How big will the bond bubbles grow?

The Japanese and European Central Banks continue to buy their own government bonds on a grand scale. Their actions in creating money to boost the price of bonds is helping sustain ultra low interest rates throughout the advanced world. Bondholders have been rewarded with large increases in the capital value of their holdings.

It has proved easy for the authorities to create cash and boost bond prices. The US and UK started this process in the West. The ECB now has taken up the running. Japan has been doing it for years, as part of the long aftermath to her large banking and property crash 25 years ago.

The policy is meant to have several desirable affects. It does cut interest rates, helping drive down the costs of borrowing. It does persuade more people and institutions to undertake more risky investments, as those who sell their bonds look for other things to do with the money.

It also has various less desirable side effects. Low rates make it more difficult for banks to earn good profits to restore their damaged balance sheets. The combination of weak banks and tougher regulation means that the extra money created cannot often find its way into the productive economy through the traditional commercial banking system. Savers can feel they need to save more, as the income on their savings falls short, so to some extent low rates discourage the very spending they are meant to encourage. It generates substantial asset price inflation, pushing up the price of commercial property and residential homes as well as the prices of bonds and shares. This has an impact on the real economy, and prevents some people buying a home of their own.

The biggest problem of all with this bond bubble is how do the authorities deal with it when conditions start to alter?  The US and UK has removed the extra stimulus of additional official purchases of bonds without  undue adverse effects. This has been assisted by the large Japanese and European programmes continuing, encouraging more buyers of US and UK bonds as they seek better income levels than are offered by Japanese or German bonds.

When all the main Central Banks terminate their programmes there could be more of a wobble in markets. If and when these same Central Banks start to raise official interest rates, what will then happen? They will need to think through “normalisation”, and think how owners of bonds will respond if there is no further official purchasing to underwrite high bond values.

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59 Comments

  1. Posted August 4, 2016 at 5:30 am | Permalink

    Indeed but the problem is over taxation of almost everything, over regulation of almost everything, expensive greencrap energy, a state sector delivering little but dross and dysfunctional banks.

    Why should banks be able to rebuild their balance sheets after past losses by ripping off their current customers with absurd fees and margins? If there were some real competition in banking they could not get away with paying less than 1% but charging 4 to 40% when lending. Often to customers who are far better risks than the bank itself and often secured too.

    If other businesses (a shop for example) had made past losses their customers would not have to pick up the bill. Competition from other shops would ensure that. Do we not have competition regulators in banks? The high margins are, in effect, yet another tax on the productive. The lost should be taken by bank shareholders not customers.

    • Posted August 4, 2016 at 5:44 am | Permalink

      Hogan Howe’s and one assumes the ex Home Secretary’s Theresa May’s robocop agenda of armed to the teath, “visible” policing is entirely misguided. It is exactly what the terrorist want, doing their terrorising and inconveniencing work for them. It will make matters far worse not better.

      The police claim it will provide “reassurance and safety”, it will obviously do the complete opposite.

      Are our leaders really so stupid that they cannot see this? Or are they just driven by the desire to demand more funds, resources and put on robocop photo ops for the
      press?

      It does not inspire any confidence in Theresa May’s judgement. Even dafter and more damaging than her workers on boards, or her absurd “go home illegal immigrants” vehicle adverts. What has happened to Mrs May is she I’ll or on holiday? She has gone very quiet. Has she decided what Brexit mean Brexit means
      yet?

  2. Posted August 4, 2016 at 5:40 am | Permalink

    The idea of the government paying risk-free interest to people, thus allowing them to become rentiers just for holding the currency, in the vague hope it will reduce inflation, is complete madness. All the real-world evidence categorically shows that lower interest rates reduce inflation, and higher rates increase inflation. So there isn’t much to worry about if the BoE cuts rates today, it’s where the base interest rate should have always been, from the moment we switched to a free floating non-convertible currency.

    Now it’s true that people believe lower interest rates and QE causes inflation to rise. Who can blame them? It’s in all of the mainstream textbooks and even the central bankers themselves believe it. And so GBP will probably go lower in the fx markets, due to the psychological effects involved, which may add a bit to the inflation rate in the short-term, though I wouldn’t worry too much about it.

    As for asset prices, I would argue that their valuations in a ZIRP-environment are actually their “natural” value. The solution to people not being able to buy their first home, is not to raise rates, it’s to build more homes and expand the fiscal deficit. With a permanent zero-rate policy at the BoE, as should be implemented, it’s easy to argue for more deficit spending on house building!

