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quantitative easing

Long term interest rates – the neglected tool in the monetary policy toolbox

I was recently fortunate enough to see a presentation by Phillip Turner from the Bank for International Settlements (BIS) on a paper he published earlier this year. ‘Benign neglect of the long term interest rate’ is a highly informative and interesting piece. In it he argues that after decades of the market determining long term interest rates the “large scale purchases of government bonds have…

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Rough cost of the Olympics – £9bn, US national debt – $15.8tn, Quantitative easing – £375bn. These numbers blow my mind. I know they’re big but I don’t really have a concept of how big. So I thought I’d try and put them into some context. I took a look at the national debt of the Euro’s peripheral countries and calculated how many gold medals each country would need to win to pay off their debt…

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What should Mervyn do with his QE gilts? Free finance.

Jim recently discussed the merits of officially cancelling the gilts bought back through QE, so I thought I would discuss another option that maintains the status quo through the Bank of England (BoE) simply rolling over the QE gilts into new gilts at maturity.

In order to understand the results of this process it is useful to re-examine how QE works.

Simply, QE is the willing exchange of gilts…

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If the government simply cancelled the £300 bn+ of QE gilts held by the BoE, who would be unhappy?

The UK sits unhappily at the very boundary of what debt burden is acceptable for a AAA rated economy.  If growth continues to disappoint, or if more austerity becomes socially impossible, the UK will be downgraded – and neither of these possibilities look very remote.

At the moment the UK public sector net debt to GDP ratio is about 63%, equivalent to about £1 trillion (these numbers exclude th…

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The M&G Inflation Conference

On Tuesday we hosted a conference to discuss the longer term outlook for inflation. Our guest speakers were Adam Fergusson, the author of the brilliant book “When Money Dies” about the Weimar Germany hyper-inflation, Andrew Sentance, the famously hawkish former MPC member, and Ken Mulkearn, the editor of the Income Data Services Pay Report. Our very own Ben Lord also gave an update on developme…

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Government bond returns and “back door” QE policy

Journalists and financial commentators have been kept very busy this year. Market participants and investors have clamoured for information on debt ceilings, credit ratings, and restructurings. 2011 looks like a year that will go down in history as one of the most volatile on record.

With that in mind, I thought it might be useful to focus on the actual returns within government bond markets o…

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Is the Bank of England the most profitable company in the world?

Well the answer is probably no.  Exxon Mobil for example made $19 bn last year, and its profits were over $40 bn in 2007.  We can also debate whether the Bank of England is a company anyway (it says so on the bank notes, but it was nationalised in 1946).

However, with gilt yields continuing their march downward we thought it would be interesting to put an estimate on the returns the Bank of Eng…

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MPC Minutes – Rate hike becoming ever more likely

This morning, with the release of the MPC’s latest minutes, we discovered that a further member of the committee voted for a rate hike at the last meeting. Spencer Dale voted for an increase in the base rate of 25 basis points. That now leaves the votes: 3 to tighten, 5 to stay on hold and 1 to further loosen monetary policy (Adam Posen is still calling for more QE). The general tone of the min…

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When Money Dies – Competition

We’ve just got hold of some copies of the newly reprinted book about the Weimar Republic’s hyper-inflation, When Money Dies by Adam Ferguson.  In 1923 the German mark was trading at 4,200,000,000,000 to the dollar, and the population was impoverished and reduced to barter to survive.  Only the creation of a rival, asset-backed currency brought the hyper-inflation to an end.  The book is an anal…

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UK money supply shrinks by most ever – QuitE a Dilemma

Today we have seen the preliminary release of M4 money supply (so-called ‘ broad money’), and it could potentially be a very important piece of economic data. December saw a 1.1% drop in the money supply, the largest monthly fall since records began in 1982. Expectations were for a 1% increase. Year-on-year, expectations were for an 8.9% increase, but this came in at a meagre 6.4%. M4 money sup…

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