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Is rising inflation looming?

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TheMotorcycleBoy
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Re: Is rising inflation looming?

#296966

Postby TheMotorcycleBoy » April 2nd, 2020, 12:50 pm

colin wrote:Over the next two years gilt market has priced inflation of just over 2% pa so not much change there, of course if TheMotorcycleBoy has read the sensible investing books recommended to him a while back then he will know how much weight to place on that expectation, but certainly it's a better way of getting some idea of what 'every one else' thinks than inviting a cacophony of conflicting opinions on the internet.

To be frank, I'm interested in all these matters, and have read some and am interested in reading more.

Let me ask you something if you don't mind. Firstly if you open this link https://seekingalpha.com/article/427635 ... -weirdness and search out "Exhibit 4: the U.K", then can you answer me: Which maturity gilts do we use as the proxy for CPI inflation? The 30yr bond, 48yr one, etc.?

Then if you look at this page: https://www.ons.gov.uk/economy/inflatio ... ctober2019 observe that through from period aug-oct, measured CPI inflation seemingly just slightly (1.5-1.7%) above that forecast by 30 yr gilt yields (for example about 1.4% ), but the similarity is still impressive.

FWIW I find the concept (and reality) of this equivalence quite interesting. What is it actually telling us? My first thoughts are that there must a very large mixed class of investors that are prepared to accept an asset class whose yields mean that the £££ they put down at time X will be exchangeable for the exactly same value of money to some point in the future. Hopefully. Pension funds I guess.

I also wonder, what forces such (long dated) gilt yields up or down. I imagine a super-rich yacht owner tycoon who thinks "Shall I buy a new yacht this month?". "Hmm I suspect inflation, hence prices, are rising soon, I better spend my £££ now before it loses value". Hence he cashes in all his 30 yr gilts making their price fall, and hence their yield rise. I did the same thought experiment in reverse, and that made sense too.

Matt

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Re: Is rising inflation looming?

#296996

Postby anon155742 » April 2nd, 2020, 1:52 pm

I imagine that many of us here, especially those close to retirement, will be keeping a track of our spending. It might not be 100% accurate since one months shop will not be the exact same as the next month or the next years, but it does allow a degree of personal inflation tracking.

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Re: Is rising inflation looming?

#297083

Postby dealtn » April 2nd, 2020, 5:02 pm

TheMotorcycleBoy wrote:
colin wrote:Over the next two years gilt market has priced inflation of just over 2% pa so not much change there, of course if TheMotorcycleBoy has read the sensible investing books recommended to him a while back then he will know how much weight to place on that expectation, but certainly it's a better way of getting some idea of what 'every one else' thinks than inviting a cacophony of conflicting opinions on the internet.

To be frank, I'm interested in all these matters, and have read some and am interested in reading more.

Let me ask you something if you don't mind. Firstly if you open this link https://seekingalpha.com/article/427635 ... -weirdness and search out "Exhibit 4: the U.K", then can you answer me: Which maturity gilts do we use as the proxy for CPI inflation? The 30yr bond, 48yr one, etc.?

Then if you look at this page: https://www.ons.gov.uk/economy/inflatio ... ctober2019 observe that through from period aug-oct, measured CPI inflation seemingly just slightly (1.5-1.7%) above that forecast by 30 yr gilt yields (for example about 1.4% ), but the similarity is still impressive.

FWIW I find the concept (and reality) of this equivalence quite interesting. What is it actually telling us? My first thoughts are that there must a very large mixed class of investors that are prepared to accept an asset class whose yields mean that the £££ they put down at time X will be exchangeable for the exactly same value of money to some point in the future. Hopefully. Pension funds I guess.

I also wonder, what forces such (long dated) gilt yields up or down. I imagine a super-rich yacht owner tycoon who thinks "Shall I buy a new yacht this month?". "Hmm I suspect inflation, hence prices, are rising soon, I better spend my £££ now before it loses value". Hence he cashes in all his 30 yr gilts making their price fall, and hence their yield rise. I did the same thought experiment in reverse, and that made sense too.

Matt


The inflation rate isn't derived from the gilt curve in that way.

