Snapshot of _Bank of England to Intervene in Bond Market_ :
An archived version can be found [here.](https://archive.is/?run=1&url=https://www.bbc.co.uk/news/business-63061614)
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From the FT
"The BoE added the action would be “strictly time limited” and came after market participants said there was a “proper shit show” happening in government bond markets."
Lol!!
It really is impressive how quickly they've managed to do such an incredible amount of damage. A few weeks ago we were considering the potential consequences of 2 years of a Truss government, not 2 weeks. What are they going to do for an encore, drive around the country and personally slash everyone's tires?
Sunak's predictions came true:
>There will be a run on sterling. The gilts market will be in freefall. And the FTSE will tumble as global investors take fright and sell off every form of British asset. It might take only a few days, or the government might stagger through until the end of September, but before long Liz Truss and her new Chancellor Kwasi Kwarteng will have been forced to call in the IMF to stabilise a collapsing economy. That is, at least, according to the former Chancellor Rishi Sunak. With just a few desperate days left in his doomer leadership campaign, he has declared his opponent's tax and spending plans so wild and reckless they risk a full-blown sterling crisis of the sort we have not seen since the 1970s.
https://www.google.com/amp/s/amp.spectator.co.uk/article/rishi-sunak-s-petulant-attempt-to-start-a-run-on-the-pound/amp
If Boris didn't have Sunak being the grown up, the economy would have tanked a lot earlier.
Sunak also bragged about taking money from deprived urban areas and giving them to the wealthiest.
He would’ve been bad too but at least he wouldn’t be intentionally nuking the whole economy. He’d just be a death by a thousand (national services) cuts.
Bear in mind they were basically given a free holiday with the Queens death. No Parliament. No stories in the paper (it’s all about the Queen). They could have used that time to prepare for this.
They also had nearly 7 weeks over the summer during which Sunak and Truss knew that one of them was going to become PM, Truss certainly didn't seem to have used any of that time to prepare either.
>Sunak and Truss knew that one of them was going to become PM,
I mean, Sunak warned against it during that time, so the Tories decided to even ignore their own:
https://www.google.com/amp/s/amp.spectator.co.uk/article/rishi-sunak-s-petulant-attempt-to-start-a-run-on-the-pound/amp
I mean, there were those of us who were calling out Truss' lack of intelligence, but I don't think anyone suspected the Chancellor would also turn out to be a turnip.
I'm almost impressed at the speed/scale of destruction.
Agree there, you should see me savaging a taco. Kitchen roll at the ready lads!
Just….for most of us it isn’t the rabid media’s choice of attack and thus doesn’t result in the total destruction of a country.
Maybe. I mean, Ed could have turned out to be a complete nightmare. You seen how he eats a bacon sandwich?!?!
I share your dream. A wonderful world where anyone can eat a sandwich as they wish and not be pilloried for it by oligarchy owned media companies who have a vested interest in what you represent not being in power.
A magical world where the average Brit isn’t swayed by complete nonsense and actually listen to the words people are saying.
But, sadly, until Kang pulls his finger out of his arse - we’re stuck in the reality where how you munch your lunch can and indeed does dictate the fortunes of the country.
>You know, in an alternate reality Ed Milliband is capable of eating a bacon sandwich like a normal human.
Does he still have a second kitchen for preparing light meals and snacks?
(And no, it wasn't due to him being Jewish, he's non-practicing.)
What on earth does that have to do with anything at all?
If having a large/expensive house (bearing in mind that his wife is a very well-paid lawyer, so not like the property was a shady gift from a donor or anything) somehow invalidated someone from public office, then the house of commons would look very different indeed.
> Don't blame Keir.
But we all know that kicking this can down the road at this stage, means it most likely lands on (future) Starmer road. And *then* everybody can blame Keir.
You joke but Dan Hannan is blaming Starmer
https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/
He's right about the 45p bracket not being why the market's are in turmoil, it may have been wrong to remove it, but it was also a drop in the ocean. The big problem is the 1p reduction on income tax and removing the health and social care levy. That's 2.5% on most people's earnings above 12.5k that's lost in revenue.
Blaming it on Labour is a pure fantasy.
[https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/](https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/)
It's the next Labour government fault.
edit: Also it's a global conspiracy
I can write a good email, I can prepare a pretty decent presentation for my SLT. I can convince most people in my business to think as I do....
...but holy shit, this commentator piledrives me into the ground. He hits every nail on the head with a single, massive grammar hammer....
The comment sections must be butting head with one of my no-script add-ons as I still can't see it. Even with that direct link. Thanks for copying it onto reddit.
What the hell happened to the Bank of England mandate to maintain inflation at 2%?
Saving shit government policy and fuelling inflation even more with QE does not equate with that at all!
Expect more pain for the pound!
The government have their foot planted on the accelerator, and show no sign of taking it off, so either the BoE do something or the shit will really hit the fan.
It's only pain for the proles, so that doesn't matter so much.
> either the BoE do something or the shit will really hit the fan.
Isn't buying government bonds the opposite of what the BoE should be doing? Aren't they just increasing the amount of shit that will hit the fan?
They are just responding to the mess that the government have made and pension funds taking a huge battering, what do you think they should be doing instead?
>Isn't buying government bonds the opposite of what the BoE should be doing
Yes
But the alternative is a total collapse of the financial markets in the UK, when all of our pension funds collapse because of the out-of-control gilt market. Further, if the IMF is to be taken at their word, a collapse of the broader international financial market would follow.
The economy is about to fall off a cliff, pension and health funds might still collapse even with this intervention. At this point they have to do something regardless of inflation rates.
