seldomrite wrote:We agonise about 0.25% interest raises or about geopolitical factors leading to gas price increases and yet the trillions of dollars/euros/pounds created out of nothing by the central banks in the past few years are politely glossed over.
All very straightforward once you understand the accounting linkages.
It is currently as follows:
HM Treasury
Assets: Net Financial Assets 100, Liabilities: Gilts held by APF 100
Asset Purchase Facility (APF)
Assets: Gilts from HM Treasury 100, Liabilities: Loan from BoE 100
BoE
Assets: Loan to APF 100, Liabilities: Commercial Bank Reserves 100
Commercial Bank
Assets: Bank Reserves with BoE 100, Bank Deposit for punter 100
Punter
Assets: Bank Deposit 100, Liabilities: Net Financial Assets 100
Once you 'unwind' QE you get the following:
HM Treasury
Assets: Net Financial Assets 100, Liabilities: Gilts held by Commercial Bank 100
Commercial Bank
Assets: Gilts from HM Treasury 100, Bank Deposit for punter 100
Punter
Assets: Bank Deposit 100, Liabilities Net Financial Assets 100
The net result of all this is that Gilt coupons currently paid to the APF and returned to HM Treasury less the Bank Rate paid on reserves will instead by paid in full to the commercial bank holding the asset. And that's it.
What I've yet to see a sensible explanation of how giving more free money from Treasury to commercial banks is going to stop inflation. We gave them collectively an extra £2.25bn over the next year last week. Unwinding QE just gives them more. How giving entities more money is supposed to reduce demand for scarce supply is one of those great mysteries of belief over reality.
NeilW