Is the City really stopping Rachel Reeves from doing what Labour wants, or is she just using it as a convenient excuse for her neoliberal austerity?
This is the audio version:
This is the transcript:
Is Rachel Reeves constrained by the City of London?
The question is, of course, important because she is going to make her Spring Statement and she has trailed that her room for manoeuvre is massively constrained by what the City of London will tolerate with regard to government borrowing.
She would have it that this is the major constraint upon the choices that are available to her.
The media would agree with her.
Both of them would say that look what happened to Liz Truss. When Kwasi Kwarteng stood up and made a budget presentation in September 2022, which was recklessly irresponsible with regard to the tax cuts it proposed, there was a supposed financial crisis that weekend as a consequence.
Let me assure you, there was a financial crisis that weekend. Let me also assure you that it had nothing to do with anything that Liz Truss or Kwasi Kwarteng had had to say.
The reality was that Kwarteng spoke on a Friday. On the Thursday, Andrew Bailey, as Governor of the Bank of England had announced that the Bank of England was going to start a positive programme of quantitative tightening, by which he meant that the Bank was going to start selling the bonds that it had bought during the Covid crisis back into the financial markets.
He said that £80 billion worth of bonds were going to be sold over a matter of months. And it was that sale that caused the financial crisis in many of the UK's pension funds because they had a not anticipated this happening and as a consequence, they had structured their finances in a way that meant the government's bond sales would deliver a cashflow crisis for them meaning that they may not have been able to pay pensioners, and that was what caused the meltdown in finances that weekend.
So the suggestion that Rachel Reeves is making that anything she might do on Wednesday with regards to her spring statement might produce an outcome similar to that which Liz Truss and Kwasi Kwarteng generated is, like so much that she says, complete nonsense because Andrew Bailey has not made any such similar announcement this Tuesday, and as a result, he isn't going to crash financial markets for her.
So let's stand back instead and look at the reality of this relationship between the Chancellor as the person who manages the government's finances and the City of London. And let's ignore for a moment the role of the Governor of the Bank of England, who caused the Kwasi Kwarteng crash.
As Chancellor Rachel Reeves is not constrained by the City of London.
There is one very simple and obvious explanation for that.
Every single pound that the UK government spends is created by the Bank of England for it.
There is no tax or borrowing constraint on what the government may spend. The only actual constraint on what the UK government may spend is the power of Parliament. If Parliament decides that the government may not spend because it refuses to pass a budget, then the government cannot create the money to fulfill its programs, and of course, it then has to resign. But so long as Parliament approves a budget that the government sets before it, then the power to create the money that is required to fulfill that budget is automatically put into existence.
And whenever a government minister then goes to the Bank of England and says, I need to spend money, whether it be on pensions, or teacher salaries, or the NHS, or defence or whatever else it might be, so long as the amount that they plan to spend is covered by the budget the Bank of England has no choice but make the payment that the minister has instructed them to do.
That is the beginning and end of how the government funds itself. It creates money on overdraft with the Bank of England.
Now, of course, what we do know is that there is a limit to the capacity of any government to do this before inflation follows, and so the government does two things as a consequence.
One, it taxes us. It brings back into the Treasury the money that it has already spent by taxing us so that the value of the currency is maintained, which we would all agree is a pretty important objective. But that is the role of tax in the economy above all else. It has other roles, which I've explored in other videos, but let's be clear, tax does not fund government spending.
It can't, because if the government hadn't spent first of all to put the money into existence and in circulation, that then is available to pay the tax then that tax could not be paid. It's as simple and straightforward as that.
And then there's the second dimension to this, which is that most of the time, most sensible governments run deficits, and that's by plan.
They need to run deficits for two reasons. One is that most countries are growing.
They're growing physically in terms of the number of people in them. This is not because of migration. This is because of changing patterns in population over time. Migration is one part in that, but so is the birth rate and so is the death rate, and so is the economic activity rate. And so long as the economy is growing, it needs more money in circulation. And the best source of that new money in circulation is the government and therefore the government runs a deficit.
