Last night on GB News I set out again how I would cut Bank of England losses on bonds.
The first thing to do is for the Chancellor to tell the Bank she will not pay for any more losses from selling bonds in the market. No other central bank does this. There is no stated good purpose for the policy.The Chancellor’s permission was needed for the purchase, and the Treasury guarantees against loss.This gives her the right to order a stop to sales.
The second is to raise with the Bank the running losses where the Bank spends far more on interest on commercial bank deposits than it receives in interest on the bonds which were bought at very high prices when interest rates were much lower. The ECB for example pays a lower rate of interest on its deposits than its lending rate . The Bank of England has the same rate for lending and borrowing. The Bank could require a minimum level of reserve deposits by commercial banks at zero interest.
Some suggest paying nothing on any of the deposits. This has not been tried in recent years when these much larger deposits have built up. The ECB got away with reducing the interest it pays. Markets might be more alarmed by the sudden withdrawal of all interest payments to banks. There could also be a knock on effect on bank lending and growth from the sudden sharp reduction in bank profits and cashflow. Better to proceed with more prudent steps to carry markets with you.
June 10, 2025
I had no idea that this was so difficult to understand. I suspect it is because of the bizarre language of discussions about bonds. When the value of bonds falls, the headline news is “Bond Yields Rise” which to most people sounds like good news. Rachel from Complaints cam be forgiven for not understanding it but I would expect the experts at the Bank of England to understand it.
June 10, 2025
Good morning.
Ah ! Let me stop you right there, Sir John. You seem to imply that Ratchet from accounts is in charge. Hmmm ? You do remember what happened to the last Chancellor that got fancy ideas ? 😉
Before we can proceed, we need to ask; “Who is it that is actually steering the ship ? And I do not mean the person at the wheel, I mean the person(s) giving the directions.
June 10, 2025
I meant ‘Rachel’ but ‘Ratchet’ will do 🙂
June 10, 2025
Indeed is Doom loop Rachael actually in charge?
She mentions Truss yesterday and said interest rates under her got out of control perhaps she has not looks at current bond rates now are higher still.
She also muttered about making the sums add up. Let me help her, all the policies pushed by her (other than relaxing planning perhaps) and her deluded government are a doom loop disaster. The attacks on Non Doms, VAT on school fees, net zero, road blocking, the freezing of allowances, the IHT attacks on trading businesses and farms, sending millions to do duff degree and get into debt, solar panels on houses, heat pump market rigging, not fracking, drilling, mining, pushing EVs, the NHS policies…
June 10, 2025
From Wiki,
Reeves cites the influence of her father on her and her sister Ellie Reeves’ socially democratic politics. She recalls how, when she was eight years old, her father, Graham, pointed out the then Labour Party leader Neil Kinnock on the television and “told us that was who we voted for”. Reeves says she and her sister have “both known we were Labour since then”. She joined the Labour Party at the age of sixteen.
Could/should this be considered child abuse religious a d political indoctrination of immature minds? Her father, I thus assume was not too bright as taken in by Kinnock – the voters were not taken in. They even preferred John Major (as Thatchers Choice) before they rapidly realised what a dire fool he was with his ERM fiasco.
June 11, 2025
Well Truss sacked Kwarteng after he’d attended an IMF Conference in Washington. So that gives an indication on who, or rather what, is steering the ship.
June 10, 2025
Privatise the profits, mationalise the losses
This seems to be government policy across the board.
Rachel from complaints is not intelligent enough to understand the situation and will follow the treasury advice. How many from the treasury gi on to lucrative jobs in the financial sector
As with Net Stupid the taxpayer is being fleeced to enrich a favoured few.
June 10, 2025
Government by the blob, for the blob and for various vested interests. Combined with the evil politics of left wing envy!
June 10, 2025
Rachel actually has four A’s at A level (this before A*) in politics, economics, mathematics and further mathematics so far better than the other ministers. Then again she chose to study PPE and Joined the Labour Party so perhaps not too bright.