Each point on that curve is (very simplistically) an average of the daily gilt yield from today, repeated daily, until that maturity date. But that is an interest rate, not an inflation rate. Similarly we have an index linked gilt curve, and every point on that curve is the "average of the daily rate on the linker curve". But this isn't an inflation curve either. However by combining the two curves you can derive the inflation rate, combining the (forward) "yield curve" with the (forward) "real yield curve" you can plot a market implied path of inflation.

Now it is even more complicated than that. Firstly because the Index Linked Gilts are RPI instruments, and you are looking for CPI. This too though can be calculated, since a CPI-RPI inflation derivative curve also exists, to allow CPI paths to be constructed also.

Most importantly though this "theory" all assumes the supply-demand equilibrium that derives the prices, and hence yields (and thence inflation) are all "perfect". But they (very much) aren't. Firstly there is a lack of liquidity. Then you have to consider the distortions in (both) Gilt markets, where for some time, and likely to continue for some time, a large "extra" demand exists from pension funds "obliged" to liability match, which distorts the true price. Then you have similar distortions due to historic, and now current QE. Then you also need to factor in what is the "Government Credit curve". That is to say part of the required yield for Gilts, especially in the long end, reflects the (tiny but growing) possibility that the Government might not be able to pay back the borrowing (or will engage in deliberate inflation to erode the real size of the debt).

So. It's very complicated.

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Re: Is rising inflation looming?

#297257

Postby stevensfo » April 3rd, 2020, 10:05 am

dealtn wrote:
TheMotorcycleBoy wrote:
colin wrote:Over the next two years gilt market has priced inflation of just over 2% pa so not much change there, of course if TheMotorcycleBoy has read the sensible investing books recommended to him a while back then he will know how much weight to place on that expectation, but certainly it's a better way of getting some idea of what 'every one else' thinks than inviting a cacophony of conflicting opinions on the internet.

To be frank, I'm interested in all these matters, and have read some and am interested in reading more.

Let me ask you something if you don't mind. Firstly if you open this link https://seekingalpha.com/article/427635 ... -weirdness and search out "Exhibit 4: the U.K", then can you answer me: Which maturity gilts do we use as the proxy for CPI inflation? The 30yr bond, 48yr one, etc.?

Then if you look at this page: https://www.ons.gov.uk/economy/inflatio ... ctober2019 observe that through from period aug-oct, measured CPI inflation seemingly just slightly (1.5-1.7%) above that forecast by 30 yr gilt yields (for example about 1.4% ), but the similarity is still impressive.

FWIW I find the concept (and reality) of this equivalence quite interesting. What is it actually telling us? My first thoughts are that there must a very large mixed class of investors that are prepared to accept an asset class whose yields mean that the £££ they put down at time X will be exchangeable for the exactly same value of money to some point in the future. Hopefully. Pension funds I guess.

I also wonder, what forces such (long dated) gilt yields up or down. I imagine a super-rich yacht owner tycoon who thinks "Shall I buy a new yacht this month?". "Hmm I suspect inflation, hence prices, are rising soon, I better spend my £££ now before it loses value". Hence he cashes in all his 30 yr gilts making their price fall, and hence their yield rise. I did the same thought experiment in reverse, and that made sense too.

Matt


The inflation rate isn't derived from the gilt curve in that way.

Each point on that curve is (very simplistically) an average of the daily gilt yield from today, repeated daily, until that maturity date. But that is an interest rate, not an inflation rate. Similarly we have an index linked gilt curve, and every point on that curve is the "average of the daily rate on the linker curve". But this isn't an inflation curve either. However by combining the two curves you can derive the inflation rate, combining the (forward) "yield curve" with the (forward) "real yield curve" you can plot a market implied path of inflation.

Now it is even more complicated than that. Firstly because the Index Linked Gilts are RPI instruments, and you are looking for CPI. This too though can be calculated, since a CPI-RPI inflation derivative curve also exists, to allow CPI paths to be constructed also.

Most importantly though this "theory" all assumes the supply-demand equilibrium that derives the prices, and hence yields (and thence inflation) are all "perfect". But they (very much) aren't. Firstly there is a lack of liquidity. Then you have to consider the distortions in (both) Gilt markets, where for some time, and likely to continue for some time, a large "extra" demand exists from pension funds "obliged" to liability match, which distorts the true price. Then you have similar distortions due to historic, and now current QE. Then you also need to factor in what is the "Government Credit curve". That is to say part of the required yield for Gilts, especially in the long end, reflects the (tiny but growing) possibility that the Government might not be able to pay back the borrowing (or will engage in deliberate inflation to erode the real size of the debt).

