how stuff like this gets real expensive real quick when ok-yars get whiff of it.

 

[kibuc]

5 hours ago, MrXxx said:

But this is usually served at the beginning of the AST...only exception is 1. If initial AST is not renewed but allowed to continue thus becoming a Periodic Tenancy (tenant has to give 1 month, LL 2) OR LL failed to protect deposit and so cannot serve Notice to Quit until it is protected.

As of October 2015 you cannot serve S21 in the first 4 months of an AST.

 

Edit: and if the LL failed to fulfill deposit protection requirements (by protecting the money and serving prescribed info in time) then she's in way more trouble than just the inability to server S21

[DurhamBorn]

6 hours ago, Thorn said:

Do you still see house prices sliding DB

Yes,in the south by a lot,the north maybe not by a big percentage as you can get houses here at 1998 prices already.I could see decent 3 bed semis in the north going from £130k to £100k sort of levels.The south i expect we might see 40/50%.The next cycle should see prices going up less than inflation though as rising rates keep prices pegged back.

I dont really focus on houses much as i have no financial interest in if mine goes up or down,its a home and i dont intend to move.I really do feel for people though working hard and locking themselves into massive debt for terrible new builds on HTB so the government can fleece them with tax to pay for the benefit 30%.

[DurhamBorn]

3 hours ago, Game_of_Homes said:

Good find, thanks.

@DurhamBorn, this quote from the speech, seems to be perfectly in line with what you have been saying they will do;

 

Yep,its pretty much certain.These cycles always play out in advanced economies.We cant produce what we consume.That might not reverse all the way,but the direction of travel is changing.

[DurhamBorn]

2 hours ago, Yellow_Reduced_Sticker said:

@leonardratsoJust loving this!

Iv got a 22 air rifle and take it from me if i cant get any 75% off one week and supplies are getting low those big fat pigeons that visit my pond every day will be dinner.I can remember in the early 80s when my mates dad used to catch sheep with his lurchers and butcher them on the kitchen table.He said the government didnt mind handing tax payer money to big landowners,but wouldnt give anything to a steel works employing 500 men so he was getting even .Tough times those,pigeons wouldnt of stood a chance.

[No Duff (troll)]

8 hours ago, BurntBread said:

I'm still catching up with this thread, so forgive me if I'm out of sync.

......

Interesting thoughts.  Appreciated.

I separated off some so called assets, like the house I live in, as chattels and highlighted this as a necessary falsehood to prop up the current failing system.  People are sold such fake assets while the insiders run off with more real assets.  They are fake assets because they are encumbered because you have a mortgage and/or need a place to live.  At some point the wizard will step from behind the curtain to tell householders they have expensive places to live in but no wealth.

I then went on to try and differentiate the remaining possessions between assets and hard assets.  I did this to try and identify those assets (hard assets) which have value in a world where cash is trash.  In a increasingly degenerative world where the nature of money has deliberately been changed forever from that of a store of value, and hence as a measuring yardstick, what attributes now constitute an asset, a hard asset.  What assets would still represent wealth, for example in a world which was a 100% command economy with no money.  Bang or whimper, there is a seismic change under way similarly as profound as the Industrial Revolution, although one assumes completely different in nature from it.  As that forced the thinkers of the time such as Adam Smith to consider such things as value and wealth, so we must reconsider them today.

Your lead would just be a medium of exchange of limited inherent worth.  I would exchange assets into lead purely to pay taxes.  Additionally, assets can be more than something attractive to labour.  For example, the avoidance of hardship, pain or death, or the provision of pleasure.  I was trying to think of hard assets as something optionally beyond assets of purely exchange value for reasons to follow.  Assets including, but not exclusively so, skills, networks and the like.  In trying to define the attributes of a hard asset, I also wondered if a hard asset ideally needed some form of utility and further, whether it was actually this utility, rather than its (monetary) exchange value, that was a better arbiter of its value.

