The Bank of England will be vigilant in its efforts to ignore house price rises

This morning has been one where a little known committee has emerged blinking into the spotlights. It is the Financial Policy Committee (FPC) of the Bank of England and just to prove that they are central bankers they got straight to what is the beating heart of their concerns.

he UK banking system has the capacity to continue to provide that support. The FPC continues to judge that the banking sector remains resilient to outcomes for the economy that are much more severe than the Monetary Policy Committee’s central forecast. This judgement is supported by the interim results of the 2021 solvency stress test.

We have learnt to be more than suspicious about the use of the word “resilient” especially after noting how across the Irish Sea what was labelled the best bank in the word suddenly collapsed in the credit crunch.  As so often it was time to throw The Precious a bone.

The FPC supports the Prudential Regulation Committee’s (PRC’s) decision that extraordinary guardrails on shareholder distributions are no longer necessary, consistent with the return to the Prudential Regulation Authority’s (PRA’s) standard approach to capital‐setting and shareholder distributions through 2021

How many civil servants does it take to let the banks pay dividends again? As you can imagine it has gone down well with bank shareholders.

Whilst they are there I guess they felt they also needed to help keep the lending taps open.

To support this, the FPC expects to maintain the UK countercyclical capital buffer rate at 0% until at least December 2021. Due to the usual 12‐month implementation lag, any subsequent increase would therefore not be expected to take effect until the end of 2022 at the earliest.

What about the real economy?

Some businesses have been hit hard.

The increase in indebtedness has not been large in aggregate, but has been more substantial in some sectors and among small and medium‐sized enterprises (SMEs)…..companies with weaker balance sheets, particularly in sectors most affected by restrictions on economic activity and SMEs, may be more vulnerable to increases in financing costs.

But it is not going to worry about them because others have not.

UK businesses’ aggregate interest payments as a proportion of earnings did not increase over 2020, and are around historic lows.

Such statements can hide a lot of woes especially for businesses where earnings have been hit hard.

As to households things are not as bad as when things collapsed last time.

The share of households with high debt‐servicing burdens has increased slightly during the course of the pandemic, but remains significantly below its pre‐global financial crisis level

Pumping up house prices was one of the few things we could do.

House price growth and housing market activity during 2021 H1 were at their highest levels in over a decade, reflecting a mix of temporary policy support and structural factors.

We need to find a way that people can borrow even more.

However, so far, there has only been a small increase in mortgage borrowing relative to income in aggregate, and debt‐servicing ratios remain low.

It has been good to see that low equity mortgages are back but in case that backfires again we had better cover ourselves.

The FPC’s mortgage market measures are in place and aim to limit any rapid build‐up in aggregate indebtedness and in the share of highly indebted households. The FPC is continuing its review of the calibration of its mortgage market measures.


This is an awkward area for central bankers. After all their main policy lever these days is pumping up asset prices via purchases of government bonds. The Bank of England will do another £1.15 billion of that this afternoon. So we get this sort of buck passing statement.

Risky asset prices have continued to increase, and in some markets asset valuations appear elevated relative to historical norms. This partly reflects the improved economic outlook, but may also reflect a ‘search for yield’ in a low interest rate environment, and higher risk‐taking.

Ah the very yields the central banks have set out to take away! This is also why those who set interest-rates and have previously been so busy cutting them are always in a rush to blame secular trends. It wasn’t their fault you see. Of course if it had worked it would have been their triumph.

It gets worse in the next bit. The Bank of England piled into the Corporate Bond market in spite of the fact that previously it had got into a mess in doing so. This is because UK businesses of that size are mostly international and thus often choose to issue in Dollars and Euros to match currency risk. Thus the £ sterling market is smaller than you might think and it ended up being like The London Whale in there. Also it was so desperate to find bonds to buy it bought the ones of Apple. Exactly what support did the richest company in the world need? Yet it tries to point put what is below as if it had nothing to do with it.