So. It's very complicated.


Well, it's far too complicated for me, but I'm interested in what you said about the Government engaging in deliberate inflation. How can they do that?

Steve

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Re: Is rising inflation looming?

#297268

Postby dealtn » April 3rd, 2020, 10:24 am

stevensfo wrote:
Well, it's far too complicated for me, but I'm interested in what you said about the Government engaging in deliberate inflation. How can they do that?

Steve


Let's say they printed and sent an envelope with a million pounds in cash in it to everyone in the country. We would all be millionaires. The few thousands of pounds we "lost" as income would be nothing compared to this windfall. We would all be very happy presumably, what's not to like about it?

Now what are we all going to do with that money? There is still the same amount of stuff in the shops. The usefulness of that money isn't quite what it seems.

If a Government wants to create inflation it can do it, but it isn't a free option, there are (high) costs too.

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Re: Is rising inflation looming?

#297331

Postby tikunetih » April 3rd, 2020, 12:17 pm

Remember, the Government openly tasks one part of its "finance department" (the Bank of England) specifically to target a prescribed level of inflation:

eg.
REMIT FOR THE MONETARY POLICY COMMITTEE

The Bank of England Act 1998 (the Act) requires that I specify the definition of price stability and the government’s economic policy objectives at least once in every period of 12 months beginning on the anniversary of the day the Act came into force.

I am doing that today by publishing the remit for the Monetary Policy Committee, where the only change is an update to the timing of the open letter process.

I hereby re-confirm the inflation target as 2 per cent as measured by the 12-month increase in the Consumer Prices Index (CPI). The inflation target of 2 per cent is symmetric and applies at all times.


So, it's long been Govt policy to have inflation, with the BoE in conjunction with the Treasury having very powerful tools to pursue this goal.

The Govt could change the BoE's remit. For example, they could make the target asymmetric, ie. targeting inflation of at least 2%. The 2% figure could be increased. Inflation targeting could be abandoned and the BoE tasked with achieving some other metric.

My guess is that we end up following Japan's lead and move towards a inflation target policy akin to "exceeds 2 percent and stays above the target in a stable manner" combined with yield curve control to ensure very low yields across the curve and to prevent the gilt market rebelling even if it wished to (which it probably doesn't, for some time at least).

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Re: Is rising inflation looming?

#297420

Postby anon155742 » April 3rd, 2020, 3:20 pm

tikunetih wrote:My guess is that we end up following Japan's lead and move towards a inflation target policy akin to "exceeds 2 percent and stays above the target in a stable manner" combined with yield curve control to ensure very low yields across the curve and to prevent the gilt market rebelling even if it wished to (which it probably doesn't, for some time at least).


I agree. The so called "Japanification" of the economy.

From my limited knowledge, there are only 4 mains ways for a nation to handle a large amount of debt:
default
productivity rising faster than debt interest
inflation
currency devaluation

All nations seem to be trying for number 4 in this list. Number 1 is no good and number 2 seems impossible for the West.

Inflation seems like the only option

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Re: Is rising inflation looming?

#297456

Postby TheMotorcycleBoy » April 3rd, 2020, 4:25 pm

A slight deviation on my OP (and yes I still want to pick up on couple things with Dealtn about yield curves - but that's another thread - perhaps for the Bonds+Gilts board?)

Anyway. This is still vaguely relevant: my assumption is re. covid-19 and the monetary response adopted, is that presumably *all economies globally* will just end up, all effectively printing money (QE), so collectively things will even out between us all. That is, we all devalue, at hopefully similar rates - make sense?

Matt

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Re: Is rising inflation looming?

#297493

Postby GoSeigen » April 3rd, 2020, 6:11 pm

TheMotorcycleBoy wrote:A slight deviation on my OP (and yes I still want to pick up on couple things with Dealtn about yield curves - but that's another thread - perhaps for the Bonds+Gilts board?)