I read this thread and look at the concerns it raises in the round and not just at those assets to invest in so as to mitigate the effects because that approach may be no more than choosing between deckchairs on the Titanic.  One should really be preparing to be thrown into the ice cold sea.  The Weimar Republic experienced massive inflation.  Equities initially rose to somewhat maintain purchasing power but eventually succumbed.  People sold their chattels for pennies.  Interestingly, given your comments and those of Ricardo, etc, the first attempt at monetary reform involved money backed by land (Rentenmark).  Dollars retained comparative value but today we live in a more globalised and synchronised world.  Another example - a speaker once pointed to gold bar and said it had no value because it had no discounted future monetary stream like say a share.  Maybe, if one ignores the utility of the comfort it brings, etc, but what if such a stream had no worth - "for all the money in China".

I see a lot of personal hardship ahead and am seeking to prepare for it the best I can.  I need to identify those assets I should invest my labour, existing assets, and time in.  For me, these should include hard assets.  As background, I maintain an asset portfolio based on Harry Browne's Permanent Portfolio with the exception(!) that I have broadened out the gold allocation to include hard assets to make it more robust and permanent because it is still limited to a store of monetary value and is subject to counter party and confiscation risk (security of tenure surely being a required attribute of a hard asset).

Yes, I see secured unencumbered chattels such as a home, free and clear of debt, a vehicle, clothes, etc as the paramount priority.  Some, including the HRMC, see these as "wasting assets" but I see that as oxymoronic, although accept "proper" assets do incur carrying costs such as custodian fees.  I see assets as possessions surplus to chattels.  Interestingly, implicit in a prudent accountant demanding an asset be valued at the lower of cost or net realisable value, is the presumption of the supremacy of exchange.  But what about some land for the personal production of foods, a good reputation, a connected network of independent, supportive, and usefully skilled people, sources of emotional support, practical skills, resilience, clean information networks, and means of escape, etc.  These have utility now (comfort) but unfortunately may have even greater utility in the future.  They have perceived value to me.  But as means of monetary (or any other form of) exchange?   

I'm trying to be deliberately provocative to at least get myself out of thinking I must think in terms of A, B C because this is how the problem has been presented to me.  I may not know exactly what I'm looking for but I know it ain't no deckchair!

[BurntBread]

10 minutes ago, No Duff said:

I may not know exactly what I'm looking for but I know it ain't no deckchair!

Thank you for clarifying. I like the idea of wandering out, philosophically, in order to come back with knowledge you had never imagined existed (I've tried it myself, on several, much less important subjects), but I wonder if you can get to what you're after more directly?

I am thinking: come up with a list of possible future scenarios, and then think about what you should do now, to prepare for each. It's obvious from what you have written that you've done a lot of this already, but it may be easier to imagine strange, but concrete scenarios more easily than plumb the conceptual depths of assets and ownership.

The world has seen hyper-inflation many times, and also debt-deflations. If there is a currency collapse, what does that mean? Maybe various attempts by the government to keep the plates spinning (bail-ins for failing banks; extra taxes to fill holes in pensions or to keep the unemployed from starving). What happens if China's debt bubble implodes? I guess the first thing is a list of plausible "big events", and then to think through government responses.

Apologies if you're taking a deliberately perpendicular approach.

[Game_of_Homes]

http://www.taxresearch.org.uk/Blog/2018/06/22/the-new-funding-structure-for-the-bank-of-england-suggests-that-the-treasury-thinks-the-proverbial-is-going-to-hit-the-fan/

[No Duff (troll)]

17 minutes ago, BurntBread said:

....

Apologies if you're taking a deliberately perpendicular approach.

Nah, I'm hitting this b*gger from all angles!  Top down, bottom up, left and right!  Philosophy backed up with an allotment, solar panels, secured sources of supply, offshore funds, precious metals, practical skills, low cost lifestyle, networks, balanced portfolio (a bit of this and that), fundamentals of clinical psychology, electric transport of some sort (tbd), etc, etc.  QE, torrents of money, and the political economy have destroyed our clarity on value.  I focus on value borne out of utility.  I'm an economist so very comfortable with, indeed enjoy, the necessity of getting back to my old friends.  Money has ceased to be a fit proxy.  RIP money as wealth.

