Should the Bank of England buy shares?

Looks like the BoE has picked right up from GB in doing all it can to re-inflate a bubble that has long gone bust.

Whatever way they play it from this point on they are spending money that we don't have. That can only be storing up further problems down the line.

https://creditcrunchedoutinuk.blogspot.com/

This is so wrong on so many different levels, that I find myself unable to untangle the obvious failure in logic that you have.

Next you will be telling me that everyone who loses on the races should be made whole?

The government should buy vast amounts of shares, and hold onto them for two decades, until share prices recover, and use the resultant fund to underpin public sector pensions...?

A few assumptions being made here, Robert. Then again, if the stock market is merely "malingering" at the moment, then perhaps a spectacular recovery WILL soon occur.

Nice to see you in optimistic frame of mind, for once.

why cant they leave the markets to find their own levels. the sooner they reach the bottom the sooner we can try to get out of this mess.

Warning the value of your shares might go down as well as up...

Well unless the BoE decide to prop up the market. Surely there will be those that milk the system. So yet again the 'financial intuitions' win at the expense of the taxpayer, irrespective of the potential 'long-term' gains.

What really needs to happen, is that the shape of recovery needs to be defined by the Government.

What do they intend to return us to, what are their aspirations?

The media need to press this issue; the Government should be made to state some clear objectives that are measurable and accountable.

In the real world however...

YES.

And they should be buying shares, or making other investments, in areas where it will impinge upon the UK population's ability to survive this enduring crisis.

That is, investing in 1) food production (e.g. agriculture and horticulture, community food-growing projects), 2) energy production (especially community and micro-energy projects) and 3) in infrastructure to protect and enhance the distribution of food, power and people.

Oh and 4) other schemes and iniatives that will make UK communities more self-reliant and self-sufficient and better able to weather the storm of share prices going down and down, companies going to the wall, unemployment, unstable commodity supplies and increased general poverty.

If the BOE invests in the right things, people will have stuff to eat and will be able to cook it and keep themselves warm.

Pieces of paper, such as share certificates, bonds and gilts, don't taste nice and get caught in the teeth.

I absolutely agree that this would be a better way to stabilise asset prices, help decrease the indebtedness of companies and get the flow of money turned back on.

It's time to think outside the box. the BoE are halfway there but they need to take things a step further and to be a bit more imaginative.

The Tories seem to be of this thinking - who says that they don't have any ideas?! More than Gordon Brown and his sidekick chancellor!

How about setting up a Government bank that rewards saving with a decent rate of interest?

We could save, withdraw the interest, and spend it prudently.

We might even begin to re-establish a saving culture. Mmmm, there's the problem, the Government don't want that.

Debt, debt and more debt, if you don't have debt we cannot control you.

Robert

An interesting piece but I shudder to think about any government buying shares in preferred businesses - this will invevitably lead to inefficient businesses being propped up by the taxpayer again.

The scheme would only work, I think if the shares were bought in new small business operations where the effect can be most widely spread around the country but it is very high risk unless on a tracker.

We/ the UK and the rest of the world will have to get used to e.g. whole market sectors stagnating/failing completely in the coming years and other difficult economic situations, political and other strife and worse. banking is the first major sector to fail - the next one will be sky high energy costs.

Selective buying of shares is beyond the competence of most governments, particularly Goondog Trillionaire Brown's goon show.

The world has changed!

Peston:

"well if we didn't make a substantial capital gain on that kind of time horizon, then we'd be in doo-doo of a depth and toxicity that doesn't bear thinking about."

The same depth and toxicity of "doo" that "we" are in fact submerged in.
What a desperate scam it all is.

Should the Bank of England buy shares in major quoted companies, or should it invest in riskier but fast-growing private companies? I think most of us here will agree on the answer:

https://www.knowingandmaking.com/2009/01/private-investment-by-central-banks.html

Buying equities by the BOE would be a bad move. It would artificially prevent the share price bubble from deflating properly, and is not the most efficient way of increasing demand.

It is understandable that companies and individuals who are exposed to shares and other assets the values of which are deflating, should want someone to put an artificial floor under them. But deflation is an important part of the natural mechanism by means of which recessions are corrected. Assets should be allowed to fall to a price at which people want and are able to buy them, so that demand returns into the market. Equities should only have been bought for the long term.

The government should use the additional money it will be able to borrow to directly increase demand. It should by now have many construction projects "shovel ready". It should forget about PFIs , which were never a very good idea, and certainly now are quite pointless. The demand generated by reactivating the construction industry would rapidly spread through the economy.

It should also increase benefits, particularly unemployment benefits, so that those most affected by the recession do not have to reduce their expenditure so much. This is also guaranteed to help to reduce the reduction in demand.

Well there's a novelty. A good idea. Perhaps HMG should be buying shares in companies that make things or are utilities. That way we reinvest in our futures, protect jobs, create investment capital and can then compete in a world market when sterling is cheap.

Alright in theory as was the recapitalisation of the banks.

Not handled properly and who can we now trust that knows how to handle anything properly it will create a market distortion that could blow the whole lot into the stratosphere.

Perhaps it's time to accept that this is how it is so let's see where it ends up.

Each and every idea that someone comes up with is distorting the situation in some other direction.

You can't make order out of chaos until you know when and how the chaos is going to end.

