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UK: Bank of England Has New Money Printing Trick

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You can always count on bankers to find new ways of bending accounting rules but in this case the Bank of England is now able to supply the UK Government with £35bn via the back door at the same time it has announced a halt to QE.

 

 

 

So now we know why the Bank of England’s Monetary Policy Committee called a halt to more Quantitative Easing this week – it’s because the Chancellor and the Governor of the Bank of England have concocted a backdoor way of doing the same thing.

The latest little (actually quite big at a tidy £35bn) money printing wheeze comes about as close to outright monetising of government spending as it is possible for the Bank of England to go without simply creating the money and handing it by the lorry load to the Treasury, a la Weimar.

What the Treasury has decided to do is take the accumulated interest payments on the stock of government debt the Bank of England has bought under quantitative easing, and credit it to the Government’s books rather than the Bank of England’s. The total is £35bn, of which the government intends to take £11bn this financial year and £24bn next.

This obviously helps the deficit in these two years quite a lot, creating space, should the Chancellor wish to take it, to ease back a little on the fiscal squeeze. For instance, he might choose to take the shadow Chancellor’s advice and further delay a scheduled increase in fuel duties. It also makes it easier for Mr Osborne to meet his fiscal mandate of eliminating the structural deficit within five years. Even the supplementary target of falling debt as a percentage of GDP by the end of the parliament – the one which City forecasters now widely believe Osborne will miss without further austerity – is marginally benefited by the latest piece of sleight of hand. It’s as if Osborne has died and been reborn as Gordon Brown, who famously manipulated his own fiscal rules to destruction.

The Government excuses its actions by saying that it is only bringing itself into line with practice in Japan and the US, the other major economies to be practicing substantial QE right now. It might also be argued that to the extent the European Central Bank indulges in bond purchases, it practices something quite similar too.

In any case, you might reasonably think that it doesn’t really matter how the government accounts for the interest on the Bank’s stock of gilts. Since the Bank of England is 100pc owned by the Treasury, the government has in essence only been paying interest to itself, so why not just stop the charade and save the money?

Wrong, wrong, wrong. The justification for keeping the interest is that it creates a buffer to fund expected losses on the gilts when the Bank of England comes to unwind its quantitative easing programme. These losses are now going to have to be met by the government directly at some stage in the future. Alternatively, the government could simply ignore them or write-them off. The Government is transferring the losses from today until tomorrow. The thin line which separates monetary from fiscal policy is being crossed in a way which substantially undermines the Bank of England’s claim to independence.

Source: Telegraph

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Turkish PM Calls For Gold Standard

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The Turkish PM, Erdogan has called for a return to the Gold Standard in a scathing attack on the IMF. Interesting that the call for the use of gold as money is becoming more mainstream.

Prime Minister Recep Tayyip Erdoğan states that instead of ruling the world under the pressure of the dollar the IMF should switch to using gold.

During his stay in Indonesia, Prime Minister Recep Tayyip Erdoğan brought up an interesting suggestion for the International Monetary Fund.

Stating that although IMF assistance may appear to be a prescription for some nations, in fact quite the opposite, the fund has often caused serious problems for countries in trouble, Erdoğan asks why it is that the fund uses dollars instead of gold.

Expressing that he doesn’t feel it is right for the IMF to act according to one nation’s currency, Erdoğan states, “The IMF extends aid on a who, where, how and on what conditions bases. For example, if the IMF is under the influence of any single currency then what, are they going rule the world based on the exchange rates of that particular currency?

Why do we not switch then to a monetary unit such as gold, which is at the very least an international constant and indicator which has maintained its honor throughout history. This is something to think about.”

IT IS IMPERATIVE THE IMF AND OECD CHANGE

Explaining that Turkey had to pay a heavy price for the agreement they made with the IMF, Erdoğan stated, “We have not made a stand-by agreement for the past three periods. In April, we will have zeroed out our debt completely and we have no intentions of working with the IMF again.”

Prime Minister Erdoğan went on to state: “One would hope that the IMF would help countries in trouble, however at present this is not the case. This is what we need to achieve.”

Erdoğan also said he believed the United Nations, the International Monetary Fund, the Organization for Security and Co-operation n Europe (OSCE) and the Organization for Co-operation and Development (OECD) need to all undergo a reform.

Source: Sabah

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