We really are at a point similar to that faced by the neo-classical masters.  They could see theirs all around them with mass movements from the countryside to the new cities, the slums, the emergence of smokestack industries, the workhouse, the incredible pace of technological change, the concentration of extreme wealth, the creation of the new rich, and so on.  It must have been such a profound time and that was the context in which so many from Locke through to Smith were challenged to consider everything from rights through to what we now call economics.  Ours is less physically noticeable, even insidious,  but equally profound.  It is time to step back from the transaction level of the latest scheme Hammond and the BoE have hatched, etc to look at the overall socio-economic context.  To tear up the rule book, as before, and......!    

[MrXxx]

4 hours ago, kibuc said:

As of October 2015 you cannot serve S21 in the first 4 months of an AST.

 

Edit: and if the LL failed to fulfill deposit protection requirements (by protecting the money and serving prescribed info in time) then she's in way more trouble than just the inability to server S21

Yes kibuc you are correct but as long as they serve it in time you still only have 4 weeks to go if it's an AST.....and as for protecting the deposit, if they don't its deep piggy poo....1_3 times deposit plus legal, as your previous LL found out!

[DurhamBorn]

13 minutes ago, Game_of_Homes said:

http://www.taxresearch.org.uk/Blog/2018/06/22/the-new-funding-structure-for-the-bank-of-england-suggests-that-the-treasury-thinks-the-proverbial-is-going-to-hit-the-fan/

Amazing isnt it,we told them 18 months ago that they would be printing £500 billion and the Fed around $10 trillion.The liquidity profile at this stage of the cycle made that very likely.What will happen though is commercial banks wont be doing the lending as everyone thinks looking at the structure,there will be little demand,it will be government.Gilts will likely do ok,but it depends where the shocks hit.

On another note im buying New Gold Inc on monday to add to my PM miner holdings.

[Game_of_Homes]

8 minutes ago, DurhamBorn said:

Amazing isnt it,we told them 18 months ago that they would be printing £500 billion and the Fed around $10 trillion.The liquidity profile at this stage of the cycle made that very likely.What will happen though is commercial banks wont be doing the lending as everyone thinks looking at the structure,there will be little demand,it will be government.Gilts will likely do ok,but it depends where the shocks hit.

On another note im buying New Gold Inc on monday to add to my PM miner holdings.

What is the benefit of buying the miners rather than the actual PM?

[DurhamBorn]

1 minute ago, Game_of_Homes said:

What is the benefit of buying the miners rather than the actual PM?

Take Harmony Gold.With gold where it is now they make about $260 million profit.They are valued at a PE of about 3.8.If gold goes up $200 or around 16% Harmony would see its profits go to $520 million,up 100% or on a PE ratio of 1.9.

Of course the opposite happens on the way down.

[No Duff (troll)]

39 minutes ago, Game_of_Homes said:

http://www.taxresearch.org.uk/Blog/2018/06/22/the-new-funding-structure-for-the-bank-of-england-suggests-that-the-treasury-thinks-the-proverbial-is-going-to-hit-the-fan/

Good stuff.  Particularity liked the strap line "Richard Murphy on tax and political economy" - he gets it.  Apologies, saw this after I posted a comment about stepping back from such things.  Of course we should still stay on top of them, and also use them as fuel to propel us ahead of what's coming.

[No Duff (troll)]

25 minutes ago, DurhamBorn said:

The liquidity profile at this stage of the cycle made that very likely.What will happen though is commercial banks wont be doing the lending as everyone thinks looking at the structure,there will be little demand,it will be government.

So so spot on.  Sounds like the banks just won't have the money with a threatened capital base.  And all the implications of the government taking over from the "free" market in deciding who gets what.  There's already quite a roll call for that all the way up to.....Venezuela today.