    • Posted August 4, 2016 at 5:46 am | Permalink

      Also central banks buying government bonds (QE) doesn’t create any new money. It simply moves existing money from savings accounts (TSY securities) at the BoE to checking accounts (reserves) at the BoE. The interest rate on reserves is lower than on TSY securities, and so you could even argue that QE is slightly deflationary if anything!

      • Posted August 5, 2016 at 7:06 am | Permalink

        In the good old days Banks took savers deposits and lent them out to those who wished to borrow.
        They paid interest to encourage saver to deposit with them.
        You live in an era where printing magic money means savers and investors can be ripped off by Banks with zero rates.

  3. Posted August 4, 2016 at 6:01 am | Permalink

    You say it has helped cut the costs of borrowing but has it? I have had a premier card current account with a major bank, for more than 25 years. It gave an overdraft facility of £10,000 at base plus 2% when I first took it out, now the limit is still the same £10,000 but the rate is nearer 19% APR yet I am now a considerably lower risk!

    The banks are just taking the p*** they are able to due to a lack of real competition in UK banking.

    • Posted August 4, 2016 at 6:39 am | Permalink

      Same here. For years had base plus 2% then out of blue I’m a cash cow. Now I no longer run a deficit and keep a small current account surplus.
      Pretty self defeating for the bank.
      I just listened to the BBC spreading doom and gloom about the economy. It’s getting boring now.
      Listening to the farmers at Bakewell Show being interviewed by BBC East Midlands. Most in favour of Brexit. Didn’t fit BBC narrative so quickly moved on.

    • Posted August 4, 2016 at 7:29 am | Permalink

      LL, Agreed.

      The banks and lending establishments have just increased their profit margin on loans and also by giving low interest on saving.

      Interest rates are too low for both borrowers and savers, the only winners are the banks, that are still giving immoral bonuses to some of their workers…

    • Posted August 4, 2016 at 7:46 am | Permalink

      When is the Tory govt going to help the prudent, pensioners, strivers and savers? Continuation of encouraging the feckless, indebted and wasters. Welfare: people still getting north of £35 thousand when wages have been driven down by mass immigration. Is this the new New Labour shining through Tory policy?

      When is the chain to the EU going to be cut. After all article 50 starts the two year process, which could be dragged out. How long does it take to negotiate? This appears to be kick in the long grass tactic to work out how to change public opinion for EU light in accord with the five presidents report. Cutting interest rates today is continuing project fear.

      • Posted August 5, 2016 at 8:57 pm | Permalink

        Have kids get a house have some spending money.

        I earn nearly £70k per year and I have worked out that in cash take home terms I would not be financially worse off on universal credit. Unfortunately for me getting on that merry go round is difficult.

        Real returns for real jobs please.

    • Posted August 4, 2016 at 8:40 am | Permalink

      @lifelogic Clearly the banks have had an easy ride for far too long, hence the eye-watering remuneration packages.

      More competition sorely needed.

    • Posted August 4, 2016 at 9:06 am | Permalink

      Lifelogic: “The banks are just taking the p*** they are able to due to a lack of real competition in UK banking.”

      The banking – government cartel is refinancing the banks at the expense of their customers and the economy. Apparently, it’s the better option than letting one or two banks go bankrupt.

      • Posted August 4, 2016 at 4:08 pm | Permalink

        Indeed largely government owned Lloyds Bank has a Premier account (which seems to be their best ersonal OD rate) seems to charge 15.43% APR then they add the insult of charging a monthly fee in addition. So about 30 times the base rate.

        Then if next month you are lending to them they give you virtually nothing at all.

        • Posted August 4, 2016 at 4:09 pm | Permalink

          Sorry 30 time the old base rate 60 times the new one.

    • Posted August 4, 2016 at 11:29 am | Permalink

      Well the bubble will just get bigger …

      £100bln of new QE, and the purchase of £10bln bonds per month.

      In each month we will now be spending about the same as annual EU membership just to avoid recession. Is that not slightly ironic?

      The B0E is also forecasting a slashing of growth forecasts. I think all on this board have to accept that Brexit is really not looking like that clever an idea after all.

      Silver lining .. expect the stock market to be positive (relative to Sterling).