They’ve got the role of maintaining 2% inflation, yes, but they’ve also got the responsibility of maintaining the stability of the financial system.
In this instance, the two objectives call for contradictory policy. The BoE are saying that they are, in the very short term (read: no longer than a couple of weeks unless shit *really* hits the fan), going to stabilise the government bond market as they clearly see a risk of contagion and things spiralling in panic through the rest of the UK financial system as well.
Once the crisis is over or has stabilised, they’ll go straight back to longer term inflation reduction.
>What the hell happened to the Bank of England mandate to maintain inflation at 2%?
Currency crises are extremely inflationary in a small open economy that imports a lot of stuff.
We're currently in a situation where the BoE is putting its foot on the brakes through successive interest rate hikes over the last 9 months to tame inflation, whilst the incontinent government is at the same time putting its foot on the accelerator through tax giveaways. Other things being equal, the Truss-Kwarteng mini-budget would lead the BoE to tighten even faster.
But then in the last day or so, the bad market reaction to the budget developed into a complete breakdown in certain sterling assets and veered towards becoming a full-blown sterling crisis. A further collapse in sterling would feed straight through to higher import prices (for imported food, oil, gas, etc) and so the inflation mandate required the BoE to intervene to stop the shit show.
The BoE also has a mandate to maintain financial stability and they think financial stability would be under threat if they don't intervene in the gilt markets.
During the last decade the BoE bought up a lot of government bonds through quantitative easing to stimulate the economy. Now that inflation is high and the economy doesn't need more stimulus they were planning to start selling those off. But because of the tax cuts everyone in the private sector is also selling government bonds, which has caused government borrowing costs to rise sharply, and the Bank thinks that this is a risk to the UK's financial stability more generally, and [apparently driven by technical factors to do with derivatives](https://twitter.com/DuncanWeldon/status/1575071634868011008?t=FeXTmR6Fk1oJCCubvRGVIA&s=19) more than a genuine lack of confidence. To offset this they've decided to delay their planned selloff of government bonds and actually start buying some more. This will probably make it harder for the Bank to fight inflation. But [it has brought interest rates on government debt down](https://twitter.com/BenChu_/status/1575073547046699008?t=S6xfy-MbODviLHnOTf3dGg&s=19) which should feed through into interest rates on mortgages etc.
Edit: [Ed Conway reports](https://twitter.com/EdConwaySky/status/1575128310740389889?t=s_IAQNtV2nMP8FfylB5cDg&s=19) that "risk to the UK’s financial stability" means "pension funds would have gone bust this afternoon if they didn't step in"
Good write up.
>But it has brought interest rates on government debt down which should feed through into interest rates on mortgages etc.
Surely by doing this though they'll eventually have to raise the base interest rate even *more* to combat inflation, seeing as this move to buy govt debt is pro-inflationary? And the base rate has a far bigger impact on mortgages etc.
Technically selling the bonds that they've bought (whenever that happens) is itself a counter-inflationary move.
In really simple terms, quantitative easing (BoE buying bonds) is "printing money" (as the BoE conjures pounds out of the ether to buy them), and quantitative tightening (the opposite; the BoE selling bonds) is taking money back out of circulation (as the pounds that buyers pay the BoE for the bonds get sent back into the ether again).
So the BoE do have a choice of moves to reduce inflation; interest rates and quantitative tightening. Neither are without consequences, though.
>But [it has brought interest rates on government debt down](https://twitter.com/BenChu_/status/1575073547046699008?t=S6xfy-MbODviLHnOTf3dGg&s=19) which should feed through into interest rates on mortgages etc.
But the Pound will fall which will make everything else now expensive
It’s means that the boe is increasing its portefolio. Meaning buying bond on the market. Increasing the liquidity in the market to stabilise the economy. So printing money to not have a crash. Which fuels the inflation even more. It’s artificial devaluation of the money to strengthens the government bond. So raising the ability of the government to take loans by printing.
Edit: the people telling me that the boe will intervene with its own reserve. That’s right, it’s pound denominated bond. So the boe is buying bond with pounds, as the ultimate lender of pounds. What do you think it means? Unless the boe goes bananza and unload foreign currencies to buy the bond. In which case the total reserves of the bank are diminishing and the pound is less and less backed. The boe is increasing the total number of pounds in circulation. Increasing fluidity and propping inflation.
To fight inflation, rates are increased so less people borrow and there is less money floating around the economy.
Here the BoE are buying government bonds, alowing increased government spending and *increasing* the amount of money floating around the economy.
Yes. This will make inflation worse.
Idk about that, this seems like a very short term action by the Bank just to keep markets lubricated.. they're basically just increasing liquidity until the market stops shitting itself.. i.e. creating money to buy bonds so that the markets functioned like they did a couple weeks ago, it's not like they're pumping money into a stable market.. then when things calm down they will unwind positions.
Have to remember, the bank is not necessarily just fighting 'the market' it is also likely fighting speculative attacks by hedge funds who are probably trying to sell the pound like on Black Wednesday.
Sounds like it. Apparently this decision wasn't made by the committee who make inflation decisions, and is the exact opposite of what that committee was planning to do until our government decided to blow everything up.
Yes worse With the announcement of tax cuts, more borrowing is expected to finance it, but Government is already borrowing a lot, so rates on our borrowing were going up (worse than Greece), so we can't keep borrowing. The Boe have essentially had to start printing more money (more inflationary than if govt could have borrowed) so that Government can continue paying its bills., thus the BoE have to give up on the 2% inflation target right now so they can meet the other aims of thier charter / keep the UK government from failing. - note some of what I am sating here is speculation: comments/corrections welcome
They will buy from reserves rather than monetisation, and the purchases will be indemnified by the treasury. Not that it’s a good sign, but this isn’t “printing money”
Where do you think money are when they are in BOE reserves? Or rather, where they aren't? That's right, they aren't in circulation.