The proportion of corporate bonds issued that are high‐yield is currently at its highest level in the past decade, and there is evidence of loosening underwriting standards, especially in leveraged loan markets.

Encouraging that was official Bank of England policy. Below is as close to admitting they have stored up trouble for the future as they will ever get.

This could increase potential losses in a future stress, and highly leveraged firms have also been shown to amplify downturns in the real economy.

Next is even more classic central banker speak which completely ignore their role in creating this.

Asset valuations could correct sharply if, for example, market participants re‐evaluate the prospects for growth or inflation, and therefore interest rates.

Even Bloomberg pointed this out last week. What did central bankers think would happen in response to this?

Central banks in the U.S., Europe and Japan have become ultimate market whales during the pandemic, with combined assets of $24 trillion.

Is there any market-based finance left after all their interference?

Any such correction could be amplified by vulnerabilities in market‐based finance, and risks tightening financial conditions for households and businesses.

Many reviewing this will think The Beatles were rather prescient here about QE.

You never give me your money
You only give me your funny paper

Especially if their situation is like this.

Out of college, money spent
See no future, pay no rent
All the money’s gone, nowhere to go


There are a couple of contexts here. I have critiqued the FPC as being a waste of space where people you have mostly never heard of are selected because they have the “right” views. The official view was that the FPC would set macroprudential policies which would keep house prices under control. Remember macropru as it became called? Where are all its supporters now as they seem to have disappeared?

“Over the last twelve months, our index has shown the average price of a home sold in England and
Wales has increased by some £32,500, or 10.7%. If we exclude London from this then the figure is a
very considerable 14%. Nevertheless, even including the capital, this is the highest annual rate since
February 2005. It is now fourteen months since any of the areas in our index have recorded a fall in
house prices, and this is while the UK economy has been under the severest pressure it has faced in
living memory.” ( Acadata)

So where are they then?

Still it looks as though one member has been checking his own position.



What are lower bond yields telling us?

A major story in 2021 so far has been the moves in bond yields. This matters because they have become more significant in economic terms during the credit crunch. A factor in this is the way that the ZIRP era of effectively 0% official interest-rates has pretty much stopped the game there for now. For example the US Federal Reserve is presently trying to stop more US rates going below zero. Even the European Central Bank which has applied negative interest-rates for some years now thinks it is at its limit as we learn from the denial below.


Putting it another way their last move was a paltry 0.1% cut to -0.5% although of course they sneaked in a -1% for the banks.

If we step back and ask why?The answer comes from the early days of the credit crunch when official interest-rates were slashed but economies did not respond as the central bankers hoped they would. In effect they thought they had more economic power than they did as longer-term interest-rates cocked something of a snook at them. So we got QE bond purchases in an attempt to control them as well, but whilst this has been associated with lower bond yields the link has been far from what you might think.

Last Night

Whilst many of us in the UK had our eyes on Wembley last night the Federal Reserve released the minutes of its most recent meeting.

On net, U.S. financial conditions eased further, led by a decline in Treasury yields.

Remember this was from mid-June and in terms of central banker psychobabble you can explain it like this.

Lower term premiums appeared
to be a significant component of the declines, as reflected by lower implied volatility on longer-term interest rates.

There had also been bad news for those using real yields as a measure.

The median 2021 core personal consumption expenditures (PCE) inflation forecast from the Open Market Desk’s Survey of Primary Dealers jumped nearly 1 percentage point from the previous survey. However, median forecasts for 2022 and 2023 each rose less than 0.1 percent, suggesting expectations for inflationary pressures to subside.

The Federal Reserve is of course desperate to emphasis anything agreeing with its claim that inflation will be transitory. But the problem for those seeing things in real yield terms is that the higher inflation forecasts should lead to higher bond yields and we got lower ones. Oh Well! As Fleetwood Mac would say.

Oh and I did point out earlier that the Federal Reserve is trying to stop short-term rates going below zero.