But surely she should be bright enough to know that her budget was hugely anti-growth in every respect. I suspect she is being forced into this doom loop lunacy by he dire party.
Sad to see the death of Frederick Forsyth yesterday.
June 10, 2025
So Rolls Royce has been selected for providing SMRs. Surprised that contract has been given to a UK company when Importing reduces our carbon emissions.
June 10, 2025
It is so basic, the question is does the lunacy of BoE activity amount to fraud and corruption?
June 10, 2025
No. It is clearly stated policy, albeit a bad one
June 10, 2025
Same question for Chagos? Was it treachery even?
Ed Miliband today “getting people off fossil fuels is a big investment in the future” so Ed what is the return we get for the £trillions you are wasting giving us rip off energy costs exactly?
If all the other millions of climate factors remain the same (they won’t) then perhaps in 100 years the UK will be something like 0.005 centigrade colder and the world’s trees, crops and plants will have a tiny bit less CO2 to live off. So both are a negative return Ed. Please explain your big investment do you see any positives?
June 10, 2025
Good morning,
When an economy uses ‘fiat money’, it’s all about confidence in it. What makes it valuable is its usefulness. We need to be a large enough economy for trade in it, and for foreigners to want to use it in trade with us. Interest rates act as the pressure valve, to make us consider how to use it productively. The supply of it, is limitless – in theory, because there is no asset backing. The BoE’s job is to manage its availability by managing liquidity. There are no losses or profits at the BoE/Treasury – they make the stuff from nothing.
Stop fiddling around the edges, make our economy useful in the world.
June 10, 2025
@ Peter Wood ” There are no losses or profits at the BoE/Treasury…” – there is when they deal with third parties of course, illustrated by the Bank buying dear and selling cheap in the secondary bond market which, clearly, is the point Sir John is making here. A loss is thereby crystallized and the Bank looks to the Treasury for indemnification and the Treasury in turn looks to the taxpayers including me and I see the outflow to meet tax demands as a loss real and certain. Perhaps you settle the tax demands you face just by minting more £ so there is no real cost to you?
June 10, 2025
Treasury pays money to BoE, or itself, as BoE is wholly owned by Treasury. That Money is removed from circulation. However, there is sufficient money kept in circulation by the BoE — that’s its job, by managing the Gilt market. Look at M4 chart.
Keep thinking it through, you might get there in the end.
June 10, 2025
” That Money is removed from circulation” – rather than be used by the Bank to strengthen (restore) its capital position to enable it to meet its dividend obligations and maintain operational stability, as is generally thought and as explains the reason for the indemnity arrangement?
Has there ever been any danger that there would not be sufficient money remaining in circulation as a result of the Treasury making indemnity payments to the Bank?
June 10, 2025
They make the stuff from nothing actually this is in effect theft – stealing off the holders of the currency and devaluing people wages (this together with frozen allowances the. taxes them further) and increases interest and mortgage rates for them too.
June 10, 2025
Sir J. seems to think money is being ‘lost’ to the economy. It’s not, but the cost of it, on average has.
https://tradingeconomics.com/united-kingdom/money-supply-m4
June 10, 2025
Well it is a transfer from people and businesses who generally know how to make and earn money transferred to the government who know mainly just how to tip it down the drain.
June 10, 2025
The US Quantitative Tightening programme allows maturing Treasuries up to a USD 5bn cap per month to mature and thus run off the Fed’s Balance Sheet incurring no loss. Maturing assets in excess of this cap are rolled over. Unlike the BoE they do not sell any assets and thus they do not incur any losses.
Aside from changing their cap from USD 25bn to USD 5bn in March 2025 (ie slowing QT) this has been the Fed’s consistent policy since the outset of their QT programme in May 2022. Why has the BoE not had the same policy for the last 3 years and thus avoided GBP billions of losses on the sale of their Gilts?
June 10, 2025
Exactly the question. Also why did the Bernanke Review not make recommendations about this point?
