BoE goes full retard, invents new HIGH RISK qe

swissaustrian · Jun 15, 2012

"Insanity: doing the same thing over and over again and expecting different results." - Albert Einstein

Additional debt is the cure for too much debt, that's basicly the mindset of the following post:

In a move that can only be described as INSANE, the Bank of England announced today that they're going to swap (temporarily exchange) credit from commercial banks for cash if these banks maintain or increase levels of their domestic (UK) lending. By doing this, the central bank takes on the default risk that commercial banks face on loans made to customers on the BoE's books. The intention is to lower interest rates and to make loans available to debtors which can't get (low interest) loans in the market, i.e. from private commercial banks. This is exactly the Fannie and Freddy scheme that created the US housing bubble: government agencies create artificially cheap credit for subprime debtors. WHAT COULD POSSIBLY GO WRONG ?
But it is even worse than the US GSEs (government sponsored enterprises = FM+FM) Under this new scheme in the UK, the central bank just prints the money which is then swapped to commercial banks for existing credit, so they can create MORE credit and make money on the interest. You can see the obvious: This stinks like another bank recapitalization scheme . :doodoo:
Additionally, this scheme can NOT be unwound without creating a credit crunch, because no private actor will ever step in and take on the risks on these suprime loans. So the stated goal of preventing a credit crunch will eventually just create a bigger one later thanks to government intervention .

Here's an article by the London Telegraph (includes two videos):

Osborne unveils £140bn scheme to kick-start stagnant economy
George Osborne unveiled a £140 billion emergency scheme to try to avoid a second credit crunch caused by the ongoing chaos in the eurozone.

By Robert Winnett

The Bank of England is to offer money to high-street banks to kick-start mortgage and small business lending to prevent loans being rationed for many families and entrepreneurs, the Chancellor announced.

It comes after sharp rises in the costs of mortgages and other loans in recent months as banks struggle to raise money in the midst of the single currency crisis.

Sir Mervyn King, the Bank of England Governor, said that the “industrialised world have thrown everything bar the kitchen sink” at the global economic meltdown but that even “bolder action” was now required.

In the annual Mansion House speech in the City, the Chancellor said he was no longer prepared to “stand on the sidelines” and that the radical new “bank funding scheme” will be launched within weeks.

“We are not powerless in the face of the euro-zone debt storm,” Mr Osborne said. “We can deploy new firepower to defend our economy from the crisis on our doorstep. Funding for lending to the family aspiring to own their home and the business that wants to expand…The Government - with the help of the Bank of England – will not stand on the sidelines and do nothing as the storm gathers.”

He added: “We are rolling up our sleeves and doing everything possible to protect British families and firms.”

The bank funding scheme will allow high-street banks to temporarily “swap” their assets, such as their mortgage books, with the Bank of England in return for money they can loan to customers. It is estimated this could support up to £80bn in new loans.

The Bank of England will on Friday also activate an emergency scheme that offers six-month liquidity to banks in tranches of no less than £5bn a month.

It is the latest attempt – following the cut in interest rates to record lows and the £325bn quantitative easing scheme – to kick-start the British economy following the start of the financial crisis four years ago.

The scheme should also help British banks shield themselves from the impact of the eurozone crisis – as they will not have to rely on international finance markets to raise money, which is currently difficult.

Sir Mervyn said that the “euro area crisis” has created a “large black cloud of uncertainty hanging over our economy”.

He added that the “ugly picture” had created “formidable challenges” and that despite trillions of pounds being pumped globally into the economy over the past two years “we are back to where we were”.

Speculation mounted that the Spanish government will require a full-blown government bailout after the country’s borrowing rates rose above the psychologically-important rate of seven percent.

The country has already been offered a €100bn “line of credit” to help Spanish banks by their European counterparts – but international investors do not believe this is sufficient.