The second reason for running a deficit is that, by general agreement amongst almost every economist, some inflation is a good idea because it tends to encourage people to invest, whereas deflation tends to encourage people to not invest and to save. And as a consequence, by and large, inflation is good for continuing to encourage innovation and growth.
So, you will have inflation in an economy, but if you have inflation, you need more money in circulation. Again, it's a simple, straightforward statement of fact that I have just made.
So, the government needs to provide more money to keep the economy going because it's growing and because there's inflation and the only sensible way in which it can supply that money, unless it is to be created by private debt from commercial banks, which is a very, very fraught basis for providing new money supply, is for the government to run a deficit. So, that's what the government does.
But when the government runs a deficit, there is more money in circulation, and some people will save some or all of what they eventually end up with as a consequence. Not everybody, because most people actually spend all of their income after tax, but some people don't. They're called the wealthy. And the wealthy will put money aside - more of it in the form of pensions than anything else, because over 80% of all savings in the UK are in tax-incentivised arrangements of some sort - but some will also be in stocks and shares and other things like government bonds.
And the reality is that pension funds, life insurance funds and private investors all want to buy government bonds because they are the safest place available to anyone to deposit very large sums of money - the sorts of sums of money in excess of £85,000 that most people dream of when it comes to saving, but which are otherwise not guaranteed by the government in the event that a bank fails.
The guarantee does apply, though, if you save it with the government in the form of bonds or with National Savings and Investments. So, the government is the place where those who are cautious but do have a lot of wealth want to save their money.
The government provides this savings facility to wealthy people as a favour. They don't have to take that money back. They don't need to take that money back. It doesn't fund any form of spending because the spending has already taken place. The money that is being saved exists because the government has spent it into existence through the Bank of England, so it can't possibly be a source of funding for that spending. It is the consequence of that spending, which is a fact acknowledged by all central bankers, the world over now, and therefore the government is not dependent upon those funds that the City might want to deposit with it in the form of gilts or other types of security to make its operations work.
Again, what I've just said to you is a simple, straightforward statement of fact. You can't dispute it because it's true. That's how the system works.
But as a consequence, Rachel Reeves is not constrained by whatever the City of London decides to do with regard to the amount of money it wishes to deposit with the government.
So if Rachel Reeves did decide to tell the Bank of England to cut its base rate, that would have an implication for the cost of government borrowing because there's a massive and obvious correlation between the base rates that have been set by the Bank of England in particular since 2008, and the cost of government borrowing. The cost of government borrowing was low or almost non-existent between 2009 and 2021. And during that period, the Bank of England set base rates which were, near enough, zero.
Since 2021, the Bank of England has increased base rates to over 5%, and during that period, unsurprisingly, the cost of government borrowing went up.
And now as the Bank of England is reducing its base rate again from 5.25% to now 4.5%, the cost of government borrowing has gone down.
This is not by chance; the Bank of England does have a massive influence on the cost of government borrowing.
So, first of all, Rachel Reeves could, of course, cut the cost of government borrowing by telling the Bank of England to cut the base rate. She is not dependent upon the Bank of England to follow market trends. The Bank of England creates market trends, and this is a statement of fact, again.
But also, if the City decided it doesn't want to place money with the government, she doesn't have a crisis. There is no problem. She can simply leave the balance that the government has created, which is not being recovered by way of new deposits placed by the City, with the Bank of England on what is called the government's Ways and Means account, which is otherwise called the government overdraft with the Bank of England.
Now, this account was very active and had significant balances on it before 2006 when the arrangements were changed, but there is no reason why it could not do this again. In fact, in April, 2020 as the Covid crisis emerged, the Bank of England did offer the UK government, a £20 billion overdraft facility on the Ways and Means account, which was incredibly generous of it, given that it's owned by the government anyway, but the point is this facility exists and it could be used at any time if the City tries to play up.