Amid heightened demand and reduced supply for short term investments, the ON RRP continued to maintain a
floor on overnight rates.


Here things get a little awkward again. Because any reduction in the current rate of purchases ( $80 billion of US Treasury Bonds and $40 billion of Mortgage-Backed Securities a month) should lead to higher bond yields. Except for all the talk it still seems some way away.

In coming meetings, participants agreed to continue assessing the economy’s progress toward the Committee’s goals and to begin to discuss their plans for adjusting the path and composition of asset purchases. In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases.

This backs up this from the statement at the time.

The Committee expects
to maintain an accommodative stance of monetary policy until these outcomes are achieved


An exaggeration but there is a point behind it. Highlighted in a way by this from Reuters.

“If we do see a further drop in interest rates, if we do get below that 1.3% level in any kind of meaningful way, that is going to confirm that growth over value has returned and it is not just a head fake,” said Matt Maley, chief market strategist at Miller Tabak.

Actually the US ten-year yield is 1.26% as I type this as we wonder if that is meaningful enough for Mr. Maley? This compares to 1.78% earlier this year as the yield party peaked and 1.6% just after the Federal Reserve meeting and its hints of a couple of interest-rate rises in 2023. So if you have been long bonds well played.

Back to the economic implications and we start with the US government being able to borrow very cheaply again. Related to that is that long bond (30 year ) yield and its impact on mortgage rates.

Mortgage rates have fallen fairly consistently over the past 2.5 weeks with the past 2 days seeing some of the better improvements…….

They have the 30-year at 3.07% with Freddie Mac going below 3% to 2.98%. I doubt today’s fall to 1.88% for the long bond is factored in but of course the day is not over and things might change.

The International Effect

We can see one via Yuan Talks.

#China‘s most-traded 10-year #treasury futures extend gains to more than 0.5% to hit the highest since Aug, 2020. The yield on China’s 10-year govt bonds drops by 6.25 bp and break through 3% mark to hit 2.9925%.

If we switch to Europe one of my subjects this week – France- has seen its ten-year yield move to a whisker away from 0% this morning. Germany has a thirty-year of a mere 0.15%.

If we travel to a land down under he get a new sort of insight into QE. This is because the Reserve Bank announced a reduction in the rate of it by around 20% from September. The knee-jerk response saw the ten-year yield rise to 1.48% but only a couple of days later it is 1.3%.

The Global Dunces Cap goes to the Bank of Japan. You may recall that a few months ago Yield Curve Control was all the rage. Maybe even fashionable if an economic concept can be. But by pinning the ten-year yield the Bank of Japan stops it from falling and effectively undertake a sort of reverse Abenomics. So it has only moved within the permitted range from 0.06% to 0.02%. I guess that counts as a big move for JGBs these days.

I suspect that has contributed to today’s rally in the Japanese Yen as it moved through 110 although currencies rarely move for one thing alone.


The pendulum keeps swinging in 2021. Markets tend to overshoot but even that theory is awkward now as we note how large the narrative is versus how small the bond yield moves have been. I have worked through plenty of occasions where a 0.5% move would not be considered much and one comes to mind ( White Wednesday 1992) when it was happening if not in seconds in minutes.

Is this a cunning triumph by the US Federal Reserve as some argue? I do not think so as that is way over emphasising their ability. Putting it another way if so they have just poured petrol on the house price rise fire via the impact on mortgage rates.

Switching to the UK we see the same themes in play. The fifty-year yield is back below 1% so the government can borrow incredibly cheaply just as theory tells us it should be getting a lot more expensive. Also we may see more of this.

Record low rate on a 60% LTV 2yr fix of 1.15% in June. No wonder that mortgage mover numbers and house prices are up. Average quoted rates are falling on higher LTVs but still higher than pre-pandemic. ( @resi_analyst )


The Reserve Bank of Australia decides to look away from surging house prices

We have an opportunity to take a look at a land which is both down under and a place where beds are burning, at least according to Midnight Oil. This is because the latest central bank to emerge blinking into the spotlight is the Reserve Bank of Australia or RBA. Here is its announcement.