This is experimentation on an enormous scale with no-one even knowing what they are really doing and what the consequences will be.

They've already thrown everything they know at this recession and it hasn't worked

The panic is really setting in now and it is showing.

We are in even more dangerous territory when they start experimenting with the unknown.

The world economies are completely out of balance and until this rectifies itself we will not know who are winners and who are losers. Only then will the winners be able to support the losers. In theory!

Robert Peston
Which CEo have you had lunch with who needs the Government to buy it out for a short time? Are you proposing that we go down the road of Nationisation of business? I know plenty of people who would agree with you. If you have become a nationalisationist, I applaud you but ask you to consider this proposition.
Instead of the Government buying the equity stake in the companies, why not the government guaranteeing loans to the current employees to buy the business. Capilalisation from within, rather than external capitalisation.

Rather than a shotgun approach to invest evenly across the index, better still to target strategic equity investment to take back greater ownership of key infrastructure assets and reduce the risk of assets being held by foreign investors

Re 8

Labour steal all of the Tories good ideas as soon as they announce them.

Interesting to see a policy that might help pension holders and savers for a change rather than the feckless.

Pretty unlikely that pensioners and savers will re-inflate the economy though...

IMO the real problem is still that no-one can properly assess lending risk due to the toxic waste still in the system. Any policy that helps to flush out the toxic waste as fast as possible and allows lending to increase (not to where it was, but to some happy medium between where we are now and where we were) has got to be a good one. It's a shame no one can think of anything.

The B of E by exchanging debt for shares appears to have set a value on toxic positions yet banks have been singularly unable to volunteer how much damage they are looking for. Let alonme establish what they can unwind if there is any value at all.

The Bof E should restrain itself from entertaining the idea any further until it can definitively declare it knows the value of all liabilities in all companies both on and more particularly off balance sheet.

Given that it can't do this it should stop even thinking about such an exercise.

I dont like this idea

The speculators would take the money and in a months the market would be back where it is now. On top of that the shares may include shares that tank over the coming months/years and then we get little or no return.

Why shares? Why not houses?

Or for that matter why not just send everyone a cheque in the post?

Robert,
Can you write in joined up sentences please? I mean paragraphs so that your thoughts look more organised and considered.

Otherwise, I agree. If companies had more financial strength (aka less leverage) they would not waste so much money on silly wasteful credit insurance.
Thanks

Robert,

It is not the job of a capitalist goverment to allocate capital.

If they did, it can be argued that the BoE could incur huge losses should the economy not recover and the value of the shares boughts crashes.

That would create a big problems as it would permanently increase the supply of money.

At least by buying guilts and bonds they can be sure to get a substantial amount of their cash back.

Duncan

Robert - have you tried to buy any shares recently? It is almost as frozen up as the banks' lending policies!

buy shares lol, what you really mean is re nationalise everything ;-)


Its all coming out, slowly but surely!!!

"Instead of the Government buying the equity stake in the companies, why not the government guaranteeing loans to the current employees to buy the business. Capitalisation from within, rather than external capitalisation."

This gets to the real issue. Brown said that there would be no return to boom and bust, yet that is inherent in free-market capitalism. We need to restructure the whole economy, not by propping up the speculators and their allies, but by strengthening the intelligent, rational parts of the economy. The BofE should be looking to buy long-dated bonds from those institutions who have lent sensibly, i.e. Co-operative Bank, Triodos Bank, other Community Development Finance Initiatives and the Building Societies. These organisations also know where the environmentally and socially beneficial projects are, because those are their customers. Supporting employees to purchase their employers allows them to prioritise employee and community benefit and not speculative gain. The Co-operative and Mutual sector is nowhere near as damaged by the recession as the speculative sector. This is because the business model is more robust, if not as "sexy" to the speculators. Stop backing losers and start backing winners!

The Bank of England will eventually become a rag and bone man, collecting up other people's junk assets.

Maybe the BoE could buy up the whole UK economy, and store it on its balance sheet for years, awaiting cryogenic resuscitation.

If the BoE buys equities and holds them it is effectively part nationalising British companies, as the shares are taken out of private ownership. Shares owned by the BoE would restrict the dividends distributed to private sector investors, as the private sector investors would own less shares.

On reflection there's more to this issue and I have written a followup at:
https://www.knowingandmaking.com/2009/03/rationality-and-todays-bbc-bloggers.html

This is another example of a 'rationality trap'. In theory, rational private investors will provide all the capital that's appropriate for companies to invest. But in reality we rely on central coordinating mechanisms (the Bank of England in this case) to be somehow "more rational" than any individual.

Are we going to trust the central bank to make the right "rational" decisions? Yet another good question!

There is of course another interesting angle on this. If the Government is effectively looking at public ownership of huge swathes of the economy then it needs to be clear about what it is buying and why. The PM has bought heavily into the sub-prime market of New Labour assets at a time when what we need is a good dose of Old Labour strategic intervention.

The more I think about Peston`s argument in this post the more ludicris it sounds. It`s certainly not the place of the BoE to start dabbling in the stock markets.

I have read some very credible articles in recent months which points to the role of central banks around the world in contributing to this whole mess. To have the BoE play with £150 billion of taxpayers money on the FTSE is a recipe for disaster.