Rachel Reeves is not, therefore, in hock to the City.
She isn't constrained by them.
They cannot dictate terms to her because she makes the money that they are using.
They do not provide privately created money to her to use, and of course, they can't do that. There would be no money without the government. That's another simple, straightforward statement of fact.
So why does Rachel Reeves say she's constrained by the City of London when she isn't in any way at all constrained in that way? There's only one obvious answer, and that is that she wants us to believe that she is constrained in that way. Or she's stupid, and I'm not going to presume she's stupid. So, I'm going to believe the former of those two explanations - that she wants us to believe that she's constrained.
And why would she want us to believe that? Because she is a true neoliberal politician.
What that means is that she thinks that government should be limited in its scope of activity because the private sector is always going to meet our needs and the government won't.
She is therefore pursuing a policy that is aimed quite deliberately at making us poorer by refusing to provide us with the services that we need as the bedrock for our economy so that we can flourish.
We haven't got the education we need.
We haven't got the healthcare that we need.
We haven't got the judicial system that we need.
We haven't got the defence system that we now need either.
I could keep going on. Social care is another obvious thing to add to that list.
Those things are leaving us in stress and worry, and that is particularly true with regard to benefits payments, of course.
None of that is necessary. She could meet all those needs.
She could reorganise the economy to do this.
The City of London can't stop her doing so, but she doesn't want to do them, and the City of London provides her with a wonderful excuse for not doing the things she doesn't want to do anyway.
So, what is Rachel Reeves up to? She's deceiving you.
It's simple.
It's straightforward.
She's in denial of the facts as to how the city operates.
She's in denial of the facts as to how the government operates.
And all of that is because she doesn't want the government to do what you need it to do, and as a result, she's a failed politician.
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The other constraint a government has on spending, is having sufficient resources to meet its needs: materials, energy and jobs. If they are in short supply, then inflation goes up. You also need people to have the means to take advantage of the result of the spending.
Ian hits another nail on the head here, Richard: if you don’t have the capacity and/or the capability to do something then however much money you make available (or don’t) it won’t get done.
For example, I see the government threatening local authorities that if the ‘pothole plague’ is not addressed they’ll lose money. Well, I don’t know what it’s like in other parts of the country but I know for a fact that there simply aren’t enough people (the capacity) with the necessary skills (the capability) to carry out proper repairs – by which I mean stretches of road covered in potholes stripped back and re-surfaced. Nor, as I understand it, is there sufficient road laying equipment. So instead we have small teams of people who drive around the county who tip ready made tarmac into a pothole, tamp it down by hand with a tamper and off they go to the next pothole. Result: after less than one winter water has seeped into the pothole around the tarmac and passing traffic soon ensures all the tarmac has been ground into pieces and the pothole’s back.
The same applies in numerous other sectors and situation of course. House building, nursing, social care, bus driving (maybe not everywhere but certainly in and around Nottingham), lorry driving, etc. It’s not a shortage of money. It’s lack of people with the necessary training and skills. And the problem for the government is that’s not a problem that can be fixed in the short term simply by making money available. Assuming they would, of course.
I will make this point in another video later this week Ivan.
It is quite right.
And I suggest they could address it – bit as tyou say, it will take time.
Meanwhile 20,000 doctors will have no jobs this August.
And of course this is all part of the plant to break public services with a view to sell them into the private sector.
There is loads going wrong at the moment but I am extremely tired of Reeve’s inability to deal with interest rates and make it known that the government – not the BoE – is sovereign in this issue not King Bailey of Threadneedle Street.
If ‘Rayned-in’ thinks just £2 billion will get more houses built – on the basis of the same bloody interest rates!! – then she is deluded. The Council I work for is already cutting its affordable housing programme because its reserves are being eaten alive by increased costs even though it has recently voted to extend its payback period for new home projects. The financing of anything long term investment wise at these interest rates is just plain stupid.
These artificial constraints are just being manipulated to make councils look bad. And then we know what follows…………………….the ‘p’ word.
