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Bank of England calls unprecedented meeting of economists

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posted on Sep, 27 2009 @ 01:08 AM
This is from Wednesday, but excess cash in UK banks seems to be causing deflation.

Bank calls unprecedented meeting of economists

The Bank of England has summoned the City's leading economists to an unprecedented meeting in Threadneedle Street, as the pound plunges amid growing confusion over its radical Quantitative Easing (QE) policy.

By Edmund Conway and Angela Monaghan
Published: 9:00PM BST 23 Sep 2009

The Bank will host a seminar of all London's major economists next Tuesday – the first time it has invited them in en masse in recent memory – in what has been construed as a sign that it fears market participants are starting to lose faith in its efforts to pump cash into the economy. The move has also sparked speculation that it is poised to announce a major change to the monetary policy framework, although insiders dismissed such suggestions.

It came after the minutes from the Bank's latest Monetary Policy Committee meeting revealed that the idea of cutting the interest rate banks are paid on the reserves they hold there was not discussed this month. The pound has lurched lower in recent weeks, thanks in part to speculation that the Bank will impose charges on banks for holding excessive amounts of cash in reserve at its vaults. Under QE, it is pumping £175bn into the economy, but much of this cash is sitting in banks' reserve accounts rather than being recycled and flowing around the broader economy.

The suspicion that the Bank will soon take action to mitigate this has pushed down market interest rates sharply and contributed to an almost 5pc fall in the pound against other leading currencies. It has caused gilt prices and short-term interest rates to fluctuate wildly in recent weeks.

The Bank's seminar, chaired by deputy Governor Charlie Bean, alongside chief economist Spencer Dale and markets director Paul Fisher, is intended to clear up this confusion. It sparked anticipation in the City not merely because the Bank has a reputation for extreme secrecy, but because some suspect it may come alongside an announcement over the Bank's reserves policy. Others suspect the Bank is concerned that many think either that QE amounts to printing money, much as Zimbabwe and Weimar Germany did, or that it simply is not working.

However, insiders insisted that although the meeting was unusual, it is merely intended to mark six months since the policy began.

In yesterday's minutes, the MPC revealed that its nine members had voted unanimously to leave interest rates unchanged at 0.5pc and the QE total at £175bn, although both the Governor, Mervyn King, and external member David Miles said that "a larger asset purchase programme could still be justified." In a separate speech, MPC member Kate Barker said that the months ahead would be a critical test of whether a recovery was likely to be maintained.

She added that, even as growth picks up, rising unemployment will eliminate the "immediate prospect of a 'feel-good' factor".

She also indicated that low interest rates and Quantitative Easing would remain in place for the foreseeable future, saying: "As the expected recovery becomes established, monetary policy will need to be sensitive to the concern that too rapid an adjustment in private sector balance sheets could be provoked by premature monetary tightening."

posted on Sep, 27 2009 @ 01:29 AM
The problems with all the countries bailouts is the money hasn't been used as was intended. To trickle down into the broader economy. The banks just hoarded it and nothing has been fixed.

The big problem I see is that most G20's peoples have opened their eyes as to what's happened and are going to be smarter about their spending. Pretty much everyone I hear speaking about recovery and what that takes infers that consumers have to resume their spending. I don't think we're going to go back to the spending habits we've had over the last 15 years. I think those days are done. Most people will be tight with their dollars and will be saving more. Which is much better for us all in the long run. If only we can get corps and gov't to smarten up.

posted on Sep, 27 2009 @ 02:09 AM
The problem is with releasing the cash into the broader economy could cause extreme inflation. Look at all the cash that the tiny handful of "favored" institutions got in the U.S.; its insane:

I don't see any way that relasing all thast cash into the general economy is going to be beneficial for anyone.

A certain amount is bound to make it into the general ecomy no matter what... the so-called "trickle-down effect" writ large, I suppose. Meanwhile, maybe they are hoping the banks will simply use the injected cash among themselves to write off various exotic derivatives and other arcane instruments and agreements among each other. Since such things were created in a puff of smoke so, too, perhaps they can vanis in such. And at the same time, theoretically, enough cash would also make it into the the general economy, jumpstarting hiring, investmet, etc., and wiping out the real value of everyday people's now-crippling mortgages, credit-card debt, and so on.

I suppose this is the most charatable way you could answer "why are they doing this?!?" It could solve a lot of problems for people, companies, and nations in debt, but it also creates new ones:
1: Moral hazard -- certain favored people who screwed up are saved, and the act of going into debt is nullified with the magic wand of infation, which evaporates the real value of debt. This is seen as a quick cure-all salve, but it rewards irresponsible behaviour.
2: Existing capital value, value of any savings or paid-off land plummetts. Those who have saved, lived within their means, and accumulated assets will sit agog and watch inflation eviscerate the value of what the worked hard to achieve. Once again, sloppy rislk-taking punishes the prudent and cautious.
3: Government and/or central bank control: The deeper these banks get in with the govt or central banks by borrowing hundreds of billions from them, the more control they are handing to the government. "Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini

The other thing is the banks are not being properly punished or held to account. If these people are going to be taken over by the govt't then fine, pay them like gov't workers: The CEO of Morgan Stanley should be getting the salary of a public highschool prinicple, for example. But intstead its bonuses and massive salaries for the tiny few at the top while the money sits there uneasily, perhaps intended to be used as insurance aganst some kind of derivative-based nightmare; prehaps simply to be stolen or tossed recklessly around in ill-fated M&Rs or dubious land speculation. However, if things get dire enough for the populace at large, the elities might find themselves imitating Mussolini's end as well as his speeches.

[edit on 9/27/09 by silent thunder]

posted on Sep, 27 2009 @ 10:04 AM
That money is what the Treasury dumped into banks, not loaned out didn't just sit there, it took the form of stock and t-bill investments. Hundreds of Billions inflated the stock market to simulate a stock market recovery. Corporate revenues are at record lows, companies cut to the bone laying off even critical employees, and value of companies on the indexes are much lower. Many companies with high PE values won't survive another dry Christmas. Yet their stock values were inflated.

Because banks didn't loan out (for falling knife assets), businesses invest less.

Britain faces 'slow recovery and lower living standards

By Sean O'Grady, Economics Editor
Wednesday, 23 September 2009

Declines in investment and spending will hold back growth, warns CBI leader

Britain's economic recovery will be "fragile, slow and protracted", the Confederation of British Industry (CBI) predicted yesterday.

While the employers' organisation seems confident that the UK has emerged, technically, from recession in the past few months, it stressed that 2010 would be a "tough" year economically, with falling living standards and growth that would actually fall back slightly in the new year, fuelling fears that the UK could experience the much-feared "double dip" or "W-shaped" recession.

"We do worry that it is going to be weak," said the CBI's chief economist, Ian McCafferty. "As the stimulus is withdrawn it leaves the economy at risk of a further slowdown."

Overall, the CBI forecast that GDP would shrink by 4.3 per cent in 2009 and grow by 0.9 per cent in 2010. It sees unemployment peaking at three million in the second quarter of next year.

Richard Lambert, director general of the CBI, added: "Armageddon has receded a bit over the horizon. The outlook is improving as the UK draws strength from quantitative easing, a weak pound and a recovering global economy. Although growth this quarter should mark the end of the recession, conditions will remain tough for some time yet and it is difficult to see where demand growth will come from."

More at link

Quantitative easing definition is on wikipedia, it's what is causing those depository reserves.

[edit on 27-9-2009 by Dbriefed]

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