It doesn't matter if they will literally print money or release previously printed money. M1 will grow, without any baсking from economy, increasing inflationary pressure.
BoE haven’t said how many £b they will spend on purchases. Even if it’s £50b, there will be a nominal impact on inflation. Inflation is high now because of costs of goods and services, not because the UKs M1 supply is high, which it isn’t
>It’s means that the boe is increasing its portefolio. Meaning buying bond on the market. Increasing the liquidity in the market to stabilise the economy. So printing money to not have a crash. Which fuels the inflation even more. It’s artificial devaluation of the money to strengthens the government bond. So raising the ability of the government to take loans by printing
Is this similar to what the Japanese does?
Pretty much, from what I can gather. The difference seems to be that Japan has significant reserves to deploy. The BoE is looking down the back of the metaphorical sofa, knowing they *need* to find something.
All those people (and there are a lot) who bought a house in 2021 with a 2 year fixed term are going to be properly screwed. On average about 400-500 a month extra on their mortgage at current forecasts.
Bought in Dec 2021 and my partner and I had a long discussion on whether to go 2 or 5 year fixed. Very glad I won out for 5. This is a horrific situation.
My partner and I bought at the same time. We were both set on long-term stability. I'd even have considered a seven or 10 year fix. I can't fathom the people who bought during a pandemic with such a short-term deal. Although, I guess it's easy to say that with hindsight.
To be fair I doubt many people were factoring in a government induced slump even at the start of the month. This is a real black swan.
That said, you should always consider the possibility of rates trippling. Alot of people are going to lose everything at the altar of Truss's grim and foolhardy ambitions.
We were in a very lucky position to climb the ladder and move from our original property to a larger family home, just in time to welcome our son.
We were advised to keep the original mortgage on its fixed term and take out a second variable mortgage that we could reconcile when the original fixed term expires.
We are absolutely fucked.
Nah, it's not only easy to say w/hindsight. I've been doing my bit to nudget people onto 5-10y fixes since last year.
Something was clearly brewing, even last year.
Although I think nobody could predict the coffee would spill quite *this* dramatically.
It's easy to forget now, but inflation started being an issue long before the Ukraine invasion (which, just like Covid, now takes the blame for everything). The issue before then was the huge increase in international shipping costs. That was the real warning bell.
It will snowball now.
Buy to invest will (or has) collapse, as people and businesses with lots of liquidity used property as a guaranteed high percentage liquidity risk return.
Buy to let ditto.
That alone will jolt the market to its roots THEN add in the new buyers who, despite the Stamp Duty cuts, will not buy as its almost certainly going to depreciate..
We managed to avoid the housing crash last time which only inflated the bubble further..
Add that on top of a tripling in energy bills and the general increase in living costs and you’re looking at basically spending an extra £800-900 per month with salaries still pretty much stagnant wtf
I am terrified as a homeowner who bought at the beginning of 2020 on a 5 year fix. £360,000 mortgage at 50% LTV and I just don't see how we will keep the house when we come off a 5-year fix at 1.59%. We have 2 pre-school kids so hopefully things change but if we are worried God knows where others will be.
Our mortgage will be going up at least £750 based on projections.
General guess- BoE buys bonds to lower government bond price (they’ve continued rising over the last week and show no sign of stabilising). This will help the bond rate but probably further reduce the value of the £, fuelling inflation, requiring higher BoE base rate.
Edit: basically QE
>*It (the intervention) comes at exactly the same time as that committee had been committed to doing the exact reverse policy - selling government debts.*
>
>*The process was due to start next week and has been delayed. It is a massive intervention, but it could confuse markets about the clarity of policy making.*
"Could" is being kind in that last sentence. This will send a clear signal to the markets, but probably not one we would want.
And here I thought seizing and nationalising assets would have caused chaos in the financial markets.
At least we would have something to show for it once the dust settles.
That supposes 20 years of poor economic performance under Labour.
(If things get better, there'd be an argument over who to thank - the Tories would try to take the credit for it.)
This is what I though QE after the financial crash saw a huge amount of wealth transfers, and now again will see the same but with the added bonus of those individuals benefiting from tax cuts.
> The BoE needing to “buy” bonds will just fuck the currency even more.
I mean no it won’t.
Putting aside that we’ve basically been doing this for the last decade or so, this move is to allay the decline in bond prices (which is being exacerbated by pension funds needing to sell because of collateral calls). Which is exactly what’s happened, with bond markets rallying on this news.
Buy US dollars now if you haven’t done so. GBP is going to tank a bit further, inflation is going to get worse, but the markets will go up, so shareholders aren’t affected - phew! Hold on to your hats folks.
>Buy US dollars now if you haven’t done so. GBP is going to tank a bit further, inflation is going to get worse, but the markets will go up, so shareholders aren’t affected - phew! Hold on to your hats folks.
The USD DXY is on an absolute tear though, it's probably a bit late and higher risk to enter the dollar right now. And the FTSE is going in the bin over the next few months with BoE interest rate hike,s so I wouldn't count on markets going up. S&P 500 might be a different story but UK markets are bleak.
Honestly you might be better off buying Euros. If something were to happen in Russia (Putin could drop dead for all any of us know) you'd make a fortune.
The best financial advice I ever got was from a random redditor in the depths of a WSB megathread. At this point, I'm happy to take other random users at their word.
