Bank of England begins emergency bond purchase programme to restore stability
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Re: Bank of England begins emergency bond purchase programme to restore stability
#2BoE had a superstar: https://en.wikipedia.org/wiki/Mark_Carney
Not sure what happened if he got ousted or what but that was a huge mistake on their part. They seem to be realizing their mistake now.
Re: Bank of England begins emergency bond purchase programme to restore stability
#3I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this.
Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
Re: Bank of England begins emergency bond purchase programme to restore stability
#4I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
My basic understanding is it will reduce the current price of government borrowing. Also they were concerned that existing gilts held by pension firms would be so devalued that they’d trigger some kind of mandatory sell-off (with the associated negative effects on the rest of the market).
Re: Bank of England begins emergency bond purchase programme to restore stability
#5I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
It's a move designed to affect market psychology mainly. Multiple central banks have concluded that QE at best contributes marginally to the reduction of long term interest rates. People want something to be done, and BoE delivers.
It also shifts the discussion from "what's causing the fall of the pound and the rise of long term rates" to "what will be the effect of this new round of QE?"
To get a better picture, take a broader view. This move comes as all of the world's currencies are falling against the dollar. Why?
This article might be helpful:
Re: Bank of England begins emergency bond purchase programme to restore stability
#6Wouldn't it be better for the treasury the BoE to be pulling in the same direction. Rather than try to outdo each other in their conflicting aims (or tactics)?
Re: Bank of England begins emergency bond purchase programme to restore stability
#7> The BOE decided to intervene to get ahead of a potential crisis that could have hit within hours. It was concerned collateral requirements on liability-driven investment strategies, such as those at pension funds, would have turned many into forced sellers of long dated gilts, according to a person familiar with the situation.
I often hear people complain about the end of defined benefit pensions, but this is what inevitably always happens. There will be essentially bailouts, printing billions, leading to inflation, weakening the currency. Why? Because someone made an irresponsible promise to someone 30 years ago knowing they won't be around when it hits the fan. And now we all have to rearrange out entire economic system to accommodate them. And these people are all gone by now, no one to hold responsible. What would responsibility even look like? Firing someone?
Re: Bank of England begins emergency bond purchase programme to restore stability
#8I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
It's a move designed to affect market psychology mainly. Multiple central banks have concluded that QE at best contributes marginally to the reduction of long term interest rates. People want something to be done, and BoE delivers. It also shifts the discussion from "what's causing the fall of the pound and the rise of long term rates" to "what will be the effect of this new round of QE?" To get a better picture, tak…
Can you explain what QE is and how long term rates are connected? Do you mean that the fall of pound is inevitably going to require UK banks to increase interest rates to make pound more attractive to investors?
And what's the problem with increasing interest rates? Is it that rising interest rates makes new businesses difficult to borrow money? And difficulty in borrowing money leads to shrinking economy?
Re: Bank of England begins emergency bond purchase programme to restore stability
#9I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
The banks and pension funds hold the assets. BoE will now buy these assets, driving up the price and helping the banks out (recapitalizing them).
This is the opposite of what you would do if you want to reduce inflation. You're inserting more money into the system and removing IOUs (debt). Originally BoE was concerned about inflation but now they're moving against what they deem a bigger threat, big banks and pension funds are in financial trouble
Re: Bank of England begins emergency bond purchase programme to restore stability
#10I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?
This is basically QE, the Bank of England is printing money to buy the long duration bonds since no one else will buy them due to expectations of rate increases. Check out 30 years US bond TLT, https://finance.yahoo.com/quote/TLT?p=TLT&.tsrc=fin-srch which have gone from 150 to 100 in one year.