Bank of England

Jim Pickard

We predicted in October that the government could suffer an uncovered gilt auction within months because it was trying to raise such a vast amount of money from the bond markets.

From Bloomberg a few minutes ago: Read more

Jim Pickard

Jean-Claude Trichet, president of the European Central Bank, warned on Monday that governments should stop concocting new stimulus measures and just get on with the ones they’ve already announced. Read more

Jim Pickard

I’m sure there’s a mixed metaphor to be had here re a big fish across the pond.

But the RBS director with an equally impressive pension – according to RBS’s 2007 accounts – is one Larry (Lawrence) Fish, chair of the bank’s US operations. His pension pot was $24m at that point. Read more

Chris Giles chronicles Mervyn King’s faltering response to the credit crunch and the fading power of the Bank:

Success certainly bred a certain arrogance when it came to views about how the economy worked. Dismissing as “an old shoe” the idea that asset prices should be taken into account when setting interest rates, [King] said those who worried about the effect on consumer spending of rapidly rising house prices were peddling “mindless regressions” and should instead think about the economics. “Housing does not determine consumption; there are more fundamental influences on consumer spending,” he insisted. Read more

The lack of attention given to the Bank of England’s grim forecast for the economy is bizarre. Mervyn King basically said the recession, from peak to trough, will be two times worse than the Treasury expects. That knocks about £30bn to £40bn off official GDP forecasts, hits the tax take by up to £20bn and raises the deficit from 8 to closer to 10 per cent of national income. You have to wonder why David Cameron decided to raise VAT in the Commons on Wednesday and ignored the big “gloom gap” between Gordon Brown and the Bank.

For those who are interested, the calculations are based on this Bank fan chart. It is not a straight comparison with the Treasury forecasts, so the figures have to be put into a spreadsheet. Read more

Jim Pickard

It’s the question being asked today – and the best explanation I’ve seen is in this morning’s Lex column:

Britain came off the gold standard in 1931 and sterling devalued by 28 per cent. The economic crisis that followed marked the end of the UK as a global power. It also led to an effective default on almost half the national debt, which was restructured into bonds still outstanding. Parallels with today are eerie. Since the middle of 2007, the trade-weighted pound has fallen by 27 per cent. Furthermore, as the government shoulders contingent liabilities for ever greater amounts of delinquent bank debt, worries are growing about the state’s finances. Read more

print-money.jpg

A politically explosive economic policy was smuggled into the bank bailout today. With little fanfare, the Bank of England was given a green light to start printing money, should it deign it necessary to do so. Welcome to the world of “quantitative easing”. Read more

Jim Pickard

This blog asked yesterday morning whether Gordon Brown really meant what he said when he demanded that banks should quantify all of their toxic loans.

A research note put out on Friday by analysts – at RBS, ironically – points out that “the domestic UK banks are technically insolvent on a full marked-to-market basis” (although it adds that this is not unusual at this stage in the economic cycle). Is the prime minister sure that he wants them all to come clean? Read more

Jim Pickard

This morning’s papers were full of info about the new insurance package which will help out any British bank which accepts the government’s offer. Here is the story on ft.com.

The real news to emerge since then is the fact that banks will be able to pay for this insurance using either cash or equity. In other words, we may see taxpayers taking an even bigger stake in RBS or Lloyds/HBOS. In theory the state may even take stakes in other banks – such as HSBC or Barclays - although this seems unlikely for now.

Jim Pickard

A scheme to ring-fence toxic assets on individual banks’ balance sheets and insure them against default looks set to be the centrepiece of the latest bank bailout – which could be announced as early as tomorrow*. Read more about it here.

This has the advantage that bad loans would not have to be marked to market. That would not have been the case under the more generic “bad bank” idea, which would have meant all banks tipping their toxic debt into a single which the government would then have to value.

But wouldn’t this undermine Gordon Brown’s claim – in an interview with the FT on Friday – that banks must admit how many “toxic assets” they have on their balance sheets? Read more

Jim Pickard

We pointed out in October last year that there were jitters within Whitehall about the amount of debt which the government needs to raise through gilts issuance – and whether there would be enough buyers.

So far this hasn’t been much of a problem. In fact there has been a bubble in the gilt market – as investors flee towards safety – pushing yields to new lows, as John Redwood points out here.

That could be about to change. Read more

Jim Pickard

It’s taken months and years for anyone in Labour to admit that the government’s housing policy has been based on false assumptions. Time after time, ministers claimed that there was a desperate under-supply of housing in the UK; ignoring the role of speculation and cheap debt in the housing boom.*

But Ed Balls came close on this morning’s Today programme.

Here is what the education secretary said:

“There was a pretty strong view that we had a growing demand for housing in this country and a rising population, but we had much lower levels of house building than we’ve seen in previous generations in the private and the public sector.

“Therefore, there was a pretty strong view, which may still in part be true, that the real level of house prices had gone up, because there was more demand and less supply.”

In politician speak this is code for: we are distancing ourselves from the old line. Maybe 2009 will be year when the government drops its target of 3m new homes by 2020. Read more