Rates are going to increase – the OBR says
She is just not up to the job but Keir Starmer – who is also not up to the job – (perhaps he should get a job as a solicitor in some remote part of the UK!), will support her and most media commentators (who have no understanding of economics will do the same. Oh and the BBC will ask people in the city of London who oddly enough have an interest in saying what the City will like! So a bit of a problem!
Now what would happen if The Government stopped issuing stock?
Nobody talks about that option.
One of your very best posts. I have stored it for future reference. Reeves, in de nile, I do hope the crocs get her.
Expressed another way: Bailey & the BoE knowlingly engineered a change of gov /change of PM. In the same way, in the 1960s, the old Nazis in the Bundesbank got rid of Adenaur (who they hated) by by contraining credit and engineering a mini-recession. Around 1972 they admitted it. This leaves one question: Was Truss and Kwarteng so inept that they did not know what was happening & were unable to generate a narrative pointing at Bailey? Maybe. Lettuce was/is pretty bonkers. Interesting how in the media all the blame is heaped on Truss etc.
Thank you Richard, I love the clarity of this. I want it shared as far and wide as possible. Government will ignore these facts for as long as they can. The only way to effect change is to make everyone aware.
I hope you have the opportunity in media interviews to hammer home that Reeves CAN spend the money we need her to without increased debt and that any resulting inflation can be managed simply by taxing some of the additional wealth it creates, and that the only cost will be a reduction in boardroom job opportunities for ex-Government ministers.
Thanks
Over 400 Labour MPs are complicit, along with Rachel Reeves, by their silence, by their whipped votes.
Every Cabinet & Junior Minister is complicit, if they fail to resign today.
They are choosing, deliberately, to allow the continuation of austerity, the harrowing of the homeless, the neglect of those who need social care, the destitution of the chronically sick and disabled, the deprivation of those with special needs. Because as Richard explains so clearly, austerity is not necessary. It is based on a series of selfish cruel lies called neoliberaleconomics. It is grossly, fatally immoral.
Every Labour MP who puts their own privilege, and their own political career above the needs of their most vulnerable constituents, is guilty of complicity in perpetuating the suffering of the most vulnerable.
When Rachel Reeves sits down today after her appalling betrayal of the citizens of our country they MUST stand up and say NO!
But I fear they won’t. And because of that, we should hold them in contempt, every single one of them.
Agreed
Sorry but do not agree. While the BoE’s QT plans added some pressure, the main cause of the Gilt crash was the market’s loss of confidence in UK fiscal policy after the mini-budget. The unfunded tax cuts, lack of independent scrutiny, and fears of spiralling debt were the decisive factors. The BoE’s emergency intervention (buying Gilts just days after announcing sales) underscored how severe the market reaction had been.
I follow the money
The BoE had to bail out pension funds because of its own policy announcement. That spooked the markets. Your version simply dies not stack.
Richard with all due respect whether you agree with me or not is immaterial as that is the way the game is played.
Where we might find more common ground is in promoting a fairer tax system. I have been looking at countries like Switzerland and Norway which run a successful wealth tax which has a few key ingredients including a society that promotes distribution of wealth (Norway in particular), no flee tax policies along side graduated wealth taxes. Note France tried wealth taxes without the no flee element and guess what it failed.
Gary Stevenson is right that wealth taxes are justified as otherwise the wealthy exasperate inequality.
You appear to know little about politics.
And a wealth tax cannot work, and is not needed because there are better things to do, as I keep explaining.
Please do not waste my time.
Why be so hostile towards Chris Judd when it seems his motivation is to reduce inequality. It’s not a nice trait Richard.
Anyone is welcome to come here.
Come here and start ‘with respecting’ and experiemce tells me I am dealing with a troll. I try to be tolerant. I also have a duty to protect this blog from trolls.
The main reason Reeves is so incompetent is that her thinking (or what passes for thinking) is utterly rigid. Being good at exams does not mean you are a good thinker. She has absolutely no imagination; no curiosity and, tellingly, no sense of humour. The last requires a quick enough brain to see the joke. Even her voice is rigid and unmodulated.