      • Posted August 4, 2016 at 1:46 pm | Permalink

        Relative to £, yes, but the FTSE100 and 250 are still below their 23 June values in $ or € terms. It might not be of importance in the short term for most of us, but try to figure out how this might impact the returns on which your state pension or your SIPP are based.
        How much will a £100k pension pot give one as an annuity? £4500, 4000, 3500?
        It is difficult to keep smiling, so it is time to just have a stiff upper lip, and think of Britannia (previously) ruling the waves.

      • Posted August 4, 2016 at 3:33 pm | Permalink

        Brexit wasn’t meant to be clever.

        What was clever was Nu Labour (because Old Labour were redundant) re-stocking it’s client base with mass migration (Lefty job creation) in a country that was well on its way to eradicating poverty and inequality.

        What was clever was City banking spivs and their lending ponzi on the back of it.

        Too clever by half, it transpires.

        You go turning areas of Britain into mini Albanias and puff the housing market up on the resultant overcrowding and slap the populace around every time they dare complain then there has to be consequences.

        Brexit. A very simple and honest action. Taken after decades of ignored complaints from the British people.

        It wasn’t leaving the EU that was the problem. It was joining it in the first place. Even most of those who voted Remain think it was a mistake.

      • Posted August 4, 2016 at 3:36 pm | Permalink

        “In each month we will now be spending about the same as annual EU membership just to avoid recession. Is that not slightly ironic?”

        I suppose it might be if it was actually true.

  4. Posted August 4, 2016 at 6:08 am | Permalink

    the bankers are snookered. their ponzi scam is coming apart and they only have the print and buy bonds option left. they should be frogmarched to the scaffold, given time they will be.

    In 1340 Venice collapsed because of these cretins paper money games. The economic depression lasted 100 years, society collapsed and the plague filled the void. when it was all done half the population of Europe was wiped out. This one is global.

  5. Posted August 4, 2016 at 6:31 am | Permalink

    All this so called clever manipulation of money leaves me rather cold.

    No wonder so many citizens have so little trust in Politicians and Banks.

  6. Posted August 4, 2016 at 6:47 am | Permalink

    QE is just kicking the problem down the road. Some future generation is going to have pay the price. The current generation is already some of it because QE and other government initiatives and policies have inflated house prices beyond the reach of many.

    Labour to gain power have over the decades bribed the people with their own money and by borrowing. The Conservatives sometimes match them as without doing so they could not be elected. Labour and the left started the rot which now controls all our actions. When things become too rotten they collapse.

    The level of redistribution of wealth and the current largess of government cannot be sustained. Some progress has been made in reducing the levels but by not nearly enough. QE and such like(immigration policies, over regulation, progressiveness to name just a few that are all contributing that need curtailing) can only make up for that deficit of action for so long. At some point it will reach a breaking point and all the financial and societal problems it has been holding back will break through.

  7. Posted August 4, 2016 at 7:22 am | Permalink

    What about the reduced yields and the impact on pensions, present and future?

  8. Posted August 4, 2016 at 7:29 am | Permalink

    Brexit will get the blame if it all goes tits up.

  9. Posted August 4, 2016 at 7:36 am | Permalink

    It does the average member of the electorate no favours whatever, except to keep them in a deluded state during their productive lives. If they follow the advice of government and save all their lives in pensions, they find that on retirement all the saving produces little by way of annuity income. Especially when the pension industry has been allowed to gorge itself like carrion in the process.

    Equally the hurdles to property ownership are such that fewer and fewer people can take advantage of having an asset which increases in value to become theirs near retirement.

    The State Pension, contributions to which are no less than tax, is among the lowest in Western Europe. Maximum annual figures are:-

    UK £7488
    Spain £26,630
    Germany £26,366
    France £15,811
    Denmark £11,381
    Ireland £10,415

    The State Pension in the UK is not the investment scheme it should be, but an amateurish rob Peter to pay Paul tax scam. In the UK it produces at best 30% of average salary. In spain it is around 80%. Add to all this the politicians who are constantly mouthing off telling us we belong to the fifth greatest economy in the World which really adds emphasis to the way in which we are all being screwed.

    I was lucky in that the investments I made occured before inept politicians allowed this ultimate confidence trick to be played. Thanks to your incompetence the future of my children and grand children is grim because there is absolutely no sign that you know what to do about it or have any inclination to do so. I do not think you even care so long as your own cosseted arrangements cough up at the appropriate time.