This weekend, Greece will again hold elections and there are fears that parties refusing to support austerity plans will win the balance of power – which could lead to the country being forced out of the euro.

World leaders will meet for the G20 summit in Mexico next week when Angela Merkel, the German Chancellor, and other European leaders will be under intense pressure to solve the ongoing crisis in the single currency.

Mr Osborne reiterated warnings that Greece may have to leave the euro before the economic chaos can end.

“The political paradox Europe faces right now is this: some or all of these things are needed for the existing countries in the eurozone to make their currency work, but it may take Greek exit to make it happen,” the Chancellor said. “That is a decision for the eurozone and the Greek people. One thing is for sure: if exit is the chosen route then the eurozone must have a very good plan in place to prevent contagion.

“The worst case for everyone would be exit without a sufficiently ambitious response. But carrying on with the current uncertainty and instability is not much better. A time for decisions has come.”

Also appearing at the Lord Mayor’s banquet for bankers, Sir Mervyn also set out the damaging impact of the ongoing crisis.

“The euro-area crisis has had more dramatic moments, in which the ultimate resolution seems to be at hand only to be confounded by subsequent events, than there are episodes in The Killing,” the Bank Governor said, referring to the Danish crime drama.

“The effect of the euro-area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole…The black cloud has dampened animal spirits [Keynsian codeword] so that businesses and households are battening down the hatches to prepare for the storms ahead. The result is that lower spending leads to lower incomes and a self-reinforcing weaker picture for growth.”

However, Sir Mervyn echoed assurances from the Chancellor that the situation would improve with Government action.

He added: “Leaders of the G20 will next week confront formidable challenges. In the United Kingdom, we can and will get through this. But it would be naïve to pretend that any of us can know when the storms from overseas will have passed over our shores and the economic skies begin to brighten.”

The Treasury and Bank of England unveiled plans for two different schemes to help provide funding for banks.

The “funding for lending scheme” will “provide funding for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending”. Although backed by the Treasury, the scheme will be run by the Bank of England and will not therefore add to Government borrowing.

Ministers hope that the scheme will lead to a cut in the cost of mortgage borrowing. Over the past six months, two-year fixed mortgage rates have risen from 3.22 percent to 3.66 percent. Many banks have also increased their standard mortgage rates.

It is understood that the bank funding scheme will be introduced rather than increasing again the size of the quantitative easing programme, as some economists have recommended.

The scheme was first discussed at the quad of senior ministers – David Cameron, Nick Clegg, Danny Alexander and Mr Osborne – about a month ago. The decision to only announce the programme may spark allegations that the Government was seeking to overshadow the Prime Minister’s appearance at the Leveson Inquiry.

http://www.telegraph.co.uk/finance/...bn-scheme-to-kick-start-stagnant-economy.html

69mach351 · Jun 15, 2012

Wow...

ancona · Jun 16, 2012

Europe is going down. Period, the end. It is no longer a matter of if, if is amatter of how much more of the Peoples cash they throw on the fire before they have their collective epiphany and shut this fucker down.

We may not have to wait for very long. Greece will have their election on Sunday, which is a de-facto referendum on Greek continuing to participate in this grand experiment. Should the left win a clear majority, Spain and Italy soon follow. You cannot recover an economy with a bigger debt. It simply will not work. The banks are going down and there is nothing short of a Europe wide totalitarian dictatorship that can stop it.

HCA1961 · Jun 16, 2012

This is getting scarier by the hour.

rblong2us · Jun 16, 2012

Spending our way out of debt with borrowed money is not the solution

by Mitch Feierstein 15th June 2012

The United Kingdom has too much debt. Reports normally focus on government debt: currently around 80% of national income, unless you take into account (as you should) the debts of the bailed-out banks and their toxic portfolios, which would pretty much double that figure.
But what about consumer debt? Mortgage debt? Business debt? The huge slabs of debt incurred by our banking system? The truth is, if you want to know how much the United Kingdom owes, you need to add up everything.