  • retain the April 2024 bond as the bond for the yield target and retain the target of 10 basis points
  • continue purchasing government bonds after the completion of the current bond purchase program in early September. These purchases will be at the rate of $4 billion a week until at least mid November
  • maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero per cent.

Perhaps they thought that announcing the interest-rate decision last would take the focus off it. A curious development in that who expects a change anyway? A sort of equivalent of an itchy collar or guilty conscience I think. Along the way they have reminded us that they also have a 0% interest-rate and I guess most of you have already figured that it of course applies to The Precious.

Exchange Settlement Accounts (ESAs) are the means by which providers of payments services settle obligations that have accrued in the clearing process.

As someone who has spent much of his career in bond markets I rather approve of starting with a bond maturity but what is taking place here is a little odd. This is because as time passes their benchmark of April 2024 is shortening as for example it is now 2 years and 9 months. For example that is below the minimum term that the Bank of England will buy ( 3 years) and also central banks have in general been lengthening the terms of their QE buying arguing that such a move increases the impact.

If you think the above is an implicit way of cutting QE there is then the issue that it has been extended until November although with around a 20% reduction in the rate of purchases. That is similar to the Bank of England.

As ever they think they can get away with contradicting themselves because the economy needs help apparently.

These measures will provide the continuing monetary support that the economy needs as it transitions from the recovery phase to the expansion phase.

But only a couple of sentences later it is apparently going great guns.

The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The outlook for investment has improved and household and business balance sheets are generally in good shape.

So do all states of the economy require support these days?

The Economy

The latter vibe continues as we note this.

National income is also being supported by the high prices for commodity exports.

That boost may well carry on if the analysis in The Conversation turns out to be accurate.

The panel expects actual living standards to be higher than the bald economic growth figures suggest.

This is because high iron ore prices boost Australians’ buying power (by boosting the Australian dollar) and boost company profits in a way that isn’t fully reflected in gross domestic product.

In recent months, the spot iron ore price has been at a record US$200 a tonne, a high the budget assumes will collapse to near US$63 by April next year as supply held up in Brazil comes back online.

The panel is expecting the iron ore price to stay high for longer than the Treasury — for at least 18 months, ending this year near a still-high US$158 a tonne.

So a windfall for Australia although they have omitted the “Dutch Disease” issue where the higher Aussie Dollar they mention deters other sectors of the economy such as manufacturing.

Another signal is going well according to the RBA.

The labour market has continued to recover faster than expected. The unemployment rate declined further to 5.1 per cent in May and more Australians have jobs than before the pandemic.

There may even be hope for some wages growth.

Job vacancies are high and more firms are reporting shortages of labour, particularly in areas affected by the closure of Australia’s international borders.

Although later it appears to think it will take quite some time.

The Bank’s central scenario for the economy is that this condition will not be met before 2024. Meeting it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

House Prices

The situation is in rude health from a central banking perspective.

Housing markets have continued to strengthen, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, including first-home buyers. There has also been increased borrowing by investors.

Well if you will pump it up as we note that “investors” are on the case.

The final draw-downs under the Term Funding Facility were made in late June. In total, $188 billion has been drawn down under this facility, which has contributed to the Australian banking system being highly liquid. Given that the facility is providing low-cost fixed-rate funding for 3 years, it will continue to support low borrowing costs until mid 2024.

This is a type of copy cat central banking where the RBA has copied the policy which has juiced the UK housing market. Looking at the credit data there is a lot of investor activity as total mortgage credit for that category was 669 billion Dollars at the end of May as opposed to 1.258 trillion for owner-occupiers.

Anyway here is the consequence.