    Technical articles about the convoluted bond business have no resonance at the coalface, but that is where you are judged.

  10. Posted August 4, 2016 at 7:50 am | Permalink

    You always seem very angry which is a shame. According to your logic if base rate was cut to zero, you would have an OD that cost nothing. Interesting. Maybe it would then be the money fairy that covers the admin costs and the inevitable bad debt write offs plus the return on capital employed to satisfy both share holders and capital ratios.

    Actually there is plenty of competition and of course, the ultimate answer, if you chose to keep it, whose fault is that?

    • Posted August 5, 2016 at 7:12 am | Permalink

      Have you looked at the lending rates versus saving rates?
      The biggest margins for Banks in history.

  11. Posted August 4, 2016 at 7:59 am | Permalink

    Please do go to eureferendum.com and read the Monographs.

    PS I am a saver, being an OAP. Guess what I think about a. the national debt standing at about £1.5 trillion and b. the rate of borrowing therefore being kept deliberately low?

  12. Posted August 4, 2016 at 8:30 am | Permalink

    Returning to ‘Normal’ should have happened long ago but the problem of low interest rates and low wages in a flatline-economy goes way beyond the purchase of bonds. The underlying problem with our economy is that the service sector is too big, now accounting for 8 in every 10 jobs. The service sector is by definition a small business model, it creates lots of start-ups, this looks good on the govt’s job creation record, but if we look a little closer we see that these service sector SMEs don’t last very long and employ small numbers of people, never growing big enough to pay for better wages out of productivity. Therein lies the cause of low wages. Add into the mix the low cost of imports and we are locked into a monetary dumb down scenario, in which the spectre of deflation grows ever closer. The service sector has grown by around 5% since 2010, but is that really cause for celebration? Because as one sector grows, in proportion, others shrink. I’ve heard many economists say they are puzzled by low wages, but the answer is all too clear. Government needs to recognize cause and effect and support manufacturers. Its time to put producers ahead of consumers and support a sector that, by its very size and design, will pay better wages and can grow exponentially. In effect we need a big business model.

  13. Posted August 4, 2016 at 8:31 am | Permalink

    Saatchi chief resigns after saying women don’t seek top jobs I read.

    Clearly rather a simplistic generalisation but essentially perfectly true. On average women do choose a rather different work life balance. This is quite clear to anyone numerate who looks at the numbers. It is however always very dangerous to say things that are true as a Saatchi man should have known.

    Women also tend not to study further maths, physics, engineering or computer studies in anything like the numbers that men do, preferring languages, the arts or the softer sciences, they also take more career breaks and are generally less motivated by money. But in the modern PC world, truth is usually the enemy. Even the recommended alcohol limits have been PC adjusted by government, who cares about truth, reality, the world as it actually is or the scientific evidence. This, after all, is politics & religion for fake equality dreamers.

    Essentially it end up as a form of legalised anti-male discrimination.

    • Posted August 4, 2016 at 11:39 am | Permalink

      Of course were there large numbers of under paid and hugely talented women happy to work long hours in an advertising agencies then they would be snapped up by someone who would make a killing.

  14. Posted August 4, 2016 at 8:44 am | Permalink

    @Mr Redwood

    “Low rates make it more difficult for banks to earn good profits”

    Why is that?
    I thought that in traditional banking the profits were derived from the differential between the banks borrowing and lending rates?

    • Posted August 4, 2016 at 4:50 pm | Permalink

      Dear Bob–Since you ask, if its funding is say 10%, a bank can lend at say 12% and be satisfied with the 2% gross margin; but if its funding is 0.25% it is much harder to make that same gross 2% (which needs to cover exactly the same overheads) because people will moan that in the latter case 2% is a huge multiple rather than just a reasonable (considerably sub 100%) percentage as in the former. Don’t like to see and hear the banks traduced TOO excessively.

      • Posted August 8, 2016 at 8:32 am | Permalink

        @Leslie Singleton

        Is it possible to get a mortgage now at 2.25%.
        A mortgage broker on the radio was saying that rates were between 4% to 5%.

  15. Posted August 4, 2016 at 8:54 am | Permalink

    Cash is an IOU issued by the Central Bank. Bonds are an IOU issued by the Treasury. If we dispense with the fiction that the Central Bank is independent of government, then all government is doing is swapping one type of IOU for another by “buying” their own bonds, which does of course have the effect of reducing longer term interest rates. The overnight rate, or base rate, is set by a committee in any case and isn’t the result of market forces.