Robert,
Have you ever heard of the Man whose car broke down and several people came along giving technical analogys on what was wrong ,all to no avail.Along came a chap and said have you checked the Petrol.
The Banks have Traded Bonds with no substance, with Money that had no substance, now the Bank of England is trying to Trade with Funds of no substance.
The only answer is to cut away all bad or Toxic Investment from Banks Assets then to Trade the Bank as normal.This is what happens in any Liquidation and assets are redistributed.I f the BoE thinks it needs to get Money working again push Funds to the small Building Societies and let them do the small to Medium Volume Lending to UK Limited and Man in Street.
What the Govt is trying to do at the moment is National Suicide and anyone with any Savings needs to take it away from these Shores as soon as posible.

Desparation, pure desparation! Things must be worse than we all think!

Robert,

I fail to be convinced that recapitalisation measures taken by any Central Government or Central Bank will have the desired effect of bringing a swift return to economic growth. Politicians and Central Bankers seem to be missing the key point that a recession is a painful, sometimes lengthy correction of market excess.

Your blog states: "In general, the British economy is struggling under the burden of excessive borrowing by companies, financial institutions, households and government". Recapitalising British companies would, I agree, strengthen their balance sheets, but it would do little restore business confidence and encourage investment until the fragile consumer confidence is restored. Expectations of further falls in property prices, prolonged currency weakness, future tax increases and cuts in Government spending do little to restore business and consumer confidence. The recovery will only begin when equity and property prices bottom out, and households and companies start to see the 'green shoots of recovery'.

This government and others around the world will not be able to deal with this 'crisis' until everybody excepts that the business model does not work. Why is GB hell bent on trying incourage people, business's and government to take on more debt??? when it is patently obvious that excessive debt has caused this crisis. This government and the money markets keep trying to find 'the bottom' instead of dealing with the cause of the problems. If the money moarkets really want to find 'the bottom' they need look no further than GB, he has been talking out of his since this crisis started.

Nice trial balloon. I like the colour. BBC livery? The effect on sterling would be devastating. Debasing the currency to save the economy saves nothing. It sinks everyone indiscriminately. This idea is nuts.

Government leaks like a sieve. The well connected can easily make another financial killing before we get a drop.

Why not give tax payers the money which can ONLY be spend on buying FTSE350 shares ? The shares bought had to be held for, say, at least 20 years. The reduces insider information sharing and political/financial corruptions which are certain if the politicians, i=with advice from lobbyists, are to spend the money directly "on our behalf".

The Bank of England should lead by example, its a bank it should start lending money! For economic growth we need a flow of credit which is currently missing. Buying gilts from banks wont get them to lend any time soon, they have piles on non-performing loans to work through first.

New loans well underwritten, using today's asset values and sensible credit pricing will perform well. If the Bank of England doesn’t have the right level of skilled staff to lend itself then buy into the Credit Funds being launched by M&G, Business Lending or the like! These funds will invest sensibly and every £1 invested by will represent a £1 lent into much needed businesses and households.

Nice theory but a lot of companies outside the 'group' what ever it is will suffer as funds are succed in to the group from else where as they will be seen as a 'safe bet'.

How about using the much under rated post office bank to provide loans to small business, this will help keep post offices open in rural areas. The post office franchise owners are small business men and women who operate in the community and should be quite well qualified to hand out small to medium size loans to small businesses.

this article is at best naive, at worst frightening

Is it true that equities outperform cash over the long period? I know that it is the conventional wisdom but The charts are usually of the FSTE 100 or some such index. The shares at the start and the shares at the end are not the same so in order to get that rate of growth you have to move in and out of particular shares at the right moment. - Which is not when they have just gone up and got into the FTSE but just before. So actually in order to get the equities rate you need to be able to see into the future.
I have just had a pay out on a 20 year insurance policy that seems to have yielded the equivalent of about 5.7%. I gather that this compares well with other companies. Over the last 20 years I suspect that a building society account would not be that far behind.
I would be interested if someone who can do the calculations could suggest what a cash fund might have done.

I am still reminded of Winston Churchills quote of watching a government trying to resolve the economy being like watching a man standing in a bucket trying to lift himself up by the handle. Nothing reminds me more than this latest Trasury/ BofE/Bruin folly . Even throwing millions at the feckless idle lifetime unemployed would work better as it would generate some demand . all Brown is doing is chasing his own tail and hoping no one notices that it is their own money that is being reprocessed round the chain of dodgy debt with taxpayers finest lent to themselves with devalued coinage. Anyone foreign investor with a brain would exit stage left pronto.

reminds me of a pink floyd concert with flying PIG and Beds etc. Are the BOE/GB/AD and ZANU-LABOUR been taking some of the drugs they down graded like canibbis

Verything is in debt nothing will change untill there is a step change in attitudes right from the top , you cannot overdrive the public finances into debt like the last 13 years, people follow the same lead as if its a good thing to do,

GB is doing so why cannot I do the same.

its going to be painful and there might not be an end in sight for 20 years. unless there is an election or revolution soon

This comment was removed because the moderators found it broke the house rules. Explain.

If the BOE does buy shares, then it should do so with money earmarked for public sector pensions. The public sector pension rules would have to be changed so that the final salary schemes would have a flexible element. ie Public sector workers would get their final salary plus or MINUS the percentage of money (of the required pot) used to buy up the shares.

This would thus represent a method of diluting the vast inequity between pulic and private pensions as well as helping business!

