Happy Dayz

‘Greece could exit euro,’ not if Angela has her way

Reports Der Spiegel magazine.

I thought she would.

Thoughts of George Soros

-Adds Detail To Version Transmitted At 1245 GMT
-BOE Dale: If QE Is Less Effective, Costs May Rise Compared To Benefits

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
argued against the simplistic view that if quantitative easing becomes
less effective then the dosage should be increased.

Dale says that policymakers must factor in the costs as well as the
benefits of QE, and if the benefits are diminishing the costs will
become proportionately greater.

In his speech here, Dale highlighted the risks associated with
ultra loose monetary policy.

“When you are thinking about policy strategy you need to recognise
there are costs as well as benefits,” he said in a question and answer
session following the speech.

“Sometimes one hears commentators say, ‘well, suppose QE has become
less effective. Don’t worry, just double it, If it has become half as
effective just double the dosage’.”

“In a world where there are no costs associated with a policy tool
that is an entirely, eminently sensible response but if there are costs
as well as benefits and those benefits become less and the costs don’t,
then suddenly … in terms of cost/benefit analysis it starts to become
a less attractive tool,” Dale said.

In his speech he talked about the tricky challenge of unwinding QE,
with the BOE holding some 40% of the outstanding gilt stock.

Dale voted against the last tranche of QE that was sanctioned at
the July meeting by the BOE Monetary Policy Committee.

In the Q and A, Dale also expressed deep skepticism about some of
the more radical forms of monetary stimulus – monetary financing, or the
‘helicopter drop’ of money, and setting negative interest rates.

He said monetary financing has been used in pejorative sense in
economic history but it was not necessarily a bad thing. In practice,
however, it would be highly problematic.

“It has some quite tricky things associated with it. One … is the
impact it will have … in terms of (policymakers’) credibility,” Dale
said,

“If you did do this (helicopter drop money) and it immediately led
to a sharp jump in inflation expectations you wouldn’t get any benefit
for the economy at all. You would just get a big price level effect,” he
said,

He said that, secondly, monetary financing would be a step into
unchartered waters and thirdly “by its very nature it is pretty hard to
reverse.”

He said monetary financing shouldn’t be condemned into the “evil,
you should never think about it bucket but, for me, it is in the bucket
of ‘I don’t really want to go there if I can help it’.”

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]

-BOE Dale: If QE Is Less Effective, Costs May Rise Compared To Benefits

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
argued against the simplistic view that if quantitative easing becomes
less effective then the dosage should be increased.

Dale says that policymakers must factor in the costs as well as the
benefits of QE, and if the benefits are diminishing the costs will
become proportionately greater.

In his speech here, Dale highlighted the risks associated with
ultra loose monetary policy.

“When you are thinking about policy strategy you need to recognise
there are costs as well as benefits,” he said in a question and answer
session following the speech.

“Sometimes one hears commentators say, ‘well, suppose QE has become
less effective. Don’t worry, just double it, If it has become half as
effective just double the dosage’.”

“In a world where there are no costs associated with a policy tool
that is an entirely, emminently sensible response but if there are costs
as well as benefits and those benefits become less and the costs don’t,
then suddenly … in terms of cost/benefit analysis is starts to become
a less attractive tool,” Dale said.

In his speech he talked about the tricky challenge of unwinding QE,
with the BOE holding some 40% of the outstanding gilt stock.

Dale voted against the last tranche of QE that was sanctioned at
the July meeting by the BOE Monetary Policy Committee.

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]

Whoopsy daisy, those lot ain’t very fond of austerity. 

It’s all spend, spend, spend where they’re concerned

-BOE Dale: Policy Can Respond if Economic Outlook Deteriorates
-BOE Dale: Upping Stimulus May Not Be Right Response to Weak Growth

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
highlighted the risks attached to prolonged, ultra loose monetary
policy, warning of the dangers of perverse effects from quantitative
easing and saying providing more stimulus in response to weak growth may
be the wrong thing to do.

In a speech here, Dale highlighted the risks the central bank is
running by buying up a large chunk of the gilt stock through QE and by
pumping in stimulus when there are deep concerns over supply side
weakness in the UK economy.

Dale voted against the stg50 billion increase in QE sanctioned by
the MPC at its July meeting and has consistently been more cautious than
his colleagues over increasing monetary stimulus.

In this speech at a conference at Trinity College, Dale said that
monetary policy may be able to do little to stimulate growth and could
run up against supply constraints.

“Injecting additional monetary stimulus when we observe weak output
might not be the right thing to do,” he said.

UK productivity growth has slumped and Dale said if supply and
demand weakness were both due to external factors, such as tight credit
and an impaired financial system, “further demand stimulus may run up
against supply capacity relatively quickly and so largely result in
higher inflation.”

Providing further stimulus would be the right thing to do if weak
growth was due to weak demand, but Dale highlighted policymakers’
uncertainty over what is happening in the economy at present.

The BOE chief economist also highlighted the risks attached to his
own institution’s favoured stimulus policy, QE, which relies on
purchasing industrial quantities of gilts.

The BOE’s in-house view is that QE works, in part, through
“portfolio effects” – driving down the yield on gilts and encouraging
investors to opt for higher yielding, and higher risk, assets.

“QE works by encouraging institutional investors to hold an
increasingly risky portfolio of assets. This helps to increase the
demand for debt and equity issued by UK companies. But it comes at the
expense of increasing the risks borne by key parts of our financial
sector,” Dale said.

The BOE, which is undertaking a stg375 billion QE programme, has
already acquired around 40% of the total stock of conventional gilts.
Eventually, it will have to unwind QE and sell-off those gilts which
haven’t reached maturity.

Dale worries about the impact these blockbuster sales could have,
as investors will have to reduce other type of assets to buy the gilts.

“Achieving this portfolio rebalancing without unsettling the
government bond market and, equally important, causing a substantial
crowding out of private sector debt will be a delicate task,” Dale says.

He also says the BOE needs to take seriously the perception, albeit
a misplaced one, that QE is simply “monetary financing”, with the BOE
stepping in at a time when fiscal deficit are close to post war highs.

Dale was more enthusiastic about the Funding for Lending Scheme,
the flagship credit easing scheme created jointly the Treasury and the
BOE.

He believes this could have a significant effect as, by providing
banks with cheap funding and encouraging them to lend more, it should
tackle credit constraints.

“By helping to improve the availability of bank lending to
companies and households who previously have been effectively starved of
credit, it could have a significant effect on demand,” Dale said.

For all his reservations over ultra loose monetary policy, Dale
stresses the MPC has scope to inject more stimulus if the economic
outlook becomes darker still.

“There is scope for monetary policy to do more. If the economic
outlook deteriorates further, policy can respond. We have not yet run
out of road,” he says.

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]

What does the euro crisis mean for everyday politics? The forthcoming Dutch elections offer a clue, says The Economist.

Bet ya weren’t expecting that headline today

‘The recent announcement by the ECB that it will start to buy Spanish and Italian debt has been warmly welcomed throughout Europe. But this column argues that by doing so the ECB is digging the euros’ grave.’

Harald and Ulrich, party poopers par excellence

Oh dear

I had been wondering