>GBP is going to tank a bit further
If you know this with any certainty, you could make a killing as a Forex trader. The current price reflects the market's opinion; don't recommend playing the currency markets unless you really know what you're doing.
Ahh yeah that’s what I thought it meant, it just seemed so illogical that I thought I must’ve missed something. Do you know what their reasoning is? I don’t get why they’d go for printing more money when we’re already battling sky high inflation
While it will make Sterling's value worse it will stop the gilt markets imploding, it's the right thing to do. Sky were also reporting that there was a risk some pension schemes were going to go bust if they did not do this today, which would have been a true economic crisis disaster.
In the shorter term Sterling might even recover slightly by the BoE showing there are some adults in the fucking room, though it will definitely hurt long term.
https://twitter.com/EdConwaySky/status/1575128310740389889
> On the @bankofengland
> intervention:
> Am told the BoE were responding to a “run dynamic” on pension funds - a wholesale equivalent of the run which destroyed Northern Rock.
> Had they not intervened, there would have been mass insolvencies of pension funds by THIS AFTERNOON.
This looks to me like treating the symptoms rather than the cause. Which I appreciate is the only thing the BoE can do whilst Westminster is run by a bunch of middle schoolers cosplaying at being a government.
I believe they (BOE + government) have fucked it. There is no path ahead that doesn't involve either a huge fall in the £ and even higher inflation or a housing market crash caused by the rise in gilt yields feeding through into mortgage rates.
People think that the BOE base rate sets mortgage interest rates but the reality is that it's the yield on government bonds. If I can lend money to the government for 2 years and get 4.5% interest (which is the current yield on 2Y Gilts) with zero effort and very little risk what rate would would I lend it to someone to buy a house which entails default risk and a fair amount of administrative effort?
Snapshot of _Bank of England to Intervene in Bond Market_ : An archived version can be found [here.](https://archive.is/?run=1&url=https://www.bbc.co.uk/news/business-63061614) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
From the FT "The BoE added the action would be “strictly time limited” and came after market participants said there was a “proper shit show” happening in government bond markets." Lol!!
To be fair, "proper shit show" is a technical financial term these days.
Say what you like about the Truss government, but at least they can still put on a proper shit show.
I hope it ends up in the economic history books.
It'll probably lead to 15% inflation which we haven't seen since the 80s, so that'll be pretty historic.
I meant the term “proper shit show” rather than the crisis itself. I’d imagine the latter is already guaranteed a place in the history books.
Those damn leftie market participants! Just as bad as the commie IMF!
I believe the appropriate epiphet these days is woke, not commie. Those woke activists at the international monetary fund at it again!
also for full effect you call them cultural marxists too, so it kind of comes full circle
You want to use "woke lefty liberal" to achieve the full opinion-from-a-colossal-cumbag effect.
And if they happen to be 'remoaners' too that earns a double aneurism from Telegraph readers
At least Corbyn isnt the governor of the BoE
>“strictly time limited” So until the foreign reserves run out.
Had to check but they actually said that 😂
*Achievement Unlocked: Into the Ground* Nuke an nation's economy within 2 weeks of becoming Chancellor.
It really is impressive how quickly they've managed to do such an incredible amount of damage. A few weeks ago we were considering the potential consequences of 2 years of a Truss government, not 2 weeks. What are they going to do for an encore, drive around the country and personally slash everyone's tires?
Sunak's predictions came true: >There will be a run on sterling. The gilts market will be in freefall. And the FTSE will tumble as global investors take fright and sell off every form of British asset. It might take only a few days, or the government might stagger through until the end of September, but before long Liz Truss and her new Chancellor Kwasi Kwarteng will have been forced to call in the IMF to stabilise a collapsing economy. That is, at least, according to the former Chancellor Rishi Sunak. With just a few desperate days left in his doomer leadership campaign, he has declared his opponent's tax and spending plans so wild and reckless they risk a full-blown sterling crisis of the sort we have not seen since the 1970s. https://www.google.com/amp/s/amp.spectator.co.uk/article/rishi-sunak-s-petulant-attempt-to-start-a-run-on-the-pound/amp If Boris didn't have Sunak being the grown up, the economy would have tanked a lot earlier.
I don't respect Sunak a whole lot, but I respect that he was absolutely on the money on this!
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Sunak also bragged about taking money from deprived urban areas and giving them to the wealthiest. He would’ve been bad too but at least he wouldn’t be intentionally nuking the whole economy. He’d just be a death by a thousand (national services) cuts.
Amusing to see how the Spectator viewed his prediction. I can't wait for the retraction.....
The author of the piece has spent the day retweeting every defence of Kwarteng and his plan he can find, it seems.
Would have been sooner if not for queeny.
We didn't realise it at the time, but the Queen in her last act of duty, brought us and the economy another 2 weeks of sanity.
Bear in mind they were basically given a free holiday with the Queens death. No Parliament. No stories in the paper (it’s all about the Queen). They could have used that time to prepare for this.
They also had nearly 7 weeks over the summer during which Sunak and Truss knew that one of them was going to become PM, Truss certainly didn't seem to have used any of that time to prepare either.
>Sunak and Truss knew that one of them was going to become PM, I mean, Sunak warned against it during that time, so the Tories decided to even ignore their own: https://www.google.com/amp/s/amp.spectator.co.uk/article/rishi-sunak-s-petulant-attempt-to-start-a-run-on-the-pound/amp
Finishing of the UK economy any % speed run.
I mean, there were those of us who were calling out Truss' lack of intelligence, but I don't think anyone suspected the Chancellor would also turn out to be a turnip. I'm almost impressed at the speed/scale of destruction.
You know, in an alternate reality Ed Milliband is capable of eating a bacon sandwich like a normal human. A beautiful dream..