I thought we already had with the large chunk of Lloyds and RBS?

When El Gordo has sanctioned further fiddling in the share markets can I be the first to suggest that the BOE should buy oil next to try to re-inflate that market, sure his city friends would like to cash in their money on this also.

When groups who make their money out of dealing in shares suggest you buy them - they may be right or alternatively they may just be taking you for a ride.

It seems analagous to scam artists having scammed you once then calling again to offer to help you recover the original money if only you send them some more.

"Is the Bank of England buying the wrong stuff, if it wants to reflate the economy and put the private sector on a sounder footing?"

I'm sure Gordon would think so! His government is bankrupt and the BoE is creating money out of nothing which will ultiamtely bail him out.

Also... I'm no economist but isn't one of the main features of a market that it determines the price? More government meddling in markets means less certainty over the real value of things. Presumably this is ultimatley going to (continue to) spook a lot of investors who will stay out of the market. So any recovery, through the reinvestment of capital, is just being postponed (?).

All I can say is that goodness we haven't got a 'do nothing' party running the show.

IT was obvious that the greatest ponzi credit bubble in human histoy was only taking a rest,it was pining for the fjords like the parrot in the monty python sketch ,it will now resume growing into a Gordonzi super credit bubble to infinity and beyond by courtesy of the QE'ers running the sodukomite economy .

Future generations will be forced to buy into Gordonzi pie in the sty as part of their pension pot full of fools gold to be placed at the end of their rainbows and swapped for soylent green at the appointed hour.

Politicians and bankerrs are fearful of the simple truth that they are now mostly obsolete for selling indulgences[AAA] on a SCALE THAT WOULD HAVE MADE THE PAPACY BLUSH ,UNLESS OF COURSE THEY HAVE SOME CLAAAY LEFT OVER FROM THE CREATION OF ADAM TO BRING TO MARKET.

The financial system was allowed to expand crackhead delusion to a global level ,in order that its colapse would appear a global phenomon that would defer culpability away from the crooked fools running it ,whilst they converted its seed capital into bonuses wheeled out the front
doors OF BANKS and long since spent on wine women and song ,leaving nothing but bats droppings to lever infinite loans .

If QE were simply about increasing liquidity it could and would be handed out to all citizens,of course it is not just about liquidity ,it is about preserving the staaataaas quoers from reality cheques for 0 pounds sterling and getting Labour follies past the next election ,hence the obsession by our twitocracy to save worthless Scottish banks.

Why not labour simply buy teeth that have fallen out, or would that infringe the toothfairys intelectual copyright.?

How deep does RP think the DOO DOO is now!!!!!!

The BoE and the committee have brought interest levels to the floor, this has not improved lending to companies, or those who are looking for a new mortgage, or are not on a variable rate mortgages.

What it has done is cause havoc for institutions who need funds that they take in in savings to lend. So they have made a bad situation worse.

Savers are not getting any interest worth talking about and are certainly not spending, so that has backfired.

It has also affected the value of the pound, thinking that this would help our exports. That hasn't worked because other countries are broke and can not buy our goods.

There is no easy solution to our dilema but manipulating the markets has become an obsession with this government. They have been in power for 12 years and talk a good talk, but that is what it is.
Remember ending Boom and Bust?
So now they want to prop up equities and the housing market?
Where is the logic in this solution?

The markets will find their own level. The last thing we need is to be saddled with more debt to pass on to our grandchildren.

I think the BoE should buy houses instead of shares or gilts. There's no safer investment than good old bricks and mortar. If the BoE can buy enough houses to get the market going again, confidence will return and house prices will start rising again. Banks will lend more because house prices are rising and people will feel wealthier and borrow more. This will lead to further house price rises, at which point the BoE can sell its houses for a tidy profit (it could even fit a new kitchen or strip the floorboards to maximise profits). The MPC could start a TV series following their property developments and charting their profits. Eventually, we can all buy and sell houses to each other and no-one need ever be poor again. Remember, we do live on an Island and there is a shortage of housing supply. That'll put a stop to boom and bust.

The government should be buying houses. This would free up the housing market. The mortgages would be repaid to the banks, thus helping them, and the government would have a stock of socially owned housing to rent to those who have lost their homes. The property would be a real asset that we all know will eventually go up in value. After all they are not making any more land, and people will always need somewhere to live. Also, the UK economy would get most of the benefit. Some rules would be needed, but it would stabilise the housing market.

All these efforts may stabilise the markets a little bit for a while, but they won't cure the corrupting impact of too many activities in global banking that constantely try to outmanouvre national laws. Very strict global banking regulation is needed, nothing less will cure/control the mindset of a greedy elite that believes that they are beyond the law, as long as they can make huge profits and get away with it, no matter the consequences for their 'homeland'. The bermuda triangles of tax havens, offshore banking, hedge funds and all sorts of casino-like derrivatives, are in truth public wealth destruction zones, where trillions of dollars are hidden away and often used for extreme speculation.
You can read more in the following blog:

https://globalinsights.wordpress.com/2009/03/04/offshore-banking-and-tax-havens/

Now is the time to stop the mad excesses of casino capitalism, and prevent the next Madoff!

Robert,

This is a very interesting concept which should be explored further

After all, what are the Middle East "Sovereign Wealth Funds" except their Governments investing in Global stock markets and diversifying oil wealth?