CoreLogic’s monthly home price index rose 1.9 per cent in June, led by 3 per cent growth in Hobart and 2.6 per cent in Sydney.

The index rose 13.5 per cent over the past financial year just ended, with Darwin (+21pc), Hobart (+19.6pc), Canberra (+18.1pc) and regional markets (+17.7pc) leading the way.

That is the strongest annual rate of growth recorded by CoreLogic nationally since April 2004.


Switching to the supposed target then things are in hand as long as you ignore the above.

In the central scenario, inflation in underlying terms is expected to be 1½ per cent over 2021 and 2 per cent by mid 2023. In the short term, CPI inflation is expected to rise temporarily to about 3½ per cent over the year to the June quarter because of the reversal of some COVID-19-related price reductions a year ago.


There are quite a few familar themes here as we note that even recoveries these days need support rather than the old standard of taking away the punch bowl just before the party gets really started. I think we can safely say that the housing  market has the volume turned up if not to 11 very high. This means that for central bank action we return to the prophetic words of Glenn Frey and Don Henley of The Eagles.

“Relax, ” said the night man,
“We are programmed to receive.
You can check-out any time you like,
But you can never leave! “

There is an Australian spin in the way that all roads here seem to lead to 2024. Is that a type of release valve? It looks like that at first but there is a catch. We have seen that central banks may reduce the rate at which they buy bonds under QE but they never reverse it. The one main effort by the US Federal Reserve was followed by it buying ever more. In the end central banking roads have so far ended at this destination.

Come on let’s twist again,
Like we did last summer!
Yeaaah, let’s twist again,
Like we did last year! ( Chubby Checker )

What can we expect next from the Bank of England?

Welcome to Super Thursday as it is Bank of England day. Well of a sort anyway as they actually voted yesterday evening in one of former Governor Mark Carney’s changes where he preferred bureaucratic convenience( having the Minutes ready) over the risk of a market leak. The latter has in fact happened with if I recall correctly The Sun newspaper being in the van of providing an “early wire” into the last QE expansion.

There is a particular significance due to the change in the situation and this was highlighted yesterday by some news from the United States.

Now the one thing you said, which is something that we are looking at, is that when I talk to businesses, they are saying that it’s going to be temporary, but temporary is going to be a little longer than we had expected initially. So rather than it being a two- to three-month, it may be a six- to nine-month factor. And this is something that we’re going to have to pay attention to see if that changes how people approach the economy.

That was Raphael Bostic of the Atlanta Fed and the emphasis is mine. It was not only me noting that as the next question from NPR shows.

KING: And if it is six to nine months, as opposed to two to three months, is there something specific that the Fed should be doing?

The reply is fascinating.

BOSTIC: Well, I think there are a couple of things that we would do. First of all, we’d monitor very closely what’s happening with expectations. That is the key to determining whether there are some real structural changes in how the economy is playing out. And then the second is really to dive deeper into this to see if there are things that policymakers might be able to do to break the – those dynamics and leave the crisis to return to normal.

So basically nothing and here he is later explaining that.

We’re still 7.5 million jobs short of where we were pre-pandemic, and that is a benchmark that I think we all need to keep our eye on.

Later he told reporters this.

“Given the upside surprises and recent data points, I pulled forward my projection for a first move to late 2022” Adds he has 2 moves in 2023 ( @bcheungz )

So not much use for now and in fact it gets worse because he is projecting interest-rate moves for years in which he is a non-voter. Also there was a question which will have discomfited them as it asked about an area they normally ignore which is necessities which in central banking terms are mostly non-core.

Are we seeing the rise – a rise in prices of basics, things that families need, like bread and milk and diapers?

Pack animal behaviour

The reason I am emphasising the points about is that these days central bankers the world around are mostly like clones. So they believe and do the same things, to the extent that they believe anything. Thus the points made apply to the Bank of England as well. So it too is more bothered about unemployment than inflation. It too will look through the recent inflation rise and will suggest interest-rate rises that are far enough away to be meaningless as right now we can only see a few months ahead.Actually the Bank of England has already played that card when Gertjan Vlieghe told us this at the end of last month.