Anyway. This is still vaguely relevant: my assumption is re. covid-19 and the monetary response adopted, is that presumably *all economies globally* will just end up, all effectively printing money (QE), so collectively things will even out between us all. That is, we all devalue, at hopefully similar rates - make sense?

Matt


What's the significance of it being even? That's a highly unlikely outcome isn't it?

GS

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Re: Is rising inflation looming?

#297508

Postby TheMotorcycleBoy » April 3rd, 2020, 6:40 pm

GoSeigen wrote:
TheMotorcycleBoy wrote:A slight deviation on my OP (and yes I still want to pick up on couple things with Dealtn about yield curves - but that's another thread - perhaps for the Bonds+Gilts board?)

Anyway. This is still vaguely relevant: my assumption is re. covid-19 and the monetary response adopted, is that presumably *all economies globally* will just end up, all effectively printing money (QE), so collectively things will even out between us all. That is, we all devalue, at hopefully similar rates - make sense?

Matt


What's the significance of it being even? That's a highly unlikely outcome isn't it?

GS

I dunno. But if governments worldwide are stepping in to keep employees paid, and those countries' output are dramatically falling where else will the money come from?

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Re: Is rising inflation looming?

#297512

Postby anon155742 » April 3rd, 2020, 6:46 pm

TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:A slight deviation on my OP (and yes I still want to pick up on couple things with Dealtn about yield curves - but that's another thread - perhaps for the Bonds+Gilts board?)

Anyway. This is still vaguely relevant: my assumption is re. covid-19 and the monetary response adopted, is that presumably *all economies globally* will just end up, all effectively printing money (QE), so collectively things will even out between us all. That is, we all devalue, at hopefully similar rates - make sense?

Matt


What's the significance of it being even? That's a highly unlikely outcome isn't it?

GS

I dunno. But if governments worldwide are stepping in to keep employees paid, and those countries' output are dramatically falling where else will the money come from?


Its mortgaged upon our descendants

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Re: Is rising inflation looming?

#297514

Postby TheMotorcycleBoy » April 3rd, 2020, 6:56 pm

anon155742 wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:
What's the significance of it being even? That's a highly unlikely outcome isn't it?

GS

I dunno. But if governments worldwide are stepping in to keep employees paid, and those countries' output are dramatically falling where else will the money come from?


Its mortgaged upon our descendants

Right. But given that Uk government is already in debt, and Rishi S is already supplying payrolls, then in my mind that means he must be getting the money from somewhere. In my mind there are 4 possibilities

1. He's taxing those still making an output a helluva lot more. That aint happening.
2. He's sold a boatload of new gilt issues. Has he?
3. He's borrowed a bunch of £££ from overseas
4. He's electronically generated some sponds

Which of the above? I suspect number 4.

Matt

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Re: Is rising inflation looming?

#297519

Postby scrumpyjack » April 3rd, 2020, 7:08 pm

Of course CPI understates inflation as it leaves out all the inconvenient items. It isn't an index of the totality of what people spend their money on.

I suppose the government could take this a step further and mimic what many FTSE 100 companies do with their profits - leave out all the inconvenient bits and call it 'Core' inflation or 'Adjusted' inflation.

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Re: Is rising inflation looming?

#297541

Postby Lanark » April 3rd, 2020, 8:50 pm

bungeejumper wrote:If the world's panic-buying pasta, the wholesale price goes up and so do the retail prices. I'd expect that viva voce :) would apply when the demand falls off again?

This could be a big part of it, if this thing ends and everyone starts working through their stockpiles, there is going to be several months of low demand.

Also I think there are a lot of things that won't spring back as fast as people expect - employers will realise that home working works for office staff and saves them the cost of running an office.

So deflation is just as big a risk as inflation.

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Re: Is rising inflation looming?

#297549

Postby tikunetih » April 3rd, 2020, 9:31 pm

TheMotorcycleBoy wrote:2. He's sold a boatload of new gilt issues. Has he?

4. He's electronically generated some sponds


The Treasury provides a remit to the DMO informing it what its financing requirements are for the coming year/period and the DMO then issues gilts on the Govt's behalf:
Before the end of each financial year HM Treasury sets an annual financing remit for the Debt Management Office for the following financial year. The remit specifies the annual total of gilt sales planned for the financial year and the breakdown between index-linked and conventional gilts (and within conventional gilts the maturity split between short, medium and long maturities). The remit is usually revised each November/December when the revised forecasts for the public finances are published at the Autumn Budget. It can also be revised in April when the outturn of the Central Government Net Cash Requirement (CGNCR) for the previous financial year is published.