Friends In Low Places - Garth Brooks (The Hits)

'Cause I've got friends in low places 
Where the whiskey(!) drowns 
And the beer chases my blues away 
And I'll be okay 
I'm not big on social graces 
Think I'll slip on down to the oasis 
Oh I've got friends in low places.

[DurhamBorn]

3 minutes ago, No Duff said:

So so spot on.  Sounds like the banks just won't have the money with a threatened capital base.  And all the implications of the government taking over from the "free" market in deciding who gets what.  There's already quite a roll call for that all the way up to.....Venezuela today.

Friends In Low Places - Garth Brooks (The Hits)

'Cause I've got friends in low places 
Where the whiskey(!) drowns 
And the beer chases my blues away 
And I'll be okay 
I'm not big on social graces 
Think I'll slip on down to the oasis 
Oh I've got friends in low places.

The consumer is tapped out,there will be no solvent people who want to borrow.The governments will need to get velocity moving.QE kills velocity because it avoids the economy and goes into assets.The next cycle will see velocity get off the floor and become a problem down the line.The QE will be going direct into the economy.

The model we see is roughly this.Under QE the money flows to the assets people think only go up,cant fail,everyone else is buying.Houses,tech stocks,stocks that seem to have rock solid markets.

In the next cycle (or maybe i should say this cycle now) the money will not go to people to invest,it will go into certain sectors of the economy and then to their employees and share holders.

 

[Band]

33 minutes ago, DurhamBorn said:

The consumer is tapped out,there will be no solvent people who want to borrow.The governments will need to get velocity moving.QE kills velocity because it avoids the economy and goes into assets.The next cycle will see velocity get off the floor and become a problem down the line.The QE will be going direct into the economy.

The model we see is roughly this.Under QE the money flows to the assets people think only go up,cant fail,everyone else is buying.Houses,tech stocks,stocks that seem to have rock solid markets.

 In the next cycle (or maybe i should say this cycle now) the money will not go to people to invest,it will go into certain sectors of the economy and then to their employees and share holders.

  

Thing is what you are suggesting would involve the govt and BoE having a plan other than inflating house prices and giving people cheap money to buy Chinese shite.

Nothing i have seen over the last 20 years suggests they have the ability or competence to come up and then see through such an idea.

One way or another house prices will meet this money.

[Thorn]

10 minutes ago, Banned by HPC said:

Thing is what you are suggesting would involve the govt and BoE having a plan other than inflating house prices and giving people cheap money to buy Chinese shite.

Nothing i have seen over the last 20 years suggests they have the ability or competence to come up and then see through such an idea.

One way or another house prices will meet this money.

My instinct is that DB is on the button.

About 6 months ago I heard a BBC Radio 4 late night show discussing The Magic Money Tree which is an actual laptop in a room in the Bank of England. 

They were allowed to interview the lady who just creates the money and feeds it to their arranged financial institutions. 

And IIRC I think that BOE Andy Haldane was interviewed too and he specifically dropped the Big Hint that next time QE wouldn’t just go to feed a house and asset  price increase frenzy but would be more aimed at the productive economy- he said more of a “QE for the people”.

It really all just made me swear a lot at the bastard radio.

[sancho panza]

On 22/06/2018 at 12:57, No Duff said:

At a arguably slight tangent as it were.  When QE first appeared I said right away "cash is trash".  I made two mistakes - my conditioning prevented me from internalising this enough to take the full required action but, far worse, I did not go on to think what would replace it.

I failed to get my head round the imopact of QE post 2008 due mainly to moral outrage blurring my judgement.

On 22/06/2018 at 13:20, No Duff said:

Furthermore, pensions are the Achilles heel of the corporates because it's socio-economic and that's fatal.  It's a race for the corporates to divest themselves of this ticking bomb (the final salary ones, etc) before they blow up under the general economic strain to be placed upon them.  Has anyone looked at the trend in corporates shifting their pensions to the insurance companies?  Blame these new pension providers, even let them fail, but above all put it all at arms length from the body corporate.  It's somewhat laughable when you hear pension deficits are being eroded by an improved equity market.  No thought about that highlighted fragility.