She can only parrot phrases like “my number one mission is growth” or “there is a moral imperative”.
Any Government’s “moral imperative” should be to improve the lives of all of us, not a select few. It should be to get sick people well again, not get sick people back into work whilst they are still sick. It should be to improve our children’s education, not limit it. It should be to make us safer, not cut police effectiveness. It should be to speed up justice, not delay it.
Another half a billion in cuts to sickness benefits, I see. Why? Because yesterday the OBR rejected Kendall’s claim that her already swingeing cuts would raise £5 billion. The OBR estimates that is an overestimate of £1.6 billion. No Impact Assessment published until later, despite it being a requirement. And the DWP has delayed the release of a report into “Triggers for Claiming PIP” produced and then suppressed by Therese Coffey. It won’t be released until April.
Policy based evidence, not evidence based policy.
I thought this video might be interesting and relevant—the 12,000-year road to neoliberalism. To quote one of my favourite SCi-fi shows, “All of this has happened before. All of this will happen again.”
https://youtu.be/pdGDXVKayT4?si=nNLBoJdldG7qYsc0
The idea that Rachel from Accounts is constrained by the City of London when it comes to government spending is pure West End theatre. The real constraints aren’t financial—they’re political. She’s not powerless; she’s just choosing to kowtow to the City, spinning spooky tales to justify an agenda that reins in government ambition while letting essential public services quietly rot. And those government bonds she’s supposedly beholden to? Please. They’re safer than a Volvo inside a bank vault—the place where the rich park their cash when they don’t fancy a gamble on the stock market, or, God forbid, WeWork.
Here comes more austerity. That wasn’t in the manifesto Rachel!
Just been looking at economics bloggers on youtube for the first time and seen something striking in the data: how on earth does garys economics come to have 1million subscribers and around 0.5 million views. Compared to what this channel gets which is much less, I’m wondering if youtube makes it harder for certain types of content to get circulation.
Real people hit the subscribe button
Richard responding the way you do is why someone online referred to you as a man who could start a fight in a telephone box. Have some humility man, you are not the font of all knowledge. Try respectfully disagreeing, all knowledge and opinion is subject to upgrade.
You started ‘with respect’ which means you came from a position of arrogance.
Everyone argues (unless its just to wind someone up) from a position of arrogance and with due respect is just a figure of speech as you well know. Flying off the handle at the slightest criticism does you no favours, reasoned arguments may. it may be the case wealth taxes will find huge resistance from the wealthy but they are required. The debate is over tactics such as raising CGT for instance.
With respect, you come here totally unknown and start shouting about my arrogance
It’s the surest sign I can be gi8ven that you are a troll
So I treat you as one
Try doing this for 20 years with 300,000 + comments and tell ne what you would do?
If I am cautious of people as arrogant as you maybe it is because I have good reason to be so
And raising CGT is not wealth tax. It is CGT. It would help if your aggrresion was backed by knowledge.
Richard surely you know at your age you have issues so I guess it is pointless arguing the toss as you will probably never change.
The problem is all yours Chris
I have no issues – except with trolls
You have shown not the slightest understanding of that. That is pure arrogance on your art. I offer you a chance to comment – and you abuse it. Politely, you really do need to stop thinking you are the epicentre of my world.
@Chris Judd
Why not “argue the toss” with verifiable facts and figures, evidence of your experience, and verifiable references to work you yourself have done?
It was very noticeable that when you were challenged on the role of the BoE in Truss’s demise (with evidence) you DIDN’T “argue the toss” – you quickly swerved to a wealth tax, and to Norway, but again without any facts, figures or verifiable links and no verifiable answers to the problems involved in assessing, and taxing assets (check the press for stories about the protracted divorce settlements of the wealthy
https://www.kjsmith.co.uk/blog/high-net-worth-divorce-what-you-need-to-know
and imagine that as part of an annual tax return?