    If, as expected, the rate is reduced from 0.5% to 0.25% today it is because someone has made a decision that it should be reduced.

    These kind of interest rates are far too low and have come about by the adoption of so-called New Keynesian thinking. It places far too much emphasis on monetary policy and far too little emphasis on fiscal policy.

    Ironically if fiscal policy was loosened, by cutting taxes (including by cutting VAT) we’d perhaps have slightly more inflation. But that would re-invigorate the economy and increase taxation revenue overall. So Laffer wasn’t completely wrong. I’d just argue he was right but for not for the reasons he gave!

  16. Posted August 4, 2016 at 9:33 am | Permalink

    Banks have a lot to answer for – mis-selling of products , blurred edges between the corporate finance and cross the counter services , poor incentives for depositors and borrowers , depleted staffing , administration problems in defeating various forms of fraud etc etc . Since the 70s there has been a steady decline in the quality of bank staff and lack of adequate supervision ; it is no longer considered a place for quality people to be employed .

    Much of the problem stems from the cross the counter sector trying to emulate the merchanting sector ; Sir John Vickers highlighted this in his report on Banking and , as far as I know , his recommendations have still not been implemented . Add to this has been the period of Osborneism with its promises of change that never occured and his introduction of ridiculous taxes on property transactions .

    It is now time for sanity and common-sense to return in the management of the economy and in effective financial service regulation .

  17. Posted August 4, 2016 at 10:08 am | Permalink

    It seems to me that the experts! have invented a financial merry go round, all of it based on seemingly nothing of substance. This is why I feel one should buy assets of finite number, that as time erodes the numbers, will have increasing real value. A dozen bottles of Latour bought fifty years ago will have much greater value than originally paid because a lot of that vintage has been swallowed. You put it more eloquently in the last two sentences of paragraph four.

    Has the BoE ever thought of owning real assets such as I describe. They did at one time have large stocks of gold on which currency in circulation was based. They could just as easily have vintage cars and property, which if well chosen could steadily increase in value due to their finite number. Possibly better than gold.

    To me ,the innocent layman, it would seem that a currency based on little of substance will hit the buffers at some point. For sure the current system is not benefitting the electorate at large.

  18. Posted August 4, 2016 at 10:58 am | Permalink

    Basil Rathbone was Sherlock Holmes.We have a major problem once an icon or thing has been imagined and the entity worked upon in our practice to believe it a fiction. So tourists to our shores head for 221b Baker Street in the belief Holmes lived there 1881-1904. It is no surprise the address actually exists and is open to the public every day of the year (except Christmas Day) from 9.30am – 6pm: Admission: Adult £15 Child £10 (under 16yrs). A dedicated museum. Incidentally, the life of Basil Rathbone is like a major and interesting novel in itself. He was in fact more Sherlock Holmes than Sherlock Holmes.

    THE POINT. Pundits all have a position on “The Bubble” in regard to bonds. Our economics are based on essentially imaginings of packages of money which in our internet age are even easier to give life to.

    Janet Yellen of the Fed has stated repeatedly she does not believe there is a “bubble” but has said she thinks there are over-estimates or over-evaluations within the stock market.

    JR: I confess I do not know the answer to your question: “How big will the bond bubbles grow” . We are so good at imaginings of idols of various kinds. Creation. Then making circular arguments as if they were not just figments of our mental states or heuristic hypotheticals.

  19. Posted August 4, 2016 at 11:17 am | Permalink

    What I am seeing is monetary manipulation on a grand scale. The party that is supposed to support those that ‘do the right thing’ has this morning taken a sledge hammer to hit those that save for their retirement. Next savers will have to presumably pay banks to look after money…

    Tranquilisers in the form of ultra low interest rates and QE may steady the patients nerves but they will not cure the underlying disease.

    Rewarding spivs and chancers that make money from speculating on the property and commodity markets whilst doing nothing to promote the entrepreneurial route to prosperity is a recipe for disaster….what happened to the bonfire of quangos and regulation promised.?