Here's the current calendar: https://www.dmo.gov.uk/data/pdfdatarepo ... rtCode=D5D

The DMO's remit can be revised during the year. Here's a historical list - note the remit revisions tha have occurred, and note the revisions during the GFC to for example recapitalise banks:
https://www.dmo.gov.uk/responsibilities ... l-details/


Now, look at Figure 6 in this chartbook, noting the BoJ's balance sheet as a proportion of Japan nominal GDP:
https://www.yardeni.com/pub/peacockfedecbassets.pdf

Japan 2019 nominal GDP was ~550 trillion Yen. BoJ balance sheet is now nearly 600 trillion yen (~107% of nominal GDP).

The UK isn't on that chart, but the BoE's balance sheet, at ~£580 bn is around 26% of UK nominal GDP. If its balance sheet expanded to a similar proportion of GDP, it'd amount to an increase of ~£1.77 trillion and total size of £2.35 trillion.

If the private sector doesn't wish to buy the gilts being issued by the DMO, the BoE can buy them instead and expand its balance sheet, handing the coupons it receives back to the Treasury. Result! The Govt could reduce taxes, expand spending and have the entire shortfall financed by the DMO issuing gilts and the BoE buying them. At some point markets (currency) would take fright, but not so much if "everyone else" was doing similar things.

You can see from that chartbook Fig 6. that there is, in theory, enormous potential scope for central banks to expand balance sheets without them losing the confidence of markets. The CBs may not just buy their own Govt's debt, they may buy private sector risk assets (corporate bonds, REITs, equities) as well in order to drive up their price and drive down yields, eg.
https://www.japantimes.co.jp/news/2020/ ... y-meeting/


If you're going to do all this stuff and retain investor confidence, you probably want (a) safety in numbers, ie. "cover" provided by other major nations/CBs all doing the same; and (b) portray and maintain an image of competence so as not look like a lunatic that markets lose faith in. For example, probably much easier for a right-of-centre UK Govt to pull it off than a hard left who might not be trusted an inch. In that sense, possibly a bullet dodged by the UK w.r.t. the previous general election, even if the current lot are not very appealing.

As an investor, keeping a weather-eye on CBs and noting the direction in which they wish to move things is probably a good idea long term. Hence, "Don't Fight the Fed" as a core tenet.

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Re: Is rising inflation looming?

#297594

Postby GoSeigen » April 4th, 2020, 9:00 am

TheMotorcycleBoy wrote:
anon155742 wrote:
TheMotorcycleBoy wrote:I dunno. But if governments worldwide are stepping in to keep employees paid, and those countries' output are dramatically falling where else will the money come from?


Its mortgaged upon our descendants

Right. But given that Uk government is already in debt, and Rishi S is already supplying payrolls, then in my mind that means he must be getting the money from somewhere. In my mind there are 4 possibilities

1. He's taxing those still making an output a helluva lot more. That aint happening.
2. He's sold a boatload of new gilt issues. Has he?
3. He's borrowed a bunch of £££ from overseas
4. He's electronically generated some sponds

Which of the above? I suspect number 4.

Matt


https://www.bloomberg.com/news/articles ... ium-europe

Under the current regime he cannot do 4. He is not a bank, he doesn't have accounts with the people who are going to buy the money. As illustrated in the above link, the government's primary source of funds over and above taxes, other income and reserves is issuance of gilts. There is endless demand for gilts right now as gilt yields show. [EDIT: I see Tikunetih has provided detail as to how this is achieved.]

IMO gilts will be marketed to the public in a sort of patriotic ra-ra Support Independent Britain campaign.


Re: evening out, it was just a quibble. IME nothing much is even in this world, the usual state is a ragged chaos, so claiming things will even out requires some sort of justification.

GS

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Re: Is rising inflation looming?

