Thursday, 5 November 2009

QE: The Great White Hope

When QE kicked off, I remember that it was described as risky, noone knew whether it would work, but it was only £75Bn (1-2 entire Trident replacement programmes).

Today the BoW MPC has voted to increase QE to £200Bn (source). An increase of £25Bn (a mere 188 Chinooks then).

QE doesn't seem to be doing anything directly to help the economy. We're looking at at >3% fall in the GDP since it started. It doesn't seem to be doing anything to help the flow of credit (the vast majority seems to be locked into banks as capital). So why the hell are we extending it?

Well, every minute we're another £340k in debt.

Let me just check that figure, surely I've made a mistake in my calculations? Record borrowing in Sept was £14.8Bn (3 Aircraft Carriers). That's nearly £500m every single day. Fuck me!

That debt is going to be bloody expensive to pay off, even with our current AAA rating. If our rating falls, it'll get more expensive for us to get into debt. At the moment it's like we're borrowing on our authorised overdraft, if the rating falls, it'll be like borrowing off a credit card.

Up to now, the vast majority of QE has been spent buying government debt / gilts (I hear figures of 2% is spent on commercial paper, the rest UK gilts).

If the government are unable to sell their gilts, they'll have to expect their rating to fall. One of the mysteries of the last few months has been how we've managed to maintain a AAA rating when ramping debt up like a terminal cancer victim.

Simples. The BoE buys the debt, leaving a much smaller pie that has to be sold to real people. There's plenty of demand for the bits that are left, our debt rating stays high and the government can continue getting us into hock for the next three generations.

We're going to be completely fucked when the wheels come off. Bring on the election!


  1. I had some similar thoughts.

    I guess the only question is: which comes first, the General Election or the IMF Intervention?

  2. My money is on an election, then the Tories read the books and find out how fucked we really are. Then IMF intervention when it becomes clear that the government will be forced into the equivalent of going to a boxing match with both hands tied together, to your balls, with cheesewire.

  3. A vivid, apt, and cringe-inducing image... perhaps the French were more acurate than they thought when they described DC's speech as "emasculating" our position in the EU?

    Definitely going to get worse before it gets better :(