  20. Posted August 4, 2016 at 11:24 am | Permalink

    I note there has been no ‘punishment budget’…instead the punishment is in the form of a pound being driven down by Carney’s interest rate drop. That will teach those plebs that voted Leave – a dose of higher prices and reduced spending power in Benidorm will teach em.
    Stand by for a convenient ‘recession’ engineered by the BOE and No 11 to justify tearing up the referendum result.
    Why was it reported by the BBC that Lloyds were shedding jobs because of Brexit…curiously bank profit shredding ultra low interest rates were never mentioned….

  21. Posted August 4, 2016 at 11:36 am | Permalink

    So the bank of England have cut base rates as expected. Yet Osborne said our mortgages would go up it we left. Wrong yet again George. One can make quite a lot of money betting against Osborne’s and indeed Carney’s duff predictions.

    What we need is confidence, some sense of direction from Mrs May and Hammond that they we are moving rapidly to lower simpler taxes, cheaper non greencrap energy, a quick Brexit and a bonfire of red tape.

    That and that the Osborne damage will be rapidly undone.

    But we have had nothing just damaging photo ops with armed up to the teeth police in robocop outfits and wittering on about workers and customers on company boards. What are Hammond and May playing at? Have they gone into hiding, ill or are they on holiday.
    No time to be lost, at least they need to indicate they are going to be real conservatives and not more just yet more Heath/Major/Cameron/Blair/Brown/Osborne incompetent Libdem wets.

  22. Posted August 4, 2016 at 12:10 pm | Permalink

    “normalisation?”

    Debt monetisation is the new normal.

  23. Posted August 4, 2016 at 12:15 pm | Permalink

    Your post is already out of date John. Mrs May’s government have fired up the printing presses today and cut rates even further, based on some new guesses about the economy.

    • Posted August 4, 2016 at 1:51 pm | Permalink

      Another way to look at it: Out of date, is it the post or its writer?

  24. Posted August 4, 2016 at 12:26 pm | Permalink

    The inequity increasing policies of the BoE continue today. Those with assets will see their wealth grow further, those without assets or those with small saving incomes will struggle more. Another monumental move against uniting the UK taken by an independent body. Oh dear, a very serious, naïve mistake. The government’s response to counter this will need to be fundamental.

  25. Posted August 4, 2016 at 12:32 pm | Permalink

    Off topic a bit:
    Mark Carney is LIVE as I write and after speaking on a tiny interest rate cut, for it was already only half a per cent, and other “goodies” has handed over to a colleague for further press questions.

    He did similar things in Canada when he was Governor. And a tad early: large amounts of money made more easily available to Canadian financial entities including its banks. The money was duly transferred to Canadian companies and those based in Canada from their abroad and at very good rates of borrowing. The companies then SAT ON the money.

    Mr Carney says the BoE is introducing what amounts to fines if banks do not lend his “appropriately” to companies. That is, in practice, if a bank feels in itself and not by some external assessment it is not a good and wise thing to lend money to a particular company it will be fined for its prudent decision. That, of course, if the company is thought will inappropriately use it or “sit on” the money,- the bank in truth will be fined if it does not throw the money out of the front door of its bank when a gale force wind is blowing.
    One journalist remarked to Mr Carney that what was the whole point of his actions given that ” Finance to companies was not a problem ” anyway. Mr Carny’s answer was not clear.
    Another question, which Mr Carny no doubt was asked in Canada some time ago by equally energetic journalists is why he has moved into action without any solid data on which to base his decision. He answered at this press conference “there are other data other than SOLID data that turn out to be more accurate” I believe he mentioned “Soft Data ” after this last remark though by this time I had cognitively switched off from his presentation as it lacked beef or to put it another way..it appeared to be based on private conversations he and his colleagues may or may not have had with professional friends and colleagues at informal meetings , parties and perhaps the odd comment made over a hamburger at a drive-in takeaway.
    Mr Carney’s further raising of “uncertainty” can only have a possible plus in that the Pound may reduce further making our exports increase. A good day for Scottish whisky makers. A poor day for Irish whiskey makers. Bad news for the Euro and US dollar exporting nations.

  26. Posted August 4, 2016 at 1:11 pm | Permalink

    Just a sign of failed economy, bringing loads of people into the country has failed, so i would think they will double down now.
    The ftse is still below it all time high and has not move up much from the year 2000, if they spend 60 billion buying etfs on the ftse they should be able to fix that.

    A lesson on how to keep the elite rich, how long can it go for, how long is a bit of string, just buy buy buy everything and anything that people do not want.