#297602

Postby TheMotorcycleBoy » April 4th, 2020, 9:27 am

GoSeigen wrote:
TheMotorcycleBoy wrote:
anon155742 wrote:
Its mortgaged upon our descendants

Right. But given that Uk government is already in debt, and Rishi S is already supplying payrolls, then in my mind that means he must be getting the money from somewhere. In my mind there are 4 possibilities

1. He's taxing those still making an output a helluva lot more. That aint happening.
2. He's sold a boatload of new gilt issues. Has he?
3. He's borrowed a bunch of £££ from overseas
4. He's electronically generated some sponds

Which of the above? I suspect number 4.

Matt


https://www.bloomberg.com/news/articles ... ium-europe

Under the current regime he cannot do 4. He is not a bank, he doesn't have accounts with the people who are going to buy the money. As illustrated in the above link, the government's primary source of funds over and above taxes, other income and reserves is issuance of gilts. There is endless demand for gilts right now as gilt yields show. [EDIT: I see Tikunetih has provided detail as to how this is achieved.]

IMO gilts will be marketed to the public in a sort of patriotic ra-ra Support Independent Britain campaign.


Re: evening out, it was just a quibble. IME nothing much is even in this world, the usual state is a ragged chaos, so claiming things will even out requires some sort of justification.

GS

Hi GS,

Yes Tik was very generous in his post. I've read the links, drawn pictures etc. and I'm preparing a response. This is interesting stuff, an interesting sideshow to the book I'm currently reading https://www.amazon.co.uk/Keynes-Keynesi ... 1848442394. Yup the evenings are flying by in my humble abode!

Matt

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Re: Is rising inflation looming?

#297636

Postby TheMotorcycleBoy » April 4th, 2020, 10:58 am

Tik,

Many thanks for writing this down for me, I've spent sometime reading the links and thinking some more.

tikunetih wrote:The Treasury provides a remit to the DMO informing it what its financing requirements are for the coming year/period and the DMO then issues gilts on the Govt's behalf
Here's the current calendar: https://www.dmo.gov.uk/data/pdfdatarepo ... rtCode=D5D

I can see that the Govt have raised about £5.8B in the past couple of days and the market wanted 1.6% from the 8yr one, and 1.0% for the 21yr one.


I can now see that Rishi might be able to raise the promised £330B if he can find buyers for the gilts either at home or abroad. In a sane world this *has* to come from private finance since aren't basically all CBs (central banks) in debt?

As a very slight aside I'm intrigued as to the exact relationships between 1) the Govt 2) the DMO 3) the Treasury and 4) BoE. My opinion is that really they are all just branches of the State, (public sector) and so all doing the peoples bidding. The DMO manages (i.e. arranges sales+meetings) for gilts sales/purchase, the Treasury decides how to allocate the countries money and how to raise/save/spend money (debt and tax and spending) and the BoE is a nationalised Bank that notionally has the countries "balance sheet".

So if what I've just stated above (i.e. the BoE owns/manages the countries assets and liabilities) is true, then at anytime the BoE will have accounts due to our Commercial Banks, some cash assets, and loads of claims in the form of Gilt issues which I know will expand, but presumably from time to time it have to repay to the private sector.

Now, look at Figure 6 in this chartbook, noting the BoJ's balance sheet as a proportion of Japan nominal GDP:
https://www.yardeni.com/pub/peacockfedecbassets.pdf

Japan 2019 nominal GDP was ~550 trillion Yen. BoJ balance sheet is now nearly 600 trillion yen (~107% of nominal GDP).

The UK isn't on that chart, but the BoE's balance sheet, at ~£580 bn is around 26% of UK nominal GDP. If its balance sheet expanded to a similar proportion of GDP, it'd amount to an increase of ~£1.77 trillion and total size of £2.35 trillion.

Yes this pdf was quite interesting. But what I find, well confusing, is when people mention a central banks balance sheet and then a figure. What is meant by the figure, is it their Assets, their Liabilities or their Net Assets (i.e. TA-TL)?

If the private sector doesn't wish to buy the gilts being issued by the DMO, the BoE can buy them instead and expand its balance sheet, handing the coupons it receives back to the Treasury. Result! The Govt could reduce taxes, expand spending and have the entire shortfall financed by the DMO issuing gilts and the BoE buying them.