And the answer is terrifying. We owe about 500% of GDP. So for every pound you earn in a year, someone, somewhere owes £5. Add it all up and you get to a total just shy of £8 trillion.

Burden: Including bank bailouts, the UK’s national debt is already around 160% of GDP
You don’t have to be a rocket-scientist to figure out that this is a problem. Indeed, you’d have to be living under a stone not to have noticed that our economy has plunged into a depression because of this weight of debt. The banks started it, but we’re all in it together. And it’s not just Britain, it’s Europe too. And the US economy is way more fragile than is sometimes reported.
The dictionary definition of a depression is ‘a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle.’ That’s us. That’s where we are. The Great Depression of the 1930s did not destroy output to the same degree and recovery was faster. This is the worst depression in British economic history.
And what is the solution to this crisis, as cooked up between George Osborne and Mervyn King, the Bank of England chief?

George Osborne and Mervyn King have announced their intention to make around £100bn of cheap loans available to banks, allowing them to lend to businesses
Answer: more debt! Clearly, these wise souls believe that the whole problem with the British economy is that we don’t have enough debt. So let’s have more. In fact – and how’s this for a plan? – let’s make soft loans at cheap rates to the same klutzy British banks that created this mess in the first place and hope that somehow that sparks off a spiral of investment and innovation. You might as well plan for world peace by selling arms to the Middle East. (Or, come to think of it, making Tony Blair a peace envoy.) It’s the same crazed logic.
Fortunately, though, businesses aren’t stupid. The main barrier to investment isn’t the availability of credit; it’s the dire economy. Businesses are, quite rightly, looking at the devastation and lack of governance around them and thinking this might not be the best possible time to launch new ventures or expand old ones.
And the solution? Well, there isn’t one short of de-leveraging. The only way to a problem of excessive debt is to have less debt. You can’t achieve that by waving a magic wand, you achieve it by working hard, paying down your loans, and remembering that, next time, you better keep your credit card in your pocket when you pass those nice, inviting stores.
But meantime, the plan does reveal something important about the decision-makers in charge of the economy. George Osborne I have some time for: at least he realises he needs to get the government to borrow less; at least he knows that the banks have to be tamed. But Mervyn King: what is he for? We are currently paying him to print money and shovel cheap loans at dodgy banks fueling a property bubble of epic proportion.

Athens burns: Does this look like the creation of aggregate demand, Mr King?
Creating asset bubbles and money printing are terrible policies that King has become addicted to. He’s past his sell by date and has to go.

published in Fridays Daily Mail

ancona · Jun 16, 2012

The end game is occurring more rapidly than I thought was possible. They just don't get it......do they ?

We will all of us, live through some of the hardest and most austere times this nation has ever experienced. The coddled masses here in the USA will not be ready for the financial and social shocks coming our way and many will simply die off. People will believe that whole "We're from the government and we're here to help you line", and they will believe it until it is too late to do anything for themselves. To avert outright panic, programs will be hastily prescribed to "help stave off hunger" and to "insure that no one goes without", yet they will all fail, every single one. By the time people figure out that they need to plant their own food and raise a little livestock like chickens and goats, it will be too late. They will eat their seed stock for lack of nutrition, then they will simply starve to death.

The end game will not be pretty folks, make no mistake about it. As the resident myopist, I have done what I can to prepare myself for everything from urban warfare, roaming gangs from the "golden hordes" to roving groups of racially knit groups of thugs, all the way up to military ground sorties involving our own forces going house to house.

Think it won't happen? Think again my friends, think again.

Keep some of the stash close at hand so it is ready and available, and keep some of it scattered at safe spots. If you have prepared with weapons and ammo, do the same. Make "receipts" for the "sale" of your main battle and self protection weapons, as this may be necessary to avoid arrest in a confiscation scenario, and allow you to still protect yourself and family when even the government can no longer support their own agenda for lack of money.