    The politician have done nothing, they sit back and encourage it so they can come on the media and tell you that you”ve never had it so good, of cos as time goes on more people fall off the back of the lorry and then if you point that out, they tell you that it was they own fault.

    The reason politician like this policy so much is because it stop them from having to take the blame for a failed economy and lessen the impacted on there votes who have not yet fallen off the back of the lorry, as john points out japan has been at it for 25 years, what it is is a depression, you see politician do not want there votes to feel any pain so they leave it to the BOE to do all the lifting, while just give speech on how great everything is, well it is if you are in the top 10%.

    • Posted August 4, 2016 at 4:06 pm | Permalink

      Is there a successful economy anywhere Ian ?
      By your definition that the UK is a “failed economy” the answer must be no.
      So is there a nation you would prefer to live in?

  27. Posted August 4, 2016 at 2:04 pm | Permalink

    We have running the QE and lower interest rates policy since 2001 after the dot com crash and have been going down the pan ever since, that 15 years and we are at the stage where interest rates will go to -2% to help you out with large mount of money you have on loan for your house and car to help you with your repayments, you do not have to worry about the banks, they have already failed and will stay that way.

    1.3 trillion in household debt on mortgages and climbing, that without BTL mortgages, credit card debt, car loans, companies debt, small business debt and the other little loans with the government wanting people to increase the amount of debt they have to buy more goods to try to bail the parliament out.

    The only way out is to repay the money or crash the economy or have a war, could go on on, there is limit to it, even if growth goes negative they will just carry on, like i keep telling you they have not got intelligence to do anything about it, at least not while the elite are getting richer like themselves.

  28. Posted August 4, 2016 at 2:13 pm | Permalink

    Just listening to Mr Hammond our Chancellor who says he supports the BoE’s announcement and “We will look at the DATA in the summer to see how… ” the actions by the BoE have affected the economy. ”
    Fantastic. The BoE makes changes based on data which cannot be even in existence since they will relate of things to come during the summer. Based on heresay. Our Chancellor supports Tarot card readings of the BoE which it admits are not and cannot be based on SOLID data.
    He also is going to perform a miracle of a sort. The Chancellor is a going to see during the summer the effect the BoE has on actions and events , which may or not happen and…here’s the miracle: See the DIFFERENCE between what would have been the data but which we can never now know would be the data and the real data appearing in the summer which, the latter cannot reflect what would have happened had the BoE done nothing.
    Our Chancellor should resign.What a load of absolute TARDIS-fanatic-cum-Yes-Minister gobbledegook. Make sure he empties his pockets on dismissal and puts any catapults, marbles, and half eaten toffee apples on his desk before he leaves. Another miracle is that he could have held down any paid employment whatsoever above that of a Bob a Job scouting event

  29. Posted August 4, 2016 at 2:26 pm | Permalink

    On the subject of this governments grotesque economic incompetence…

    If Mrs May dithers over article 50 until 2020 Net Eu contributions will cost the Uk government 32 billion pounds with net contributions running at 8bn per year. JR please please tell her to get a bloody move on.

    Major throwing 3 billion at the pound on black Wednesday looks like small change in comparison…

  30. Posted August 4, 2016 at 2:31 pm | Permalink

    What is that definition of madness Mr Carney? Doing the same thing over and over expecting a different result next time!!!???

    Yet another smoke and mirrors way of boosting cheap credit to the “supply side” corporates, that have been stashing away cash earnings for a decade now. They haven’t moved to invest that cash, so WTF would they want to borrow some more cash and pay interest on it, not to invest it likewise? Labour costs are low and easy to get on zero hours contracts, why buy or lease some big fancy machine.

    This is not and never has been a supply side problem; it is a demand side problem. The BoE can’t solve this problem only the Treasury can. Only the Treasury can increase the fiscal assets in the economy by spending more, bigger budget deficit, to replace the lack of spending and too much saving in a private sector that has lost confidence in its future income.

    Households are heading for a record debt load by 2020, which is not sustainable. Household income is dropping as a share of Gross National Income (GNP as was); the 1% are taking an increasingly larger share, and have been since Thatcher turned up.

    A nation cannot grow without the government sector and the non-government sector spending. The government sector as the currency issuer, can spend what it likes to maximise the use of the nations labour resources, right up to the point where inflation starts to show in any particular sector; until the private sector gets its act together.