There are easier ways of taxing wealth. Richard wrote Taxing Wealth Report 2024 as his contribution. Argue with that or bring something of equal weight to the table for us to look at.
Because if you won’t/can’t, then it’s fair to assume you are trolling.
We judge Richard on the work he has done over many years – a matter of public record. If you disagree, produce your own (verifiable) evidence.
He then reverted to AI….which he says shows I am wrong
I am challenging the consensus – or course it disagrees with me
Respectfully, I disagree with much of this and the lack of exploration of any trade-off to what you propose – it is presented as a simple silver bullet with no downsides.
Firstly on the BoE causing the 2022 crisis – that is simply not backed up by the facts. The QT programme was well-flagged and priced in by the gilt market – the £80 billion figure was precisely what was expected by the BoE’s survey of market investors conducted a couple of weeks before its announcement. It would have been a shock to the market had the BoE cancelled QT at the last minute (and would have looked like fiscal dominance in action).
Also pretty much ALL of the gilt market moves coincided with announcements from the Truss government – not least during the mini-budget itself, when the 10-year yield rose by 35 bps in an hour, which was unprecedented. But hey, maybe that’s just a coincidence!
Furthermore, let’s say the government just decides to sack off the market and accumulate an increasingly large overdraft. What do you suppose will happen to the pound? To swap rates that underpin the mortgage market? To spreads in the corporate funding markets in which gilts are used as benchmarks?
I suspect that would an extremely messy picture!
The QT policy was not well flagged. It’s actual announcement created the LDI crisis and required QE.
If you really think that can be ignored when what Kwarteng did could not have created that situation, you are free to carry on deluding yourself.
Sorry Richard but that is completely wrong.
Bank of England MPC minutes of August 4 2022 (well over a month’s notice!):
“Based on the staff’s analysis, the MPC was provisionally minded to commence gilt sales shortly after its September policy meeting, subject to economic and market conditions being judged appropriate and to a confirmatory vote at that meeting. The Committee had asked the Bank to be in a position to begin a sales programme before the end of September.”
“In the event that this should proceed, the MPC agreed to set an amount for the reduction in the stock of purchased gilts held in the APF over a twelve-month period from the point at which the policy was voted on, comprising both maturing gilts and gilt sales. The Committee judged that, over the first twelve months of a sales programme starting in September, a reduction in the stock of purchased gilts held in the APF of around £80 billion was likely to be appropriate. Given the profile of maturing gilts over this period, this would imply a sales programme of around £10 billion per quarter.”
Surely you have to admit this is the Bank of England flagging that it intended to commence QT when it did!
Oh come on, please get real. Signalling is decidedly imperfect. If it wasn’t markets would work much better. As it is, I am staggered by how rarely markets read economic situations e.g, re Trump. No pension fund believed they had an LDI crisis until the day it hit them. The markets then reacted. Truss was a mere side show.
What is imperfect about that signal?
In August 2022 said the BoE intended to commit to £80 billion of QT in September 2022, and then they delivered it.
I do not understand how can you say it was not well flagged?
Because they did not believe it.
Why did the BoE have to do emergency QE? Truss or LDI? If you say Truss you are not telling the truth.
But what is the evidence for that the market did not believe it?
My evidence:
The August MPC minutes told investors they planned to start QT in Sept.
The BoE’s survey of market participants of early Sept that showed investors expected QT of £80 billion to commence later that month.
Contemporaneous press reports. Bloomberg, on day of Sept 22:
“The Bank of England on Thursday is set to raise interest rates and start selling assets built up during a decade-long stimulus program, a historic tightening of monetary policy designed to clamp down on inflation.”
Reuters:
“The BoE is also expected to confirm that it will soon sell some of the 838 billion pounds ($944 billion) of government bonds which it bought during more than a decade of quantitative easing – the first major central bank to do so.”
What is your evidence for the fact that the QT decision was not well-flagged, beyond assertion?
