Wednesday, 23 December 2009

QE not yet working according to Bank of England!


OK, this is my last serious post before Xmas, I am sure everyone has better things to be doing right now (after reading this of course).

But there latest Bank of England meeting notes are very interesting. The line I am intrigued by is the one that says with Money Supply growth falling QE is not working. Funny that, I agree with regards to money supply, but assets have boomed these last 6 months. The FTSE is up 53%, Gold is up, oil is up etc.

Now the Bank expects the real impact of QE to be felt in the economy with a lag, so that will be next year then!

Does this mean that instead of a big bust in the first few months of the year we will have a huge boom? Clearly the Bank think that..makes pickaing a strategy hard. Except that the Bank have been wrong about nearly everything for 2 years now - so perhaps the best thing to do is plan for the opposite.

I do also get the impression that QE is not about to be stopped on these numbers, which is bad for the Pound and good for Equities.

13 comments:

Jambo said...

Kinda sickening, Q.E. was sold on the boogeyman of deflation.

We have no deflation, yet they're going to push more **** Q.E. funny money? So then it's about monetizing government debt.

Time to flee the £ and then the country.

the recurring anon said...

as a casual observer, may I ask the following:
will it turn bad for equities (shares?) in the new year then? You mention that shares / gold / oil are all up and I am guessing that they are up due to the banks et al having all this money (QE) available to them. How can there be a bust if the BoE are saying that they won't stop QE yet? Won't the very same agencies that are currently buying the shares continue to do so until QE stops?

Any ideas on how the bug bust will manifest itself? Are we talking £ collapse AND shares collapse at the same time?

I find this all rather exciting... and at Chrsitmas too... how sad am I :)

El-Kevo said...

QE can't work. It does nothing to address the worrying issues at the bottom of our decline.

And of Britain coming to a halt because of lack of salt. Well this is the sort of thing which happens in impoverished countries - expect similar failings with alarming regularity (power cuts in particular) ... or were we to suppose that the Icelandic banks fiasco and the Credit Crunch had passed us by without ill effect ?

I have a useful analogy with regard to the debates on global warming, EU membership, immigration etc.

You come home and find a guy fucking your wife - you argue with him and while you do so he continues fucking your wife.

This is effectively what they are doing to us. They've been challenged on all of these issues and know that they should stop and at least reconsider policies ... but no. They carry on while we debate.

What they do is MORE offensive than if they fucked your wife in fact.

El-Kevo said...

...at least you could go downstairs and put the electric kettle on whilst waiting for them to finish.

You won't be able to do that in a power cut !

Marchamont Needham said...

Merry Xmas CU. Thanks for a great blog over the past year.

Don't think you'll be short of things to post about next year.

Ellee Seymour said...

Have a great Christmas CU.

Anonymous said...

Jambo: "We have no deflation, yet they're going to push more **** Q.E. funny money?"

I disagree, we have deflation, QE has masked it, QE has flowed to into the stock market, as with the US, QE has flowed into the property market* too. The significant thing is how muted the rise in inflation has been. But yes all these things are up. The Bank, I mean government would love to see the mother of all booms next year, oddly 2010 is an election year.

QE has led to a depreciation of the sterling zone by 20% in a year, that is what is impacting prices in the UK now. Personally, I see rising prices but I don't think the phenomena is a direct result of QE, rather an indirect result of the drop in sterling induced by QE.

The rub is, QE is now impacting the ability of the government to finance its activities, suddenly we have a flurry of reports on BBC and the press about the governments intention to cut public spending here there and everywhere. My feeling is that their QE was too soon for the electorial benefit they had hoped and it was too large for the peace of mind of those who buy gilts.

I think deflation will be too powerful this time around and last much longer than folk expect.

By the way, what is happening with the EUR/USD?

* A cynic might think those in the know - you know, politicians MPs and so on, might have been disposing of their property portfolios during the pseudo boom in property.

Blue Eyes said...

I could do with a spot of hyperinflation. Just as long as it stops before the lights go out.

Merry Christmas Ye Capitalists!

Scrobs... said...

If someone could bang on my door and make an offer to fund all the super developments we have in the wings, I'd be a happy man...

There's too much mystery and fear despite the uneven playing field in property at the moment. I thought it was a safe bet still!

It is actually, but not with so many political diversions to flatten out first.

Letters From A Tory said...

You can just imagine the pressure that Number 10 will be placing on the Bank of England in the New Year to pump more money into the economy, in a last desperate attempt to convince the public that the Government know what they're doing and might know a way out of this mess.

We know better, of course.

CityUnslicker said...

thanks all, Merry Xmas to you all.

QE continuing will mean no bust until it stops; but the longer we QE the worst the gilt crisis will be.

No doubt the Government will try and delay this until after the election. They may not manage it given we have to have budget first...

Monevator said...

I am one of those rare Internet bloggers that thinks the UK economy is going to rally hard in 2010. And I certainly think the FTSE will do even better with its 70% or near that overseas earnings.

Everyone and their dog is bearish about the UK. IMHO, that was the story for early 2008., not now.

(Unless you're bullish on UK gov debt, in which case I've got an attic load of tat you can have for a very reasonable price, too).

No guarantees of course. Events, dear boy, and all that.

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