There is no doubt that £75 Billion intelligently placed over three to six months or one year in the FTSE and the other markets could vastly improve matters and hammer short sellers too. Sorus and others could not easily "read" where UK markets were going and up would be nice for all our pensions too.

If George Osbourne is talking about this you should take it up with the Conservatives and see if it is policy. A good Blog all around Now, since you have been to China for a week you are thinking positively and not like a Merchant of Armageddon!!!

Just seen the streetwalker Darling on the C4 news and I have to wonder whether he's challenged Harman to a stupidity contest?
After weeks and weeks and months and months of demanding that the banks return to 2007 levels of lending, he seemed to suggest that in future an international regulator would have to make sure that banks were not over-stretching themselves when it came to lending.
On the one hand he wants banks to continue lending recklessly and on the other hand a regulator to stop them lending recklessly.
Such, it seems, is the crass stupidity at the heart of Golem Brown's government.

DOH!

as any stock broker will tell you ...

"The value of shares may go down as well as up"


if the BOE/GB were to buy them, they would surely go down.


There is only one solution to this mess, and even that is a seriously long term one. It starts by getting the idiots who got us into this mess out of power. Robert - you should be leading the charge to have Gordon step down and take his sorry excuse for a government with it.

If they want to get people spending - perhaps they should ensure that all quitable Life pensioners are fully re-imbursed for the governments regulatory shortcomings earlier in the cycle. Many, if not all of those pensioners, including the surviving spouses of those who have died, would dearly love to be able to live a little less frugally than the government's shameful attitude has allowed so far. Quantitative easing for elderly pesnioners who have also lost any remaining dribs and drabs of interest income would help considerably - and relieve a lot of sleepless nights.

Why doesn't the bank buy credit card debt? If it offered a scheme to convert every credit card bill over a certain threshold (e.g. £10k) into a low cost loan with means tested repayments, similar to Student Loans, this would surely have a far greater stimulus effect.

Banks would have the book value of all credit card securities, consumers would be unburdened of mountains of personal debt and more willing to spend, any fiscal stimulus would have a greater multiplier effect thanks to the higher spending propensity, plus a short term spending boost would come from people spending to capitalise on the scheme before it's initiated.

It would be like a huge state sponsored balance transfer deal.

Such massive purchase of shares will push up share prices which increases market capitalisation which can used in a number of ways. One of which is the computation of fees, salaries and bonuses.

In theory, only a small number of shares need to be trades to grossly inflate the market cap which is divorced from the a realisable worth of the company. Apart from takeovers, can every shares be sold at the same time without depressing the share price?

I was once puzzled by why we use market cap. Now I realised it is a good for swindles.

Here is a simplified example.

10 people formed a public company and put themselves on the board. £100 million is raised from issuing 100 million shares at £1 each. The shares are listed on the stock exchange. The board decided they should draw no salary and claim no expense but are bonused collectively annually at 5% of the capitalisation.

In the first year, there are no commercial activities but 1 million shares (1%) were traded at £1.20, so the board members awarded themselves a bonus of £6 million.

Next year 1 million shares (1%) were traded at £1.40, so the board members awarded themselves a bonus of £7 million.

In the third year, another 1 million shares were trades but due to global economic crisis, the average price is £0.60, so £3 million of bonuses were rewarded. Etc etc.

Not equities Robert!

In the event of default equity holders are last in the queue for any remaing value.

Another good deal for the taxpayer then.

When will it dawn on people that it is the real economy that needs saving not the hangers on?

Throwing money at the markets will only encourage the markets and banks to further flog the dead horse of the real economy.

Other things they could usefully do..

Establish a scheme to provide grants of up to 33% of the cost of undertaking significant home improvements, e.g. loft, cellar conversions, extensions etc in the next two years.

It would triple the impact of the governments initial spending, would keep craftsmen & builders in work, would help add equity value to properties and actually, when you consider the VAT, paye, NIC and corporation tax generated, probably wouldn't cost the government a bean!

Even better from GB's point of view, it would garner votes among middle class swing voters.

Better than blowing £15bn on a VAT reduction, 40 - 50% of the benefit of which was immediatley exported.

Come on George, I am doing your job for you!

Before a problem can be solved its cause has to be understood. The present situation was triggered because too little money was circulating among the general population. Too much had to be borrowed. How did this come about? Simply because too much of the circulating money was being bled off in interest paid to the mega rich and also money exported by foriegn workers.

Re injecting large cash amounts into general circulation will ease or cure the problem provided the loss of this money out of the circulating system is stopped. Either way it will devalue the cash at present in circulation.

Putting the money into the banks, and expecting repayment at some future date, will not achieve this. It will just make the future debt burden even worse. The way to inject this cash/capital would be for Government to use the money to pay for revenue generating capital projects such as building nuclear power stations, instead of selling them off to the French. Defending the coast against the sea, inland flood prevention schemes, are some other examples. The only proviso is such money needs to be spent with British companies and British workers, otherwise the loss of cash from the system will continue. If this means leaving the EU, so be it.

An initiative a day keeps doomsday away.

Can someone tell me how a private bank ("In this case the Bank Of England") which is not owned or run by either the government or the monarchy has such a say over the British Taxpayers Money, both in the "Quantitive easing" (Printing money in the royal mint - owned by the taxpayer) and then charging the taxpayer interest on this money that the taxpayer has payed for already by owning the royal mint?