Now is the lull before the coming storm. Make use of this time to do what you should already have been doing for a long time [I hope]. I live in hurricane central, so we're already on our game, but many of you out there in fly-over territory have been a little more complacent and should redouble your efforts. Remember, food only goes out of date because you are not rotating stock. When the shit hits the fan, you won't be rotating because there will be nothing available to rotate with in the first place. Build a garden and maintain it. Buy up ball jars and lids. Do it and do it now.

rblong2us · Jun 16, 2012

soooooo ......

if you was 'da government' and fiat money suddenly failed, with the banks all closed,

WHAT WOULD YOU DO ?

Im thinking they would ORDER all citizens to carry on as before and get fuel / food ration systems out as soon as possible ( contingency planning should already have something in place )

Substitute your ration quota for the defunct cash on your existing credit card.
Everything is in place for such a system, just got to make it happen quickly.

OK still pretty disruptive but not impossible to sort.

Once the justintime food / fuel delivery system breaks down, its a very different scenario, so planning should be in place.
(Even the dumbest Gov should have this level of planning in place )

And it only needs to hold things together for a short period while they reboot with a shiny new monetary system. Would expect they've got emergency planning in place for this as well.

A situation like this would obviously not be a seamless transition but it is do-able and as i often contend, if its predictable it shouldnt be a total EOTWAWKI.

Its a black swan event that will do that (-:

ancona · Jun 16, 2012

We will go full-barter in as little as a week my friend. I am ready and will most likely end up being 'white poet warlord' in my sector, because I have planned for Armageddon and am ready for the shit to hit. Those with gasoline will be trading it to me for five pounds of squash and some honey. Those with medicine will be trading it to me for five pounds of goat meat jerky and some eggs. Those with gold and silver will be using it to buy a half dozen jars of tomato sauce and #10 cans of wheat berries to make flour.

rblong2us · Jun 16, 2012

Im more of a 'plan for the worst and hope for the best' type, Ancona.

Certainly barter will quickly evolve but that only works for a small number of preppers or people with access to 'secure' resources.

Not sure I actually want to live through your version of armageddon but its probably important that some do.

Otherwise, see you all on the other side

( blimey, its getting a bit dark in here ) (-:

Spiralpiece · Jun 17, 2012

...I had to, with the name of the thread and all...

pmbug · Jun 17, 2012

"May you live in interesting times."

ancona · Jun 17, 2012

Those words ring scary and true Bug. We are indeed in interesting times my friend. Expect them to get even more interesting as shit starts its death spiral.

bushi · Jun 18, 2012

rblong2us said:
Its a black swan event that will do that (-:

...it is not necessarily a big event, that will bring the shit down. The more I read it, the more I appreciate "Currency Wars" by Rickards. His take on economics is rather that of complex systems (ie nuclear energy, weather, etc.), not the silly models, where wise (not!) men are turning few knobs in the form of interest rates/M1 money supply etc, and doing all the fine-tuning. Few good analogies: the lightning, that starts small local bush fire, and the one, that starts hundreds of acres fire, might be identical. What is different between the two, is the state of the forest, where it stroke. Another one: A single snowflake, that starts the avalanche on an unstable slope, is not substantially different from millions of others, that already fell on that slope - it was just one too many. And once it starts, it starts.

So it happens in complex systems, with their inbuilt tendency to runaway events, when some critical conditions and/or thresholds are met. I think that our own friend Fusor could find some good analogies between nuclear stuff, and that

rblong2us said:
Certainly barter will quickly evolve but that only works for a small number of preppers or people with access to 'secure' resources.

yep, my take on this is, that black market & often barter will always thrive in difficult times. History shows that more often than not, local currency was replaced on the black market with the one, that has been perceived as "strong" - which is easy to be perceived as a "strong" one, if you are competing with Zimbabwe Dollar, on Polish Zloty from the times of our '89 hyperinflation - anything, coming from stable economies would do. People tend to look at the "well-known" safe-heaven alternatives.