In that scenario, the first rise in Bank Rate is likely to become appropriate only well into next year, with
some modest further tightening thereafter.

There is a curious link in that he will not have a vote then like Raphael Bostic. But the point is the same especially as we recall the period of Forward Guidance with all its promises of interest-rate rises when in fact the next move was a cut.


This is an issue with several contexts. The simplest is that we are now above the inflation target and with the numbers from producer prices look set to remain there for at least a bit. Then there is the way that the numbers ignore the rises in house prices which are well above such levels.

UK average house prices increased by 8.9% over the year to April 2021, down from 9.9% in March 2021.

This was reinforced yesterday by a metric which the Bank of England regularly tells us it follows as the Markit PMI headline included this.

 but inflationary pressures also strengthen

It went on to ram the point home.

Also hitting previously unsurpassed levels, however, were rates of inflation of input costs and output prices as supply-chain disruption fuelled price pressures.

And later.

The rate of input cost inflation accelerated for the fifth month running and was the joint-fastest on record, equal with that seen in June 2008. While inflation continued to be led by the manufacturing sector, service providers also posted a marked increase in input prices. In turn, the rate of output price inflation hit a fresh record high for the second month running.

The Economy

The same survey told us it was pretty much full speed ahead.

Businesses are reporting an ongoing surge in demand in
June as the economy reopens, led by the hospitality sector,
meaning the second quarter looks to have seen economic
growth rebound very sharply from the first quarter’s decline.

I did my little bit by going out for some drinks and dinner, the first tome I has been out in that way for 7 months.


A picture like that would have conventional central bankers taking away the stimulus and maybe even raising interest-rates. According to Getjan Vlieghe that was all wrong.

First, given the proximity of the effective lower bound (even with the possibility of modestly negative rates),
tightening too early would be a much costlier mistake than tightening too late

A curious assertion considering we have seen interest-rates only reach 0.75% Next is a curiosity as central bankers keep chanfing their mind on this as I recall the ECB telling us that policy responses had slowed.

Second, monetary policy does, in fact, work quite quickly

Indeed he rather contradicts his prediction of future interest-rate rises.

That was apparent before we were hit by the Covid shock, when Bank Rate was just 0.75% and inflation pressures were too weak.

If 0.75% was too high then and things are worse now well you do the maths.

As you can see there are good reasons for the Bank of England to change course but I do not expect it too and today will be unchanged. It seems set to mimic the four stage plan described in Yes Minister.

Sir Richard Wharton“In stage one, we say nothing is going to happen.”

Sir Humphrey Appleby“Stage two, we say something may be about to happen, but we should do nothing about it.”

Sir Richard Wharton“In stage three, we say that maybe we should do something about it, but there’s nothing we can do.”

Sir Humphrey Appleby“Stage four, we say maybe there was something we could have done, but it’s too late now.”




Was the Fed a case of Much Ado About Nothing?

We have become used to central banking being a bit dull, certainly compared to March last year. They essentially opened the monetary taps and have spent the intervening period not doing much. We have had some fiddling at the edges and a lot of open mouth operations, but last night the stakes were higher because of the pace of the recovery in the US economy. If we move to the effect we can see that markets made an immediate response.

After FED meetings, gold fell down significantly in the last Newyork session, from $1860/oz to $1800/oz, then went up back to $1820/oz ( @fxstreet)

So Gold was hit immediately and the futures contract is at US $1810 this morning meaning that $50 was knocked off its price. So it has been a bad 24 hours for Gold bugs and places were it is held such as India. This gives us our first hint of some news about interest-rates.

Hollar Dollar gives us the picture.

At 3:15 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was traded 0.2% higher at 91.418, after surging nearly 1% overnight, its biggest rise since March of last year.