June 10, 2025
You seem to be running a shadow ministry here but to no avail because neither the BoE nor the Chancellor are paying attention –
June 10, 2025
Alas not! Nor did John Major, Blair, Brown, Cameron, May, Sunak, Starmer… unfortunately. We would have been hugely better off had they done so.
Much talk of new modular nuclear and Sizewell C today and as back up for the rip off unreliables. Nuclear is not the best back up as ramping them up and down makes them rather less efficient and pushes up capital costs per MWH hugely. Does Ed not have anyone pointing out how totally deranged his mad energy agenda is?
June 10, 2025
I or a few decent engineers I know could assist him. But then he prefers classis graduates to head up the CCC and Chris Stark a law graduate! Kemi the software “engineer” come law grad. is nearly as bad!
June 10, 2025
Nearly there
” first thing to do is for the Chancellor to tell the Bank she will not pay for any more losses ”
The Taxpayer will not pay for any more losses. The mentality that the Government is the paymaster has to be driven out – it is the Taxpayer every time
June 10, 2025
From today’s media
More misdirection this time in support of Milliband “The Government pledge £14bn of new funding to the construction of Sizewell C.” It was in conjunction with the Rolls Royce support for their SMR’s, but the will only receive £2.5billion of taxpayer funding.
Again it is ‘Taxpayer Money’ not actual Government money. Why should the UK Taxpayer be funding even partially the French Government(EDF’s owners) and not 100% UK Industry. Just because Government get to raid our wallets does that mean it is their money? Funding UK Industry can be considered a long term investment, as the money circulates and strengthens our resilience, funding a foreign government is money lost forever never to return.
Some irony, the technology for the RR SMR comes from Westinghouse the company Labour sold off as the UK would never need Nuclear Power.
June 10, 2025
Announced – 19 September 2024
The Czech Republic has become the first country to place an order for Rolls-Royce’s mini nuclear reactors, raising fears in Britain that skilled jobs and exports will disappear abroad.
The Czech companies thus have a unique opportunity to stand at its birth and participate to the maximum extent possible,
The Czech government has guaranteed a pipeline of initial work for Rolls by committing to at least three sites, with each expected to host multiple SMRs.
Th UK just one solitary RR SMR maybe if a site is approved
June 10, 2025
“This gives her the right to order a stop to sales.”
So why is this not happening? I have never before experienced our ruling class – Parliamentarians, Civil Service, quangos, NGOs, judiciary, police and now even the military so unwilling to support the UK and its indegenous people. Whether it be losses on bond sales or the giving away of the Chagos Islands with a dowry, or the continued invasion of “strangers” across the Channel, or the economy destroying Net Zero Strategy, or crippling taxation or the insecurity of the mega Chinese embassy or 2 tier justice or indegenous discrimination or the inhibition of freedom of speech or…….The human rights legislation we have is anti democratic as it hands power to minorities and HR lawyers and we have institutions exhibiting Robert Conquest’s second and third laws of politcs: “1)Any organization not explicitly right-wing sooner or later becomes left-wing.” And 2) The simplest way to explain the behaviour of any bureaucratic organization is to assume that it led by a cabal of its enemies.” We’re heading to become a failed state unless the voters of this country start to wake up beginning with the Welsh and Scottish devolved Parliament elections in May next year.
June 10, 2025
It would help in the first instance if the electorate voted in sensible MPs. “A country gets the government it deserves.”, said Enoch Powell. He was right there.
June 11, 2025
It’s hard to vote in a sensible MP under our stitched up process, where (until recently) the “choice” has effectively been between a Labour numpty, a CON numpty or a LibDem mega-numpty.
June 10, 2025
Losses by the BoE have been deliberately employed for one purpose only.
We can’t use excuses for them any longer – they understand what they were, and are doing. That’s not incompetence or the inability to read statistics.
Everything to do with HMG policies is about collapsing the economy and impoverishing us all – The BoE is also engaged in this, not just to transfer our wealth somewhere else but to eradicate any remaining so that we have less and less, until finally we have nothing!