Regarding your point about the pension firms themselves, there has been some talk that a key driver for rate rises in the US is due exactly to this exposure.  That is an attempt to move back to a more sound funding model, especially given the enormous number of new daily US retirees.  The collapse of pension firms would be socially and politically catastrophic.  The new Great Depression, only pensions not jobs.  In that sense, they are also the Achilles heel of governments.      

On ToS we had an excellent deabte on why teh Fed was hiking.The main conclusion was to maintain Dollar hegemony.However,I think the looming pensions crisis could be alleviated  if they get rates higher.

On 22/06/2018 at 14:13, stokiescum said:

i want my kids to be able to buy at sensable levels and over 20 years not 40 plus,none are in debt has such yet.i will be brutaly honest i have little sympathy with people who have loaded up on debt and have no plan b should interest rates rise,but my attitude does in fact make me look like a twat.

Couldn't agree more.Ideally I'd like my kids buying

On 22/06/2018 at 16:21, No Duff said:

......Or nothing!  V is key.  It's huge.  Again, something everyone's forgotten about but it will have it's day.  With the prevailing amount of leverage and general financial b'tardisation, it will be epic.  And what causes changes in V?  Sentiment!  Not finance, sentiment!  It's how you put the socio in socio-economics.  Unlike the other parts of the general equation, it's something the technocrats cannot ultimately control (even in a cashless society).  You have the group, then you have the rabble, and then you have V.  Watch V, understand what underpins V, and identify the disruptors that will give V life, if you wish to get ahead of the game.

I don't know whether you read the other thread on ToS but we had some good discussions on velocity and the role it's played in this downturn.My view has long been that the neo classicals at the CB's assumed V was a constant and that by doubling the money supply they could double GDP.The reality of driving down rates was that they completely failed to understand that driving rates lower would result in many savers saving more and that the only people who would want to borrow would be the people who will never pay it back.

As you allude the solution to our problems is devising a monetary policy that drives V higher not lower.

 

 

13 hours ago, azzuri82 said:

Agreed. Me and my missus had a falling out the other day as her mobile phone contract (which expired 2 years ago!) is still being charged to her at £30/month when she could be getting the same level of tariff on a sim-only deal for £10/month. At the same time we're considering spending £300k on a house.

It's the big decisions in life you need to get right. Yes, lots of little bad decisions in life add up, but it's the big ones that really end up costing you down the road. Taleb writes constantly about such things, lots of little mistakes you can recover from, it's the big ones with massive tail risks you need to be wary of.

Taleb worth a read is he?

6 hours ago, DurhamBorn said:

Yes,in the south by a lot,the north maybe not by a big percentage as you can get houses here at 1998 prices already.I could see decent 3 bed semis in the north going from £130k to £100k sort of levels.The south i expect we might see 40/50%.The next cycle should see prices going up less than inflation though as rising rates keep prices pegged back.

I dont really focus on houses much as i have no financial interest in if mine goes up or down,its a home and i dont intend to move.I really do feel for people though working hard and locking themselves into massive debt for terrible new builds on HTB so the government can fleece them with tax to pay for the benefit 30%.

My interest in houses stems from the fact that roughly 70% of UK wealth is stored in housing.

Housing as an asset/liability underpins much of our banking system.A downturn in asset prices could have a disproportionate effect on credit creation going forward

5

2 hours ago, Game_of_Homes said:

http://www.taxresearch.org.uk/Blog/2018/06/22/the-new-funding-structure-for-the-bank-of-england-suggests-that-the-treasury-thinks-the-proverbial-is-going-to-hit-the-fan/

Super find.Thank you.

I thought about his while working today and read somewhere that whilst it does set theBboE up as a stand alone bank,it alos takes away the Treasury back stop for BoE losses.