The rally meant that we have seen some big figure changes with the Euro pushed below 1.20 and the UK Pound £ pushed below $1.40. They should not matter but often do. Also there was some relief for the Bank of Japan as the Yen weakened to 110.60 as it continued a weaker run for the Yen since the days it ended up being pinned around 104.

Bond Markets

Having established a theme of financial markets responding to something about interest-rates we now move to one which gives a qualified response. What I mean by that is yes we get some confirmation from a 0.07% rise to 1.56% for the US ten-year yield but it is not a large move. Also bond yields had been falling for the last couple of weeks so net we are still lower.

The Federal Reserve

The initial statement only gave is a couple of hints.

 Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.

So some confirmation of an improvement and we also got the beginnings of covering their backside on inflation via the use of “largely”

Inflation has risen, largely reflecting transitory factors

But neither of those explain the market response. Nor does the interest-rate change which was announced.

The Board of Governors of the Federal Reserve System voted unanimously to set the interest rate paid on required and excess reserve balances at 0.15 percent, effective June 17, 2021.

The 0.05% move was also applied to the troubled reverse repo market which went from 0% to 0.05% and we see why from this.


We have looked at this several times before where the monetary push from the Federal Reserve has been added to by the fiscal stimulus and the cheques in particular leaving the banking system awash with cash. The pressure has been such there has been a danger of negative interest-rates spreading ( we have seen some in US Treasury Bills). I know it is an irony but the Fed is now acting to stop further falls in interest-rates. Or as Stevie V put it.

Money talks, mmm, mmm, money talks
Dirty cash I want you, dirty cash I need you, ooh

The US Treasury has been asleep here as it could have helped by issuing some more bonds, it is not as if it will not have deficits to finance.


More meat came here.

However, the jolt came when new projections saw 11 of 18 central bank policy makers plan for two interest rate increases of 25 basis points in 2023, a year earlier than expected, and a sharp change from the previous meeting when none of these officials were looking for hikes during that year.  (

Such was the shift that the projection had a 0.6% expectation for interest-rates in 2023 or two 0.25% hikes from the present 0.1%. This led to this perception.

“With the world’s so-called ‘smartest market’ expecting a quicker and more aggressive liftoff in interest rates, the fallout from this Fed meeting could continue to drive all markets in the days and weeks to come,” said Matthew Weller, Global Head of Market Research at GAIN Capital. (

I have no idea how he could consider that to be aggressive but each to their own. As to the meaning of the shift well I well leave that to Chair Powell.

FED Chair Powell: Not Appropriate To Lay Out Numbers That Mean Substantial Further Progress

Dots Are Not A Great Forecaster Of Future Rate Moves

– Didn’t Discuss If Liftoff Appropriate In Particular Year  (@LiveSquawk )

This is a bit awkward because having sent a signal about higher interest-rates you then say that it does not mean much. Ironically he is of course correct with the statement that central bankers are not great forecasters of future rate moves, and he has thus just torpedoed the “Forward Guidance” claims that have been pressed over the past few years. It gets more awkward as we note they have predicted a “Liftoff” in 2023 but didn’t discuss it. What did they discuss then?

If we return to the dot plot then we see this from Chair Powell back in March 2019.

Each participant’s dots reflect that participant’s view of the policy that would be appropriate in the scenario that he or she sees as most likely.

That could be from Sir Humphrey Appleby in Yes Minister.

Taper Talk 

Essentially it remains that because there is no change.

 In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.


In some ways this echoes the much ado about nothing line from William Shakespeare. The Fed has sent a signal with its forecasts but it is hard not to smile at reports it is being hawkish, especially when CPI inflation is at 5%. Also raising interest-rates in 2023 is an inversion of monetary policy leads and lags with inflation higher now. If it is transitory then why bother? Indeed I could go further because in its forecasts is the assumption that the “normal” level of interest-rates is now 2.5%, does anyone actually believe that? None of this deals with house price rises in double-digits.