HMG is not open to positive actions that would be good for us, so they will not take up any ideas that change the downward course we are on. It really is time we all fully understood that Net0 is far more important than all of our lives, and indeed our quality of life is of no concern – at least that is to the irrational pushing this ideology down our throats.
June 10, 2025
The BOE policy of selling bonds at a loss makes no sense. But the Chancellors seem to take no action. Is that because they don’t understand what the BOE is doing, or because they condone it?
Our Governments, both now and in recent years, seem to regard running huge deficit budgets and increasing the UK’s debt as no problem!
But it is, and the day of reckoning is coming.
June 10, 2025
Kieth
Not a problem for them, they just pass it on to the taxpayers for payment.
June 10, 2025
Well they get the money back earlier, then pass the bill to tax payers and can thus waste it earlier too.
June 10, 2025
I appreciate you sharing this blog post. Thanks Again. Cool.
June 10, 2025
The Government’s Orwellian mass bank spying bill is back in Parliament this week.
We need to stop the Government’s proposal to spy on all of our bank accounts.
HMG is going too far and we don’t believe that it will not introduce a large degree of errors and false theft of monies. The simple fact is that neither the DWP or HMG can be trusted to be honest and moral!
June 10, 2025
Agreed, far too many errors which take sometimes years to correct.
Good grief they cannot even answer a phone in 20mins, let alone help to sort out a problem.
Quick to take slow to refund is the mantra.
June 10, 2025
The UK needs to manufacture more high quality stuff, becoming the world’s 2nd Silicon Valley, instead of being over-focused on financial wizardry and / or trickery in the markets.
We need to do everything we can to make life easier for high tech entrepreneurs and British high tech companies (including the British-brand car companies of the future) in general.
June 10, 2025
Dear Sir John,
I have read, but have not been able to confirm, that government debt held within the public sector (including the BofE) does not count as part of the National Debt for statistical purposes, such as the debt/gdp ratio used in markets, IMF etc. If that is correct , then market sales of gilt-edged by the B of E would raise the National Debt one for one.
Moreover, the interest on the debt sold would increase the fiscal deficit since interest nominally paid on debt owned by the £100 Bank of England Asset Purchase Facility Fund Ltd comes back to The Treasury either directly via the dummy company or via BofE profits on the money created to support it.
One does not need to be a DOGE whizzkid to work out that this might not be a good scheme. There can be circumstances when it might make sense for the BofE , but I do not see how it can when gilt-edged sales to the private sector shrink credit at a time when the Bank is, as soon as is prudent, trying to expand credit by cutting Bank Rate. Does anyone ask the Governor what he thinks he is doing?
June 11, 2025
More importantly perhaps Sir John, may I yet again suggest the alternative solution to the problem you have so often and so cogently posed. The Government should buy the Bank of England Asset Purchase Facility Fund Ltd from the Bank (which is a subsidiary of The Treasury) at the modest cost of £100.
Ideally, it should be repurposed though the Treasury, with its usual stolidity (eg British Energy and the Royal Mail pension fund), would probably just want to cancel the debt it holds for a short-term win. Either way, this would need imagination, which had to be brought in from (?) the Cabinet Office to set up the asset purchase facility in the first place, in order to replace the BofE loan in a money-neutral way. It would not be too difficult, unless one still insists on wearing wing-collars.
June 11, 2025
Which bank governor decided to pay high interest on commercial banks funds?
“14 Nov 2023 — The government could save £55bn over the next five years if it limits the amount of money the Bank of England pays interest on to commercial banks”. New Economics Foundation, why didn’t Rishi or Hunt stop this?
Tice wrote to the BoE on June 8, calling on the bank to stop paying out interest on reservices it had acquired from lenders through QE, but this has caused a big clash. Why is it causing a clash, and what is the downside?
Reply I highlighted it from 2022 onwards when they flipped to QT. Removal of all the interest could cause a bond market sell off and less lending by commercial banks,