  31. Posted August 4, 2016 at 3:46 pm | Permalink

    The poor old banks, finding it difficult to make profits eh?

    Barclays had to get by with just £793 million profit of the first quarter this year and poor old Santander had to make do with only 1.6 billion Euros for the quarter.

    Don’t think I can bear it. I must find my violin.

    No doubt some big increases in bonuses for the bosses will help take the sting out of it all.

  32. Posted August 4, 2016 at 8:46 pm | Permalink

    Hello Edwards 2,
    If you look closely i said it was a sign of a failed economy not that it was and that it stops them having to take the blame for a failed economy which means the policy is working for them and no one is blaming the politician or the bankers for slowing growth for now, it brexit to blame didnt you know and the people for not borrowing spending and that it your fault if you fall off the back of the lorry, it all good there end and it nothing to do with them, just great reviews in the media for them.

    • Posted August 5, 2016 at 7:21 am | Permalink

      Bit of a pedantic reply from you Ian
      If you say twice in your original post we have a failed economy and do not say failing economy nor say heading for failure just what meaning do you think you are implying ?
      Not answering my actual questions I note.

  33. Posted August 5, 2016 at 1:44 am | Permalink

    Oops! You spoke too soon. Governor Carney has just started buying bonds to give more QE. I can’t make my mind up about him. Is he actively malicious or is head simply full of neo-Keynesian crap?

    Can someone please help with a factual matter regarding Maynard Keynes. Is it true that he once opined that if government expenditure rose above 25% of GDP it would be difficult to control inflation? If so, he got that one right, an indication that Keynesianism may be a lot more useful that neo-Keynsianism.

    Turning to modern times, Owen Smith, who is opposing Jeremy Corbyn, is proposing that the UK spends £200 billion of money it hasn’t got on infrastructure. And he thinks that Corbyn is unelectable! The mind boggles! Does it ever occur to any Labour politician that if they promised to finance additional expenditure via extra taxation, they might be more credible?

  34. Posted August 5, 2016 at 1:25 pm | Permalink

    Hello again Mr edwards 2,

    Its not me who is saying we have failed economy it is them by taking this action of cutting interest rates and more QE, my opinion is that the country has been in depression from the year 2000 which a rose out doing away banking regulation and the dot com bust, my opinion hear is, that they done away with banking regulation because they could see the dot com crash coming and lowered interest rates with unlimited leading on houses to get out the dot com crash, when they found out that lower interest rates was the way to making more money and with QE policy even more, they put the interest rates up and busted the economy in 2008 lowered the interest rates and brought in QE as planed.

    My opinion hear is that interest rates should stay where they were and the banks sorted out with 1 trillion pounds and new banks open up with clean balance sheets and good loan and saving transfer to the new banks and people who had borrow to much made to pay for there greed which would of been most of the elite with people who brought houses they could not afford, it would of been over in few months, at the same time i would brought in a new tax system and pension system also sorted out the quangos and whitehall.

    It just bad management from the beginning to the end because of a few people in place of power have the parliament ear with so called experts.

    As for what country, NZ, AUS, CANADA, a few country in the far east, a couple in SA, isle of man and the other two, switzerland, germany, finland, iceland, kazakhatan, india, peru chile, uruguay, and more. i have stay in most of them but i think NZ at my time in life,

    • Posted August 5, 2016 at 10:17 pm | Permalink

      You said we have a failed economy the Bank of England have never said that.
      The nation hasn’t been in depression since the year 2000.
      Statistics prove that.
      Many of the nation’s you name have exactly the same Governmental systems and exactly the same banking systems printing money and running deficits.
      Most have standards of living worse than the UK

  35. Posted August 6, 2016 at 9:45 am | Permalink

    HI Mr Edwards

    Of cos they has never said that because they pump in over 100 billion pounds year, just ask them to takeaway 100 odd billion a year away and see what you have left, in last two months they have pump in 250 billion to banks and 170 billion this week to the economy, in 2001 labour started pumping in 35 billion a year and 6 billion of assets sale, now why would do that if everything was fine.

    I take your point on the countries but the weather is better and as immigrant with money things just look better and you do worry about what their government doing to much but you right they are nearly all playing the same game as set out by world institution.

  36. Posted August 6, 2016 at 9:52 am | Permalink

    They are buying their own growth on borrowed money just keep the people happy and rich richer and votes coming in because if you could see the real story you would not be voting.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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