Anyone other views ?

'I stress, this is a  first reaction to a quite complex set of new measures which superficially, and as reported on all the media, make no sense at all.  Unpacked as I present the above they do, however, have a coherent logic,  albeit that the logic in question very clearly suggests that the Treasury and Bank of England are in practice planning for a hard Brexit and a consequent credit crisis for which they are creating the possibility of emergency liquidity funding for commercial banks.

If I am right then I also offer three other ideas. The first is that the Treasury so lacks confidence in the government that it is outsourcing the saving of the economy. Second, this is dangerous: the Bank will, no doubt,  deliver another emergency package that will favour the City and those who are associated with it.  Thirdly, democracy is imperilled once again.

1 hour ago, DurhamBorn said:

The consumer is tapped out,there will be no solvent people who want to borrow.The governments will need to get velocity moving.QE kills velocity because it avoids the economy and goes into assets.The next cycle will see velocity get off the floor and become a problem down the line.The QE will be going direct into the economy.

The model we see is roughly this.Under QE the money flows to the assets people think only go up,cant fail,everyone else is buying.Houses,tech stocks,stocks that seem to have rock solid markets.

In the next cycle (or maybe i should say this cycle now) the money will not go to people to invest,it will go into certain sectors of the economy and then to their employees and share holders.

 

Absolutely.To expand credit you need willing borrowers and I fear with where we're headed the poers that be have got it plain worng.

As in my reply to No Duff.

The hope in 2008 was to get he savers spending and all they did was get the savers saving more and living frugally.The bulk of the credit demand came from consumers with poor capital bases who've levered up some more which has provided the junkie with a few more hits but has done little to deal with the underlying problem-declining velocity.

[sancho panza]

https://wolfstreet.com/2018/06/21/next-central-bank-qe-unwind-bank-of-england/

'Next Central Bank Puts QE Unwind on the Calendar

by Wolf Richter • Jun 21, 2018 • 65 Comments

The end of an era spreads.

Markets were surprised today when the Bank of England took a “hawkish” turn and announced that three out of nine members of its Monetary Policy Committee – including influential Chief Economist Andrew Haldane, who’d been considered dovish – voted to raise the Bank Rate to 0.75%, thus dissenting from the majority who kept it at 0.5%. This dissension, particularly by Haldane, communicated to the markets that a rate hike at the next meeting in August is likely. The beaten-down UK pound jumped.

But less prominent was the announcement about the QE unwind. Like other central banks, the BoE heavily engaged in QE and maintains a balance sheet of £435 billion ($577 billion) of British government bonds and £10 billion ($13 billion) in UK corporate bonds that it had acquired during the Brexit kerfuffle.

Before it starts shedding assets on its balance sheet, however, the BoE wants to raise the Bank Rate enough to where it can cut it “materially” if needed, “reflecting the Committee’s preference to use Bank Rate as the primary instrument for monetary policy,” as it said.

In this, it parallels the Fed. The Fed started its QE unwind in October 2017, after it had already raised its target range for the federal funds rate four times.

The BoE’s previous guidance was that the QE unwind would start when the Bank Rate is “around 2%.” Back in the day when this guidance was given, NIRP had broken out all over Europe, and pundits assumed that the BoE would never be able to raise its rate to anywhere near 2%, and so the QE unwind could never happen.

Today the BoE moved down its guidance about the beginning of the QE unwind to a time when the Bank Rate is “around 1.5%.”

The Fed’s target range is already between 1.75% and 2.0%. The Fed leads, other central banks follow. And by August 2, the BoE’s Bank Rate may be at 0.75%. From that point forward, the QE unwind may only be three rate hikes away.

“Any reduction in the stock of purchased assets will be conducted at a gradual and predictable pace,” it added, very Fed-like.

The thing is, there’s an inflation problem in the UK. Inflation has been above the BoE target of 2% since February 2017, hitting 3% and beyond for five months in a row late last year and early this year. This has squeezed real household incomes (adjusted for inflation), crushed the savings rate, and hampered consumer spending.