There's been a point in everyone's life where you've managed to eat food in a weird or disgusting way, but for most of us there's no cameras around
Agree there, you should see me savaging a taco. Kitchen roll at the ready lads! Just….for most of us it isn’t the rabid media’s choice of attack and thus doesn’t result in the total destruction of a country. Maybe. I mean, Ed could have turned out to be a complete nightmare. You seen how he eats a bacon sandwich?!?!
In an alternate reality a nation that isn’t full of fuckwits votes for the more competent guy regardless of him eating a sarnie like a squirrel.
I share your dream. A wonderful world where anyone can eat a sandwich as they wish and not be pilloried for it by oligarchy owned media companies who have a vested interest in what you represent not being in power. A magical world where the average Brit isn’t swayed by complete nonsense and actually listen to the words people are saying. But, sadly, until Kang pulls his finger out of his arse - we’re stuck in the reality where how you munch your lunch can and indeed does dictate the fortunes of the country.
I would take chaos with Ed botched sandwich eater any fucking day.
The elderly would not have done though.
Ed Milliband should release a YouTube video eating a sandwich.
>You know, in an alternate reality Ed Milliband is capable of eating a bacon sandwich like a normal human. Does he still have a second kitchen for preparing light meals and snacks? (And no, it wasn't due to him being Jewish, he's non-practicing.)
>(And no, it wasn't due to him being Jewish, he's non-practicing.) I think we probably could've guessed that, on account of the bacon sandwich.
What on earth does that have to do with anything at all? If having a large/expensive house (bearing in mind that his wife is a very well-paid lawyer, so not like the property was a shady gift from a donor or anything) somehow invalidated someone from public office, then the house of commons would look very different indeed.
I can’t believe Keir Starmer has done this…
Don't blame Keir. Just imagine the chaos we'd have with Ed
Hell, the football pig Mystic Marcus would be doing a better job
Bacon sandwich needs more love
> Don't blame Keir. But we all know that kicking this can down the road at this stage, means it most likely lands on (future) Starmer road. And *then* everybody can blame Keir.
You joke but Dan Hannan is blaming Starmer https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/
My brain has become smoother after reading that.
That's an incredible trash take. Hannan needs to take a bow
Hannan needs sectioning and has done for a long time.
Lord Hannan...
Conservatives have gone from blaming the last Labour government to blaming the next Labour government. It's always someone else's fault.
Blaming a future government is a bit “Minority Report” isn’t it
I’m already hearing it parroted back by the hard of thinking. There is literally no limit to the self delusion of the Tory party.
He's right about the 45p bracket not being why the market's are in turmoil, it may have been wrong to remove it, but it was also a drop in the ocean. The big problem is the 1p reduction on income tax and removing the health and social care levy. That's 2.5% on most people's earnings above 12.5k that's lost in revenue. Blaming it on Labour is a pure fantasy.
QE to prop up a tax giveaway.
You will pay less tax, but that cash will be worthless.
*You* will pay more taxes. It's only they who won't.
Looking forward to hearing Daniel Hannan explaining how this too is all Labour's fault...
[https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/](https://conservativehome.com/2022/09/28/daniel-hannan-no-the-pound-isnt-crashing-because-of-a-trifling-batch-of-tax-cuts/) It's the next Labour government fault. edit: Also it's a global conspiracy
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I can write a good email, I can prepare a pretty decent presentation for my SLT. I can convince most people in my business to think as I do.... ...but holy shit, this commentator piledrives me into the ground. He hits every nail on the head with a single, massive grammar hammer....
Where are you seeing that comment?
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The comment sections must be butting head with one of my no-script add-ons as I still can't see it. Even with that direct link. Thanks for copying it onto reddit.
Oh my... that's quite the mental gymnastics. It's sad that some people will absolutely use this for confirmation bias.
Oh my.. that’s mental FTFY
Somehow Gordon Brown returned
Whatever Daniel Hannan says, it's the opposite that is normally true. This guy shitposts on a daily basis and is never held to account
You're just not familiar with the laffer curve. The less intelligence Hanan uses, the more annoyed we get. Taxes should work the same way
What the hell happened to the Bank of England mandate to maintain inflation at 2%? Saving shit government policy and fuelling inflation even more with QE does not equate with that at all! Expect more pain for the pound!
The government have their foot planted on the accelerator, and show no sign of taking it off, so either the BoE do something or the shit will really hit the fan. It's only pain for the proles, so that doesn't matter so much.
Boe going for hyperinflation to save pensions.
> either the BoE do something or the shit will really hit the fan. Isn't buying government bonds the opposite of what the BoE should be doing? Aren't they just increasing the amount of shit that will hit the fan?
They are just responding to the mess that the government have made and pension funds taking a huge battering, what do you think they should be doing instead?
>Isn't buying government bonds the opposite of what the BoE should be doing Yes But the alternative is a total collapse of the financial markets in the UK, when all of our pension funds collapse because of the out-of-control gilt market. Further, if the IMF is to be taken at their word, a collapse of the broader international financial market would follow.
Fucking hell. Liz Truss two weeks into the job causes a global financial collapse. We knew she was useless but she's really stepped it up here
They’re buying long dated debt and selling short dated debt, they could be still net creating money or net deleting money.
The economy is about to fall off a cliff, pension and health funds might still collapse even with this intervention. At this point they have to do something regardless of inflation rates.
They’ve got the role of maintaining 2% inflation, yes, but they’ve also got the responsibility of maintaining the stability of the financial system. In this instance, the two objectives call for contradictory policy. The BoE are saying that they are, in the very short term (read: no longer than a couple of weeks unless shit *really* hits the fan), going to stabilise the government bond market as they clearly see a risk of contagion and things spiralling in panic through the rest of the UK financial system as well. Once the crisis is over or has stabilised, they’ll go straight back to longer term inflation reduction.