Whether the current QE activities help the real economy is unclear. Apparently much of the purchases of Gilts have gone to Hedge funds who previously bought them from the Debt Management Office, making a profit in the process.

Buying equities sounds an interesting idea but I think the portfolio should be given to the Pension Protection Agency to help cover bankrupt private pension schemes. Public pensions have already had far too much given they are final salary schemes underwritten by the taxpayer which are unavailable now to most private sector pension scheme members.

"But arguably it is purchasing a sub-optimal mix of assets, if it wants to maximise the stimulus to the economy."

At last, someone's asking the right questions!

That's right. We should do just what the snake oil salesmen tell us. They've given such good advice thus far haven't they?


I have some magic beans for sale as well. Perhaps the Bank of England would like to take them off me for a billion quid.

Mmm... 20 years is about the same time that I've held Lloyds (nee TSB) shares and the capital appreciation from then to today would struggle to fund my pension! However, I do understand that portfolio theory negates the single equity risk and, therefore, the FTSE350 looks better than the 100 in this respect. BUT, to take this argument to its logical conclusion, the BoE should be buying shares worldwide to ensure the best spread of risk/return? This view would also tend away from the parochial attitude suggested and enable the stimulus of economies that may provide us with a pension. I am very patriotic but also unsure about our 20-50 year wealth generating ability.

Robert this is a terrible idea. You see the new money would no longer be backed by more debt. And since debt increases exponentially, it would reduce the need for the UK to get into deeper debt to pay off the existing interest. This would be very bad for the banks and bankers. Hence it's a terrible idea.

18 tufftimes
"labour steal all the tories good ideas?"
When did the tories come up with the minimum wage?
Sure start?
Family tax credits?
Banning of Fox Hunting?
Free bus passes?
Have you thought that it just may be possible, that with-in the civil service, there could be a few old Etonians that might let it slip in an old boys' get-together, about the latest thinking in government, so the dear old, Old Etonians temselves can announce it just before, so it looks like their idea has been stolen?

How about this.

The government pays all of it's bills. Civil servants, contractors, heating, rent etc. In newly printed £100 pound notes, for a whole year.

Instead of borrowing money which will never ever be paid back.

Knowing our luck and GB's he would probably be buying shares at the top of the market; who knows how much lower they have to go.

It's often said that you can't buck the market, and yet that is all we have done to get into this mess thus far and out of it.

Sometimes I think we should actually do nothing; there is no easy way out of recessions and rather than draw out the pain over a long period, why not get it over and done with now and quickly?

Having asked the question, I'm going to answer it.

We won't do it the painful way because that would be political suicide for GB now.

No, we're going to do it the cotton-wool pain free way at least until the next election.

If GB gets in (Gord help us!)or the Tories in May 2010, you will start to see companies being allowed to drop like nine pins. It's hard but it's effective and quick.

I mean the way the government is behaving at the moment with our money, you wouldn't think that anyone is being repossessed, losing their jobs and seeing their companies go under.

Get real, this is happening anyway so let it happen without interference. With the amount of money being thrown at the problem, you could even continue to pay the unemployed the same salary they enjoyed before their redundancy and you'd still have change!

This government is spending its way to bankruptcy.

See you at the soup kitchen.

The Bank of England creating new money is fine if it is done in a very controlled manner (not like Zimbabwe). The new money is to allow for extra business and population. All existing private bank deposits, and any new money created by the Bank of England should be electronically registered with the BOE because 97% of all money now is electronic. The key is the ability of the banking system now to multiply up a deposit to many times (fractional reserve banking), we need 100% reserve so banks cannot create money from thin air. The fact that deposits in all banks in the UK are 100 times the amount of what they were in 1963 shows that all this new money has been created but population has gone up by only 20%. We do not have 100 times more business, houses, assets compared to 1963 but we have had massive inflation caused by all the extra money created through being lent into existence. See example in Wikepedia as to how fractional reserve system works and can create huge amounts of money from nothing.

Obama’s stimulus plan isn’t working, and it cannot work according to the laws of Nature! This was already clear the day it was approved. None of the politicians or economists understand what kind of world we are now living in.
https://www.laitman.com/2009/03/the-failure-of-obamas-stimulus-plan-is-another-reminder-that-we-are-all-in-one-boat/

This is so plonkers its not true.

I'd call it hare-brained but that's not kind to hares.

Might have come bolting straight out of the FSA barn door. Hector 'can't now let the banks bat an eyelid without us and don't tell anyone but I was there since 2004' Sants probably thinks its a good idea. Less to vet.

Equities?why not consider the Grand National?

But actually the quote says 'we need to re-capitalise the whole of british business'

Re-capitalise doesn't have to mean buying shares. It means renewing the short term borrowing some businesses indulged in, rather like the banks.

So, the BOE could buy corporate bonds with much less risk and some return, if you think they should poke about any more than they are.

I don't, frankly

This sounds like institutionalising the coming inflation.

These are the very people who once believed in free markets. Now they engage in conspiracies to create a bubble economy.

Hasn't anyone learned anything?

Or is this just the old elite looking around for anything that will keep them secure in wealth, power and influence?

Those whom the gods wish to destroy they first make mad!