A ha! But this "the BoE can buy them instead and expand its balance sheet" is where philosophically speaking we get into trouble. You see, several hundred years ago, if I wanted a new horse, and the seller wanted 5 gold coins for the horse which I didn't have, I needed to find a lender of the coins that actually possessed the coins. We could not "expand" them into existence. So in order to buy it's own debt, BoE must credit it's assets from thin air and swap printed/electronically generated money for the gilts. They could probably just cut out the middleman (the gilts) and just credit their account!

At some point markets (currency) would take fright, but not so much if "everyone else" was doing similar things.

Which is *exactly* the point I made earlier which GS took exception to:
TheMotorcycleBoy wrote:Anyway. This is still vaguely relevant: my assumption is re. covid-19 and the monetary response adopted, is that presumably *all economies globally* will just end up, all effectively printing money (QE), so collectively things will even out between us all. That is, we all devalue, at hopefully similar rates - make sense?

tikunetih wrote:You can see from that chartbook Fig 6. that there is, in theory, enormous potential scope for central banks to expand balance sheets without them losing the confidence of markets. The CBs may not just buy their own Govt's debt, they may buy private sector risk assets (corporate bonds, REITs, equities) as well in order to drive up their price and drive down yields

Yes yes, of course. But without a real buyer (see my above 5 gold coin historical analogy) the Govts/CBs/whatever *must* print money, surely? Indeed don't they actually have to do this. In other words, in our current stricken times they absolutely must drive down yields...else real interest rates on markets would rise and that would put gazillions of over leveraged firms out of business. Because they (private business) are currently making less profit, due to cv-19, so raised overheads would probably kill them right now. Which would increase the burden on the welfare state etc. etc.

The issue-gilts-buy-back-gilts charade, seems exactly that - I think you agree, just money printing in disguise.

As an investor, keeping a weather-eye on CBs and noting the direction in which they wish to move things is probably a good idea long term. Hence, "Don't Fight the Fed" as a core tenet.

Hmm. Out of interest how exactly does that apply to you and I as investors right now?

And finally! Can you go back to this link https://www.yardeni.com/pub/peacockfedecbassets.pdf my friend, and take another look at Page 9 please? This page is titled "US Treasuries & Agencies Held by Central Banks". Can you see the redline toward the right of the plot? Check the section equating to now. It seems unreal. The gradient is stupendous - noticeably steeper than around 2009 and 2010 (must be "easing" regimes!). I can only imagine that the gradient of approximately 89 degrees is equivalent to the recent $2.2Trillion stimulus just signed. Correct?

thanks again,
Matt

dealtn
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Re: Is rising inflation looming?

#297652

Postby dealtn » April 4th, 2020, 11:23 am

Yes, it's all a bit "extend and pretend". It doesn't matter until just before the moment it matters.

You are right, the UK isn't the only one doing it, it's a global phenomena, but the game is easier to play if you are a reserve currency.

Just remember if you are ever on the Serengeti and chased by a lion you don't need to run faster than it to survive, you just need to be able to run faster than somebody else (until the next time).

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Re: Is rising inflation looming?

#297811

Postby TheMotorcycleBoy » April 4th, 2020, 5:39 pm

dealtn wrote:Just remember if you are ever on the Serengeti and chased by a lion you don't need to run faster than it to survive, you just need to be able to run faster than somebody else (until the next time).

Sure. By the way if you get the time, can you take a look at this https://www.yardeni.com/pub/peacockfedecbassets.pdf my friend, and take another look at Page 9 please? This page is titled "US Treasuries & Agencies Held by Central Banks". Can you see the redline toward the right of the plot? Check the section equating to now, i.e. beginning of April 2020. It seems unreal. The gradient is stupendous - noticeably steeper than around 2009 and 2010 (must be "easing" regimes!). I can only imagine that the gradient of approximately 89 degrees is equivalent to the recent $2.2Trillion stimulus just signed. Correct?

Also, in the table I shared in my earlier viewtopic.php?p=297636#p297636 i.e.

TheMotorcycleBoy wrote:

I calculated the yield (I think!) that the purchasers actually demanded of these very recent gilt sales (I multiplied the coupon rate by nominal_value/value_actually_raised) and I deduced that the investors requested a lower yield (about 1%) for the 21yr maturities than for the 8 yr ones (about 1.6%). Is that a sign of "inversion?". As in, "Inverted Yield curve?"

many thanks
Matt


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