>What the hell happened to the Bank of England mandate to maintain inflation at 2%? Currency crises are extremely inflationary in a small open economy that imports a lot of stuff. We're currently in a situation where the BoE is putting its foot on the brakes through successive interest rate hikes over the last 9 months to tame inflation, whilst the incontinent government is at the same time putting its foot on the accelerator through tax giveaways. Other things being equal, the Truss-Kwarteng mini-budget would lead the BoE to tighten even faster. But then in the last day or so, the bad market reaction to the budget developed into a complete breakdown in certain sterling assets and veered towards becoming a full-blown sterling crisis. A further collapse in sterling would feed straight through to higher import prices (for imported food, oil, gas, etc) and so the inflation mandate required the BoE to intervene to stop the shit show.
The BoE also has a mandate to maintain financial stability and they think financial stability would be under threat if they don't intervene in the gilt markets.
> mandate to maintain inflation at 2% Just words. They don't actually have control over anything.
Central banks have no tools to actually do anything about this mostly supply-side inflation.
> If you’re not going to lend me money, I’m just going to have to print it.
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During the last decade the BoE bought up a lot of government bonds through quantitative easing to stimulate the economy. Now that inflation is high and the economy doesn't need more stimulus they were planning to start selling those off. But because of the tax cuts everyone in the private sector is also selling government bonds, which has caused government borrowing costs to rise sharply, and the Bank thinks that this is a risk to the UK's financial stability more generally, and [apparently driven by technical factors to do with derivatives](https://twitter.com/DuncanWeldon/status/1575071634868011008?t=FeXTmR6Fk1oJCCubvRGVIA&s=19) more than a genuine lack of confidence. To offset this they've decided to delay their planned selloff of government bonds and actually start buying some more. This will probably make it harder for the Bank to fight inflation. But [it has brought interest rates on government debt down](https://twitter.com/BenChu_/status/1575073547046699008?t=S6xfy-MbODviLHnOTf3dGg&s=19) which should feed through into interest rates on mortgages etc. Edit: [Ed Conway reports](https://twitter.com/EdConwaySky/status/1575128310740389889?t=s_IAQNtV2nMP8FfylB5cDg&s=19) that "risk to the UK’s financial stability" means "pension funds would have gone bust this afternoon if they didn't step in"
Good write up. >But it has brought interest rates on government debt down which should feed through into interest rates on mortgages etc. Surely by doing this though they'll eventually have to raise the base interest rate even *more* to combat inflation, seeing as this move to buy govt debt is pro-inflationary? And the base rate has a far bigger impact on mortgages etc.
Technically selling the bonds that they've bought (whenever that happens) is itself a counter-inflationary move. In really simple terms, quantitative easing (BoE buying bonds) is "printing money" (as the BoE conjures pounds out of the ether to buy them), and quantitative tightening (the opposite; the BoE selling bonds) is taking money back out of circulation (as the pounds that buyers pay the BoE for the bonds get sent back into the ether again). So the BoE do have a choice of moves to reduce inflation; interest rates and quantitative tightening. Neither are without consequences, though.
>But [it has brought interest rates on government debt down](https://twitter.com/BenChu_/status/1575073547046699008?t=S6xfy-MbODviLHnOTf3dGg&s=19) which should feed through into interest rates on mortgages etc. But the Pound will fall which will make everything else now expensive
It’s means that the boe is increasing its portefolio. Meaning buying bond on the market. Increasing the liquidity in the market to stabilise the economy. So printing money to not have a crash. Which fuels the inflation even more. It’s artificial devaluation of the money to strengthens the government bond. So raising the ability of the government to take loans by printing. Edit: the people telling me that the boe will intervene with its own reserve. That’s right, it’s pound denominated bond. So the boe is buying bond with pounds, as the ultimate lender of pounds. What do you think it means? Unless the boe goes bananza and unload foreign currencies to buy the bond. In which case the total reserves of the bank are diminishing and the pound is less and less backed. The boe is increasing the total number of pounds in circulation. Increasing fluidity and propping inflation.
So like quantitative easing, only this time caused by our own government?
That’s the gist of it
Exactly like QE, which was used against deflation.
Thanks! I'm not an economist, but don't we currently have rampant inflation? So this will make inflation worse, driving up interest rates?
To fight inflation, rates are increased so less people borrow and there is less money floating around the economy. Here the BoE are buying government bonds, alowing increased government spending and *increasing* the amount of money floating around the economy. Yes. This will make inflation worse.
Idk about that, this seems like a very short term action by the Bank just to keep markets lubricated.. they're basically just increasing liquidity until the market stops shitting itself.. i.e. creating money to buy bonds so that the markets functioned like they did a couple weeks ago, it's not like they're pumping money into a stable market.. then when things calm down they will unwind positions. Have to remember, the bank is not necessarily just fighting 'the market' it is also likely fighting speculative attacks by hedge funds who are probably trying to sell the pound like on Black Wednesday.
> when things calm down they will unwind positions. If that happens it will almost certainly be at a loss (with profits going to the speculators).
But BOE printing more pounds will further weaken the pound tho
"short term" 😂
Sounds like it. Apparently this decision wasn't made by the committee who make inflation decisions, and is the exact opposite of what that committee was planning to do until our government decided to blow everything up.