Question remains, what will be deemed the "safe-heaven" one, in case of domino-falling fiat currencies worldwide? I tend to think I know the answer today , that's why I am here, learning, sharing and preparing

swissaustrian said:
Sir Mervyn King, the Bank of England Governor, said that the “industrialised world have thrown everything bar the kitchen sink” at the global economic meltdown but that even “bolder action” was now required.

Click to expand...

...BWAHAHAHAHAHAHA!!! this is the quote of the day, thanks SA for that little gem of "eloquent" speak... I again am drawing unhealthy interest of my coworkers, laughing uncontrollably at my monitor - honestly, is that guy a comedian? :rotflmbo:. 'Dear Sirs, our economic situation is grave indeed, it is time for desperate measures.. I recommend this committee to start throwing kitchen sinks, and do not look back twice'. Seriously...! 'We did everything we could, now it is time to get down to business!'... Seriously... I mean, is there a limit to stupidity in the upper echelons of our societies? The guy doesn't even know how to put together one sentence that would not be an obvious nonsense and self-contradiction??? Aaahhh... that really made my day, SA!

benjamen · Jun 20, 2012

New article on the subject:
http://therealasset.co.uk/king-osborne-qe-gold/

The central bank backing commerical bank loans, increasing the money supply, and encourage people to go furthur into debt....

swissaustrian · Jun 20, 2012

Seems like the BOE is reeeeeeally scared:

Prepare for Lehmans re-run, Bank official warns
Banks and traders must prepare for a devastating market seizure as governments grapple with the escalating economic crisis in Europe, a Bank of England policymaker has warned.

By Philip Aldrick, Economics Editor

9:26AM BST 20 Jun 2012
Cheap and ready access to the liquid assets that oil the financial markets are under threat from both state-imposed capital controls and flagging confidence in the euro, Robert Jenkins, a member of the Bank’s Financial Policy Committee, told the Global Alternative Investment Management conference in Monaco.

Without easy access to liquidity, markets could seize in a re-run of the credit crunch after the collapse of Lehman Brothers, he warned.

“Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear,” he said. “Yet despite these examples, many continue to assume that ... ‘liquidity’ is free and will be freely available.

“Short-selling bans in Europe and bond purchase penalties in Brazil are a foretaste of the future. I recommend that you send your best and your brightest to the library to research state intervention in the post war period. It could come in handy. For like clean air and water, market liquidity is no longer limitless and no longer free.”

His comments came just minutes before the Bank launched its first £5bn emergency liquidity auction under the arrangements unveiled last week to protect Britain’s lenders from a crunch. At least £60bn will be made available to Britain’s banks over the next 12 months.

Under the Extended Collateral Term Repo operation, banks can swap low-grade assets for high-grade ones that meet regulatory liquidity requirements, paying a cut-price 0.75pc for the funds.

Mr Jenkins’ comments in Monaco illustrated the urgency of the scheme. Markets are facing another crisis due to the resurgence of “cross-border” risks in the eurozone, he warned, and a calamity will not be averted unless confidence is comprehensively restored in the single currency project.

“The spectre of cross border risk is back. Its impact is difficult to quantify but must not be underestimated,” he said. “Capital is leaving the very countries that need it – and flowing to the countries that don’t. At the same time financiers are cutting back on credit while they determine and manage their cross-border risk.

“It is not enough to contain an accident. The challenge is no less than to restore faith in the entire euro construct. Confidence must be such as to completely banish cross-border risk from financial planning.

"Until and unless this is accomplished the euro zone credit system has the potential unravel, the free flow of capital will be impaired and the economic recovery constrained."

http://www.telegraph.co.uk/finance/...e-for-Lehmans-re-run-Bank-official-warns.html

BoE goes full retard, invents new HIGH RISK qe

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