This little blip will be over in 12mths, in five years we will have the big one, unless we get rid of the top layer of managment who caused all this. White coller crime rules!

More yobs for the joys in banking,the kiss of life for every AAA's hole ,lip service on demmand .

Is the government suffering from such a loss of farce that they must nationalies the three card trick and provide index linked pensions for its best practitionerrs

Holding shares for a couple of decades

Puhleese

Just which shares would you have held for a couple of decades

What would you pick right now?

Are they the 'deserving cases'

The FTSE100 changes every quarter with relegations and promotions

None of it stays the same

It is good that there is discussion about what to do. There is no doubt we need to put business on a sounder footing but what exactly is meant by reflate the economy? We got into this mess by credit that was too cheap and easy, just like many of the other bubbles.

Some of the problems are caused by not correctly pricing the toxic rubbish. There is no such thing as an illiquid asset, merely one that has a difference between buyer and seller. Why is there such a difference, it is because the seller (bank) is hoping that a bigger sucker (govt) will come along and pay more.

To resolve the problems we have to allow the correct price to be found without govt interference otherwise the solution will be merely postponed.


It seems to me the main people problem is the rapidly rising unemployment, leading to lower taxes and higher govt expenditure. Thus we should be making it cheaper to take on new staff by e.g. cutting NI tax and stopping the nationalised banks such as RBS from offshoring any more jobs.

Our North Sea oil and gas are past peak and declining so we urgently need to move away from fossil fuel for the economy, let alone the problems of climate change see latest report out in Copenhagen today.

Heavily insulate all buildings, much more wind and probably nuclear. Significantly improve rail not airports because in ten years time cheap flights will be history.

Boost agriculture.

Robert, that's an interesting idea.

But there are quite a number of companies that are so heavily indebted, and whose business model is so flawed (i.e. based around such a low cost of capital) that they really should go bust so that their assets can be passed on to others who will undoubtedly manage them better - I'm thinking of those ridiculous Pub Cos here.

But, by saying the govt would buy a complete index I guess you're saying that this will even out in the long term, which is fair enough.

If this was taken up as an idea then how about this as a further element....

You are assuming that a stronger share price for these companies will enable them to issue more shares.

This would mean that, following the govt purchase of shares in the market, and a stronger share price, they then have a chat to a merchant bank re a new share issue, and as we have heard, get royally shafted on underwriting rates/commission levels etc etc.

But the govt is a guaranteed buyer with no risk!

So rather than buy in the open market and then let the companies do a rights issue, why not do a straight rights issue to the govt, and save all those stupid underwriting fees?

Or does the govt want all the FTSe 100 or FTSE 350 companies to pay huge charges to those ***** banks, in order to recapitalise them as well?

Oops, forgot to add. the plan is to buy up to £150bn of UK government bonds and corporate debt. But in the present climate who will trade government bonds for cash to invest in who knows what when the bonds are likely to have a higher price in the future?

If the holders of the bonds thought there were bargains out there they would already be selling the bonds and buying shares etc.

MrMosky #51

I was joking (#50). Please reassure me that you are too? Please.

We are where we are and whoever was responsible for getting us there can be voted on at the next election.

What we need to do is agree on how we can act to redress the current indebtedness and attempt to avoid a recurrance of the same situation in the future.

Most contributors to this blog seem to agree that we up the proverbial creek without a paddle and that we need to be prepared to take our share of the medicine to purge the debt mountain that we, as a nation, have accumulated.

A few random thoughts for Mr Darling to consider for the next budget:-

1. A formal abandonment on the National ID scheme - on purely financial grounds due to the current economic situation. No political ground lost on that basis.

2. A formal abandonment of the NHS database system - (As 1. above)

3. A freeze on ALL public sector pay for three years w.e.f. April 2009. ALL public sector to include civil service, MPs, etc not just town hall front line staff, although they will, unfortunately have to be included.

4. Scrap all public sector final salary scheme pensions entitlements from September 2009. Thereafter, money purchase schemes to put them on a par with the private sector, but prior earned benefits to be guaranteed. This also to include civil service, MPs etc, not just front line staff. Any new entrants will know what the deal is and can accept it or not, as they choose.

5. Abolish the Regional Development Agencies w.e.f. April 2009. These are a quite unnecessary level of government who simply syphon off, as a middle man, much of the funding that would otherwise finds its way from the treasury to Local Government. The annual cost is measured in billions. Local government officials are, IMHO, as well, if not better placed, to decide on local priorities.

(Didn't the North East tell Prescott where to put his great idea only to have it foisted on them anyway?)

6. Ask Paris of they would like to take on the next Olympics (only joking).

7. A three year freeze on the cash value of all state benefits (other than old age pensions) to address the minds of the feckness of their required contribution to the society in which they live.

That's half a dozen or so to be going on with.

Well that's it official, Protectionism! I knew anyway after gormless Gordon's uneventful trip to the states. Looks like all that sucking up failed!

https://news.sky.com/skynews/Home/Politics/Barack-Obama-US-Not-Looking-To-Negotiate-Specific-Agreement-On-Economy-At-G20/Article/200903215240379?lpos=Politics_First_Buisness_Article_Teaser_Region_1&lid=ARTICLE_15240379_Barack_Obama%3A_US_Not_Looking_To_Negotiate_Specific_Agreement_On_Economy_At_G20

not sure i will still be alive by the time thios gets moderarated.......please move to post moderation as you are unable to pre mod!


