31–40 of 47 posts
Earlier quoted context omitted.
Would higher taxes be destabilising?
They’d mean less disposable income and less spending. Lowering taxes even further is the only way forward.
Earlier quoted context omitted.
They’d mean less disposable income and less spending. Lowering taxes even further is the only way forward.
Less spending would help inflation. More spending makes it worse. Lower taxes is madness right now
> 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…
You seem to misunderstand and think those people that promoted those things are already dead. They aren't. Its why they continue pushing for the bailouts. They've held onto power, and the cohort is starting to crumble.
You can't fire anyone in government, its a longstanding structural issue with why it underperforms in just about every way.
I 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?
They probably justified that they had to do it because once you get into a deflationary cycle it feeds on itself. There have already been a number of policy mistakes worldwide (ECB did the same thing early on). This is just a drop in the bucket.
Earlier quoted context omitted.
1) Pension funds (and other institutional investors) own government bonds. 2) They have also purchased risk/hedging products and posted these bonds as collateral. 3) As interest rates rise, the value of these bonds fall. 4) As the value of these bonds fall, these institutions are asked to post more collateral. 5) To come up with more collateral, they sell more of their bonds, dropping the price even more. 6) They are…
This is the only correct answer I'm seeing so far here. Article clearly states BoE is avoiding rolling margin calls that could get triggered this week. Right now it is all about bailing out pension funds. One other note: They could also be holding these bonds themselves on leverage. They could be asked to post cash as collateral for these bonds(which are now essentially risky assets).
The main problem, its now almost impossible to avoid extreme hyper-inflation (which inevitably will cause a repeat event but much worse) and when the mechanics force it back there will be a deflationary cycle (that feeds on itself).
There have been a lot of policy mistakes over the past two years. Selling more bonds in an environment of rising interest rates is what a fool would do.
BoE 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.
I 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?
Gallows humour.
Earlier quoted context omitted.
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?
If they don't rise fast enough you get stagflation where businesses not willing to shoulder the cost of governmental mistakes reduce their production and lay people off creating high unemployment in an inflationary environment. This however, is only a brief stay before deflationary forces put you into a deflation death-spiral.
Failing to raise interest rates, and increasing paper printing creates hyper-inflation. As the currency debases, costs rise in a cost-push inflation environment (starting at the producer level), and inevitably the division of labor breaks down with social unrest (Zimbabwe, Weimar).
Ray Dalio has published a book series on how historically these debt crises play out. Its been fairly accurate. Its a normal cycle, usually happening towards 100 years after a fiat currency is adopted, though that timetable can be faster with malfeasance and fraud.
> 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…
This is all by design. You seem to misunderstand and think those people that promoted those things are already dead. They aren't. Its why they continue pushing for the bailouts. They've held onto power, and the cohort is starting to crumble. You can't fire anyone in government, its a longstanding structural issue with why it underperforms in just about every way.
This is a comforting thought, but no. It isn't. These are complex, dynamic systems with emergent properties navigating a landscape which is itself complex and dynamic.