The BoE tolerated this after the Brexit referendum. But recently it has gotten nervous about it. And now it’s time to do something. The BoE’s statement on consumer price inflation:

CPI inflation was 2.4% in May, unchanged from April. Inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate.

And its statement on wage inflation, which is what central banks are really allergic to:

Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.

This is how it fits into the “ongoing tightening”:

The Committee’s best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target [down to 2%] at a conventional horizon.

And then, when it explains what this means for the future, there appears the Fed’s favorite word again, “gradual”:

All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

The BoE is the second major central bank that has put the QE unwind on its schedule, after the Fed has already plowed ahead with it. By contrast, the ECB is still engaging in QE, but has been tapering it, and will end it this December, with rate hikes likely to begin next year. But a QE unwind won’t be on its schedule until after’s Draghi’s shelf life expires in October 2019.'

[XswampyX]

12 minutes ago, sancho panza said:

The BoE is the second major central bank that has put the QE unwind on its schedule, after the Fed has already plowed ahead with it.

You waht?

Quote

Mark Carney’s Bank of England has new powers that allow it to raise a war chest of more than 750 billion pounds ($1 trillion) -- without permission or protection from the government.

Under a new financial framework, the bank could unilaterally lend more than that amount if it needs to step into action to keep the banking system -- and the economy -- on an even keel.

The change further embeds the expanded crisis-fighting role of the central bank since the 2008 recession, while it could also enhance its ability to deal with upheaval related to Brexit. The issue of banking -- and London’s access to EU markets -- is set to be one of the trickiest parts of the withdrawal negotiations. And if Brexit goes badly, the bank doesn’t have much room to cut interest rates because they’re already very low.

The announcement of the change came hours after the BOE’s latest monetary-policy decision, in which Chief Economist Andy Haldane unexpectedly voted for an interest rate increase, raising the chance of a hike at the next meeting in August. The BOE also amended its guidance on the future sale of assets bought under QE.

Haldane joins the hawks, BOE amends guidance on QE unwinding

Who writes this garbage? https://www.bloomberg.com/news/articles/2018-06-21/boe-to-get-1-6-billion-as-carney-beefs-up-bank-s-crisis-powers

Quote

In a further surprise move, policy makers also voted to change the guidance on when they will consider reducing the stock of debt purchased in the bank’s quantitative easing program. Having previous said they wouldn’t consider selling the bonds until the key rate reached 2 percent, they’ve now cut that to 1.5 percent.

It means absolutely nothing.

I was going to consider stopping drinking beer at 20 pints but now I'm going to consider stopping drinking after 15 pints. Consider. 

[No Duff (troll)]

1 hour ago, Thorn said:

My instinct is that DB is on the button.

About 6 months ago I heard a BBC Radio 4 late night show discussing The Magic Money Tree which is an actual laptop in a room in the Bank of England. 

They were allowed to interview the lady who just creates the money and feeds it to their arranged financial institutions. 

And IIRC I think that BOE Andy Haldane was interviewed too and he specifically dropped the Big Hint that next time QE wouldn’t just go to feed a house and asset  price increase frenzy but would be more aimed at the productive economy- he said more of a “QE for the people”.

It really all just made me swear a lot at the bastard radio.

I listened and reacted the same when he explained the majesty of the BoE plan was simply to inflate house prices to make people feel wealthy and spend.  That was the extent of the intellectual awe of our betters.  FFS.

Time to take DBs lead and sniff around to see who the city white shoe boys are front running.

Sounds from DBs comments like the peak of the dot com bust where the money was not in more tech but Walmart and co.  Infrastructure and builders this time?  What else?

Sounds like the BoE is becoming a version of the European Investment bank, backstopping infrastructure companies in the government's favour. 

Maybe some funds will be used for a house building shock and awe as well as infrastructure plays. 

All good stuff for a general election.