Anyway to get back to the matter in hand...if i have it right the BOE is spending £150 billion that is doesnt have to buy stuff it doesnt want from banks, so that they will lend the proceeds..........you couldnt make this up. Why doesnt the BOE just lend the £150 billion to those that want it, why go through this convoluted system, freeze out the banks and they will soon start lending ........

If BoE and HMGov want to stimulate (= put money into) British companies, why do they not just order stuff, buy equipment, sponsor projects?

After all, our roads, railways, hospitals, armed forces, housing, energy generation, schools, universities, almost anything you can think of all need re-building, re-stocking or re-equipping.

Moreover, it appears to be cheap. As I have noted elsewhere, the recently publicised investment in Land Rover costs about the same as the pension for a top banker. And it must produce a much better return for the UK economy.

Should the BoE and HMGov stop, take a couple of deep breaths and think a little harder about the what, why, who and how of their actions to resolve the economic crisis? It is often a good idea when you are in a panic.

The older people running the show [pollytricks, blanks ,pinching funds]wish to secure their annuities before the insolvency and bankruptcy of the key institutions that they ruin becomes irreversably transparent.

The fact that those still paying into bankrupt and insolvent pension ponzi schemes, still prefer a game of lets pretend, bares witness to the self delusional power of the thinking of the enlightenment that persuaded fools of its rationality.

My diversified portfolio consists of bottled water ,bags of rice, salt and soft toilet paper [which will replace the offical currency if all goes well in three years time and their is a run on the pound ]

Before it is too late ,soft toilet paper could also become the main numerator of economic value determining the rise and fall of interest rates to stabilize the rollover economy.Of course no futures market in stp's that debased their value prematurely would be tolerated.

There is an interesting plot on Stephanie Fleming’s blog Stephanomics: How much is all going to cost? It shows the public debt to GDP ratios of the UK, US and Japan over the last 130 years. It makes me wonder if the Great Depression was actually resolved by the expenditure of World War II.

It seems to support the argument I made in #88 that the best way to invest is by spending in UK industry: buy stuff, sponsor projects, whatever. Or is this just too obvious?

On tonight's Channel 4 news we had a Chancellor of the Ex-checker talking like a man who had one foot nailed to the floor and was walking around in ever dereasing circles.

Can we begin to hope that he will finally disappear up his own !!!!!!!!!!!!

(Sorry, but mum would lever allow me to use such language).

I am not so sure that the BOE buying shares is the answer.

So many things could go wrong. The scramble to get your company inside the FTSE 100/350 would be brutal. Additionally the interference of politicians acting as "consultants", not to mention how rabid the lobby groups would become. Spend the money else where, but focus it.

Seeing as the government and the BOE seem to be able to magic money out of thin air at the moment, ask yourself where could the smallest amount be spent most effectively?

Forget buying shares, gilts and bailing out.

Why doesn't the Government return the last years income tax to everyone who earned less than £50k?

The new tax year is only round the corner, it would be a good time to do it.

Make sure everyone knows this is a one time deal and that interest rates are about to climb sharply. Then people would be encouraged to pay off debts and start saving.

#45 Whistling_Neil wrote:

"It seems analagous to scam artists having scammed you once then calling again to offer to help you recover the original money if only you send them some more."

It is called advance-fee fraud.

It won't matter now Bob - we are all going to be saved!

All of the big US banks have declared they are now profitable again in the past few days. Surely the UK will follow suit as GB`s magic has finally taken hold.

Bank of America, Citibank and JP Morgan are all in the money again!!

We can now all say we have witnessed a miracle first hand. A month ago these banks were all dead in the water and still sinking. Now out of now where they are pronouncing all is ok. BoA has even gone as far as to say they will not require any further funding from the Govt.

Why do I get the feeling we are being lead down the garden path???

Those with an attention span of > 5 years will recall that a certain economic genius, one G.W. Bush, proposed getting the U.S. Social Security System out of deficit by investing its funds on the stock market. We now all know what a narrow escape U.S. retirees had. You don't have to look far for the motive behind this proposal, examine its constituency, that small army of petty bourgeois parasites with their commissions, percentages, fees and cream offs relying on a steady stream of wide eyed punters buying their bits of paper to keep them in the manner to which they have become accustomed. If they can't get at our wages, they'll take our taxes instead,

Yours Aye,

Graucho

Hi Robert

You are half right.

They should not be buying long dated government bonds. That is insane as we are buying our own debts off ourselves.

Buying shares however is possibly even more crackpot.

Short dated gilts and short dated paper like cds and treasury bills are what we should be buying. This will put money in the economy and if we did it in the 3 and 6 month arena we might also help the problem of libor being well over base rate.

To all other blogers:-

I apologise for the fact that my name appears in capitals whilst all others appear in lower case.

This does not represent any suggerstion of authority.

I must have "cocked-up" when signing on !

ebahgum - you do have to be careful at the BBC

Complete and utter madness that you would expect from the Tories. Why follow a useless plan when you can make things even worse by bailing out more institutions sitting on investment losses ?

This investment should be going into genuine infrastructure assets like renewables- not useless bits of paper that someone was daft enough to pay over the odds for.

Hey - Hows about the BoE buys up Tulips.

Don´t like Tulips? how about buying some moderators for the BBC