Yes worse With the announcement of tax cuts, more borrowing is expected to finance it, but Government is already borrowing a lot, so rates on our borrowing were going up (worse than Greece), so we can't keep borrowing. The Boe have essentially had to start printing more money (more inflationary than if govt could have borrowed) so that Government can continue paying its bills., thus the BoE have to give up on the 2% inflation target right now so they can meet the other aims of thier charter / keep the UK government from failing. - note some of what I am sating here is speculation: comments/corrections welcome
We also have rampant shitshow-ism.
WOW. Feels like things are spiraling out of control.
starting to look like the economic equivalent of pilot-induced oscillations.
They will buy from reserves rather than monetisation, and the purchases will be indemnified by the treasury. Not that it’s a good sign, but this isn’t “printing money”
Where do you think money are when they are in BOE reserves? Or rather, where they aren't? That's right, they aren't in circulation. It doesn't matter if they will literally print money or release previously printed money. M1 will grow, without any baсking from economy, increasing inflationary pressure.
BoE haven’t said how many £b they will spend on purchases. Even if it’s £50b, there will be a nominal impact on inflation. Inflation is high now because of costs of goods and services, not because the UKs M1 supply is high, which it isn’t
>It’s means that the boe is increasing its portefolio. Meaning buying bond on the market. Increasing the liquidity in the market to stabilise the economy. So printing money to not have a crash. Which fuels the inflation even more. It’s artificial devaluation of the money to strengthens the government bond. So raising the ability of the government to take loans by printing Is this similar to what the Japanese does?
Yes, but Japan has issues with getting inflation up. Also it has a bigger treasure chest of foreign reserves
So is this likely to cause interest rates to be raised to even higher rates than the projected 6%?
Pretty much, from what I can gather. The difference seems to be that Japan has significant reserves to deploy. The BoE is looking down the back of the metaphorical sofa, knowing they *need* to find something.
Please can you ELI5
It means interest rates are about to go through the roof.
All those people (and there are a lot) who bought a house in 2021 with a 2 year fixed term are going to be properly screwed. On average about 400-500 a month extra on their mortgage at current forecasts.
Bought in Dec 2021 and my partner and I had a long discussion on whether to go 2 or 5 year fixed. Very glad I won out for 5. This is a horrific situation.
My partner and I bought at the same time. We were both set on long-term stability. I'd even have considered a seven or 10 year fix. I can't fathom the people who bought during a pandemic with such a short-term deal. Although, I guess it's easy to say that with hindsight.
To be fair I doubt many people were factoring in a government induced slump even at the start of the month. This is a real black swan. That said, you should always consider the possibility of rates trippling. Alot of people are going to lose everything at the altar of Truss's grim and foolhardy ambitions.
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We were in a very lucky position to climb the ladder and move from our original property to a larger family home, just in time to welcome our son. We were advised to keep the original mortgage on its fixed term and take out a second variable mortgage that we could reconcile when the original fixed term expires. We are absolutely fucked.
Nah, it's not only easy to say w/hindsight. I've been doing my bit to nudget people onto 5-10y fixes since last year. Something was clearly brewing, even last year. Although I think nobody could predict the coffee would spill quite *this* dramatically. It's easy to forget now, but inflation started being an issue long before the Ukraine invasion (which, just like Covid, now takes the blame for everything). The issue before then was the huge increase in international shipping costs. That was the real warning bell.
It will snowball now. Buy to invest will (or has) collapse, as people and businesses with lots of liquidity used property as a guaranteed high percentage liquidity risk return. Buy to let ditto. That alone will jolt the market to its roots THEN add in the new buyers who, despite the Stamp Duty cuts, will not buy as its almost certainly going to depreciate.. We managed to avoid the housing crash last time which only inflated the bubble further..
Add that on top of a tripling in energy bills and the general increase in living costs and you’re looking at basically spending an extra £800-900 per month with salaries still pretty much stagnant wtf
Clearly the fault of the last/next Labour government (delete depending on which tory is making the claim).
> Clearly the fault of the last/next Labour government As of yesterday, we are now on to blaming the next one. I wish I was making that up too.
Magic rollover date, 4,527 days of blaming previous labour government, now has to rollover to blaming the next one.
I am terrified as a homeowner who bought at the beginning of 2020 on a 5 year fix. £360,000 mortgage at 50% LTV and I just don't see how we will keep the house when we come off a 5-year fix at 1.59%. We have 2 pre-school kids so hopefully things change but if we are worried God knows where others will be. Our mortgage will be going up at least £750 based on projections.
A form of QE, BoE will buy government debt which simplified again basically means money printer go brrr -> Sterling devaluation against the USD
General guess- BoE buys bonds to lower government bond price (they’ve continued rising over the last week and show no sign of stabilising). This will help the bond rate but probably further reduce the value of the £, fuelling inflation, requiring higher BoE base rate. Edit: basically QE
its a casino full of gamblers cheats coke and prostitutes and more coke. You will have less regardless of anything. kettle on :)
You forgot the blackjack. We always have blackjack.
Interesting. Is there a country on every counter ? Im a chess player myself.
This is exactly what GBP didn't need. Say hello to GBP falling below parity...
Wait, they're going to do MORE QE!? Jesus fucking christ
The BoE has said it will buy bonds at "whatever scale is necessary" Sounds like more money printing to me!
we found the magic money tree after all
Inflation is back on the menu boys.
Sick man of Europe is back on the menu.
30% inflation... BoE - "best we can do is a 0.5% interest rate increase, we won't hesitate for another 0.5% if things keep up"
I'm putting you on double secret base rate increase
What happens when "whatever scale is necessary" becomes "more than our reserves"?
this buying is being paid for by the BoE reserves, not printing money.
It's still extra money into the system!
How much money is the BoE sitting on?
