Well ‘creating’ money not necessarily the right term although that’s disputed everywhere. The gilts are being sold by the government and in a normal functioning market third parties will buy them… yields were shooting so high and the bonds marked down so much the BOE steps in to buy them at a certain level, capping the yields and providing some certainity to the price or value of the bonds, therefore providing some certainity to third party buyers of the debt. It’s worked so far today… yields down, gbp moderating…
Your q re leading to more inflation, well that’s the rub. It can and does in certain circumstances but the bonds and currency spiralling out of control and a collapse in a pension fund would lead to even more dire consequences and inflation. A worthless currency. Steadying the ship in the bond market is more important in that equation
Well last week was a disaster in policy and especially in communication between the fiscal and monetary sides. They literally walked near ran in opposite directions. I dont think their fiscal policy or proposals are wrong approach to expand the economy per se but you have to play your cards according to the situation you’re in. They obviously didnt flag tax cuts to the BOE in advance and what truss and her chancellor did was reckless in those circumstances of a currency already under pressure, spreads widening and a central bank planning QT. I do think we’ve reached peak dollar though and everything is at the mercy of usd and thr feds decision. First sign of a pivot there and gbp will recover and an expansionary fiscal policy doesnt look so stupid. However its a serious gamble with the downside being a gilts collapse.
Very broad question, depends on the bond. Increasing yield means bonds are being sold and decreasing in value. The effect on fx depends on the country. An increasing yield in US treasuries might mean bonds look attractive at those yields and therefore usd will be bid so institutions can buy those same treasuries and therefore usd strengthens. However in an emerging market currency like say the turkish lira, an imcreasing bond yield would likely mean their giv bonds are being dumped and institutions are just trying to exit out of any Turkish exposure and the lira would dump too. GBP and gilts were exhibiting emerging market collapsing economy features, yields rising and fx collapsing which is unheard of for G7 nation. That was the scary part
Aside from that. Writing a blank cheque for energy when you are running a deficit and will need to borrow to pay for it is bananas… Mary Smith will leave the hearing on 24/7 now
Yeah, it’s reckless and a huge gamble. I think the blank chq for energy was the right approach but to then cut taxes and not say hey we’re going to be fiscally responsible to backstop that pledge is a bit crazy… thus the meltdown
However, the meltdown and near collapse has forced the hand of the BoE and is changing the narrative out there. The market is bonkers, everything is up against the dollar today since the BoE operation. Kwasi could be some operator
Conventional wisdom is that it adds to inflationary pressure but its not necessarily so. Its currently steadying the currency and bonds (so far) which is deflationary. Its also supposedly a one month and short term operation so that wouldnt filter through to CPI. Any monetary policy takes time to filter through to inflation. Inflation is currently a worldwide phenomenon not just UK.
Will inflation go higher in UK? Fucked if I know. Im betting it doesnt though and first indication will be in the US PCE release on Friday.
Expectations are that inflation would come down next year. But the tax cuts were daft without expenditure cuts. And tax cuts for who? You can’t borrow forever. Or print money forever. Kwasi made it worse by boasting that there was more to come next year. They’ve confused ideology with reality.
Well theyre saying the tax cuts will boost investment, drive economic activity, increase gdp, reduce the balance of payments problem etc etc…which will lead to reduced borrowing costs. Look it, Im not disagreeing with you but this is the path theyre choosing and are staking their careers on. Inflation will come down, and it will be nothing related to the UKs policies (well thats how I see it)
are that inflation would come down next year. But the tax cuts were daft without expenditure cuts. And tax cuts for who? You can’t borrow forever. Or print money forever. Kwasi made it worse by boasting that there was more to come next year. They’ve confused ideology with reality.