If it had been properly flagged QE would not have been needed
You didn’t answer my question on that
You are now wasting my time
I’m sorry you think that. I see nothing forthcoming on that front – I have given you ample evidence to say the QT decision was not a shock to the gilt market and you have offered literally zilch to support the opposite.
Nonetheless I will answer your question.
“Why did the BoE have to do emergency QE? Truss or LDI?”
The answer, I think, is both. Now, while I disagree with you that QT was the source of the market shock, rising BoE rates and the fact the BoE has clearly flagged it was going to proceed with QT clearly created an unhelpful environment for a fiscal expansion. But that was only more reason for caution. There was no shortage of warnings that Truss was playing with fire.
And let us not forget the absolutely insane rise in UK yields that took place DURING the mini-budget speech. That cannot be explained away easily.
The gilt-edged market makers – the investors with the closest ear to the gilt market – were crystal clear that the mini-budget was the trigger.
All of this can be backed up by their research notes on the day which I am happy to quote if you would like.
Now, that really did set off the LDI spiral, which ended up being responsible for most of the overall deterioration of gilt prices. And then the BoE stepped in. I think there are serious questions to be answered about the regulation of that and it looks like very little will come of it in terms of consequences for the authorities.
So I am if the view there is plenty of contemporaneous evidence to show the mini-budget was the primary trigger of the gilt market breakdown, which sparked the LDI crisis.
I respect your exploration of these issues, and I can see the logic on its own terms.
The problem I have is that it does not stack up with the evidence from the time – what BoE said and did, how the gilt market behaved and when, what the gilt investors said. You have not engaged with any of it, and offered nothing in response (apart from “I’m right”, effectively).
We will have to disagree.
Or to put it another way, you are letting your belief in markets find an excuse which deflects from their total incompetence, which the BoE and LDI revealed.
I’m just an omnibus passenger who gets hives, when people talk about gilts yields and bonds and QT & QE, but…
Ive just read 9 retrospective analyses of the “LDI Crisis” and not a single one mentions that the BoE had earlier embarked on a QT bond selling programme, although several mention pre-existing rises in gilt yields prior to the Kwarteng budget.
Several of the analyses lay blame on the pension funds for a slow response prior to the budget, to ALREADY rising gilt yields. Others mention the role of LDI consultants with conflicts of interest possibly not giving fund managers the best advice.
It’s a bit odd that a “well flagged” BoE QT bond sale doesn’t seem to have prompted preventive action by the DB Pension funds. It’s almost as if they “didn’t believe it”. Oh hang on, that’s what Richard said…
Any other explations why the “well flagged” BoE Bond sale/QT doesn’t feature in those 9 reports?
As I say, I’m just an omnibus passenger, scaling an almost vertical learning curve on these matters. But I’m keen to learn.
I am offering an explanation that says the City and BoE were incompetent – no wonder the mainstream disagrees when Truss is such an easy excuse
RobertJ on your question:
“Any other explations why the “well flagged” BoE Bond sale/QT doesn’t feature in those 9 reports?”
I think the simplest explanation is that it wasn’t a big factor, really for the reasons I’ve outlined. Not saying QT is not a big deal, but it was telegraphed in advance and priced in by the market.
I think there was incompetence by the BoE and other regulators in terms of oversight of the pensions system, LDI and the risks to the financial system.
These were contributory factors to the crisis. I think the Truss government’s decision to ignore the many warning signs and press on with the mini-budget is an important one.
In other words I think like any financial crisis, the mini-budget episode was multi-faceted, lots of moving parts, and we can weigh the importance of those factors.
Or we can take Richard’s word for it that it’s a pro-market naivety to think such things, and the undebatable truth is it was everyone’s fault except specifically the government.
Stop misrepresenting things.
You just prove you anyways came to troll.
I’ve weighed your argument and you have not convinced me, in fact you seem to have moved the goalposts several times. I’m signing off here.
I have signed Tony M off for repeating claism without evidence.