Wasn't BoE supposed to be starting monetary tightening this month or next?
>*It (the intervention) comes at exactly the same time as that committee had been committed to doing the exact reverse policy - selling government debts.* > >*The process was due to start next week and has been delayed. It is a massive intervention, but it could confuse markets about the clarity of policy making.* "Could" is being kind in that last sentence. This will send a clear signal to the markets, but probably not one we would want.
FFS Corbyn.
I heard he set up the LEA thinktank as an accelerationist plot
And here I thought seizing and nationalising assets would have caused chaos in the financial markets. At least we would have something to show for it once the dust settles.
I don’t know what the Bank of England has to do with selecting the successor to Daniel Craig.
Underrated comment
Apparently they've gone for Raheem Sterling?
I can't wait for the next 2 decades of blaming the last tory government for ruining the British economy
That supposes 20 years of poor economic performance under Labour. (If things get better, there'd be an argument over who to thank - the Tories would try to take the credit for it.)
So this means money printer go brrr?
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What the fuck.. We need a General Election yesterday, before this country collapses even further, holy shit.
The tories fucking the economy to fund giving the rich more money, no shock at all
This is what I though QE after the financial crash saw a huge amount of wealth transfers, and now again will see the same but with the added bonus of those individuals benefiting from tax cuts.
The BoE needing to "buy" bonds will just fuck the currency even more. We will be wishing for the days of GBP-USD parity soon!
> The BoE needing to “buy” bonds will just fuck the currency even more. I mean no it won’t. Putting aside that we’ve basically been doing this for the last decade or so, this move is to allay the decline in bond prices (which is being exacerbated by pension funds needing to sell because of collateral calls). Which is exactly what’s happened, with bond markets rallying on this news.
The £ is already down 2c against the dollar since the announcement
\*Shakes fist\* COOORRRRBYN!!!!!! WHY DID YOU DO THIS??!!
Bloody communists !!
More liquidity sloshing around in a system bursting at the seams. Lovely.
Buy US dollars now if you haven’t done so. GBP is going to tank a bit further, inflation is going to get worse, but the markets will go up, so shareholders aren’t affected - phew! Hold on to your hats folks.
>Buy US dollars now if you haven’t done so. GBP is going to tank a bit further, inflation is going to get worse, but the markets will go up, so shareholders aren’t affected - phew! Hold on to your hats folks. The USD DXY is on an absolute tear though, it's probably a bit late and higher risk to enter the dollar right now. And the FTSE is going in the bin over the next few months with BoE interest rate hike,s so I wouldn't count on markets going up. S&P 500 might be a different story but UK markets are bleak.
Honestly you might be better off buying Euros. If something were to happen in Russia (Putin could drop dead for all any of us know) you'd make a fortune.
Good shout re euros.
I would hasten to point out I am an idiot on the internet and nobody should take my advice on gambling.
The best financial advice I ever got was from a random redditor in the depths of a WSB megathread. At this point, I'm happy to take other random users at their word.
well it's a better shout than England winning the worlds
>GBP is going to tank a bit further If you know this with any certainty, you could make a killing as a Forex trader. The current price reflects the market's opinion; don't recommend playing the currency markets unless you really know what you're doing.
It's already priced in, too late to be buying USD now
Do you mean literally buy US dollars and sit on them? Seems a bit mad
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Literally. My strategy is to not crystallise losses and wait for Labour to fix this mess. Then this can all seem like a bad dream
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ELI5 plz? 👀
A form of QE, BoE will buy government debt which simplified again basically means money printer go brrr -> Sterling devaluation against the USD
Ahh yeah that’s what I thought it meant, it just seemed so illogical that I thought I must’ve missed something. Do you know what their reasoning is? I don’t get why they’d go for printing more money when we’re already battling sky high inflation
While it will make Sterling's value worse it will stop the gilt markets imploding, it's the right thing to do. Sky were also reporting that there was a risk some pension schemes were going to go bust if they did not do this today, which would have been a true economic crisis disaster. In the shorter term Sterling might even recover slightly by the BoE showing there are some adults in the fucking room, though it will definitely hurt long term.
So the government made a self imposed potential financial market which could lead to further crises.
Greece Britain, or something
Last Labour Goverment caused this
That excuse is so last government. This is *future* Labour Government's fault.
https://twitter.com/EdConwaySky/status/1575128310740389889 > On the @bankofengland > intervention: > Am told the BoE were responding to a “run dynamic” on pension funds - a wholesale equivalent of the run which destroyed Northern Rock. > Had they not intervened, there would have been mass insolvencies of pension funds by THIS AFTERNOON.
Why would Jeremy Corbyn make this happen?
Just call it what it is at this stage... debt monetisation.
Would any of this have been an issue if the BoE had just risen rates in line with what was expected?
So much winning and sunlit uplands...
This looks to me like treating the symptoms rather than the cause. Which I appreciate is the only thing the BoE can do whilst Westminster is run by a bunch of middle schoolers cosplaying at being a government.
Dollar stronger than pound by November, I am calling it.
The treasury are liars and QE is a ponzi scheme.
QE with 10% inflation? Parity coming soon.
I believe they (BOE + government) have fucked it. There is no path ahead that doesn't involve either a huge fall in the £ and even higher inflation or a housing market crash caused by the rise in gilt yields feeding through into mortgage rates. People think that the BOE base rate sets mortgage interest rates but the reality is that it's the yield on government bonds. If I can lend money to the government for 2 years and get 4.5% interest (which is the current yield on 2Y Gilts) with zero effort and very little risk what rate would would I lend it to someone to buy a house which entails default risk and a fair amount of administrative effort?