The Tapering of QE is an issue where some will keep talking about it and claim to be right should it happen forgetting the failed lottery tickets they previously bought. But my view is that the central banks are all hoping someone else will move first. I know that the Bank of Canada has acted but having bought around 40% of the market in short order it soon would have been out of road anyway.

So we are left with markets and if they have pushed the US Dollar upwards and it persists then they may have achieved something. Although did they intend to? Also we have the nuance which is do we have a clear cause and effect or were markets waiting for a trigger and without the Fed something else would have come along?

Also we saw a bit of insurance taken out against the future.

The Federal Reserve on Wednesday announced the extension of its temporary U.S. dollar liquidity swap lines with nine central banks through December 31, 2021

So they can use the word temporary…….




UK house prices reach yet another record

Today I am reminded of the sequence in one of The Matrix series of films when the Frenchman tells us about cause and effect. That is because as I wait for another signal of the cause we have seen the effect already.

May saw a further acceleration in annual house price
growth to 10.9%, the highest level recorded since August
2014. In month-on-month terms, house prices rose by 1.8%
in May, after taking account of seasonal effects, following a
2.3% rise in April.  ( Nationwide )

As DJ Jazzy Jeff and the Fresh Prince put it.

Boom! shake-shake-shake the room
Boom! shake-shake-shake the room

In case you did not think that the next bit rams it home.

New record average price of £242,832, up
£23,930 over the past twelve months.

That means that the average UK house earned more than its owner over the last 12 months because in general ( for a first house or flat) gains are tax-free. So it needs to be compared to net rather than gross income.

We also know that the low level of transactions seen last year has also been replaced by a boom.

The market has seen a complete turnaround over the past
twelve months. A year ago, activity collapsed in the wake of
the first lockdown with housing transactions falling to a
record low of 42,000 in April 2020. But activity surged
towards the end of last year and into 2021, reaching a record high of 183,000 in March,

The Nationwide thinks that there is much more to it than the Stamp Duty holiday.

Amongst homeowners surveyed at the end of April
that were either moving home or considering a move, three
quarters (68%) said this would have been the case even if
the stamp duty holiday had not been extended. It is shifting
housing preferences which is continuing to drive activity,
with people reassessing their needs in the wake of the

The so-called race for space seems to also be in play. Also the pandemic seems to have given many the equivalent of itchy feet.

At the end of April, 25% of homeowners surveyed said they
were either in the process of moving or considering a move
as a result of the pandemic, only modestly below the 28%
recorded in September last year. Given that only around 5%
of the housing stock typically changes hands in a given year, it only requires a relatively small proportion of people to follow through on this to have a material impact.


It looks as though all the activity has had a consequence here.

The UK’s biggest builders’ merchant has warned customers of “considerable” cost increases to raw materials amid an industry-wide shortage.
As first reported by the Times, Travis Perkins says the price of bagged cement will rise by 15%, chipboard by 10% and paint by 5% from Tuesday.

It comes as industry groups warn electrical components, timber and steel are also in short supply.

They blame surging demand as lockdown eases, as well as supply chain issues. ( BBC)

Much of the explanation will be familiar to regular readers.

The supply problems stem from a number of factors. Construction industry projects have surged since lockdown began easing which has led to skyrocketing demand for already scarce materials.

There are also issues hitting specific products, such as the warmer winter affecting timber production in Scandinavia while the cold winter weather in Texas affected the production of chemicals, plastics and polymer.

There has also been a sharp rise in shipping costs amid the pandemic.

Mortgage Rates and Credit

This gets a minor mention from the Nationwide.

especially given continued low
borrowing costs, improving credit availability.

In terms of credit availability I presume they mean this change highlighted by Moneyfacts.

May 2021 has seen a surge in the number of 95% loan-to-value (LTV) mortgages available. Our latest data (to May 25 2021) shows 174 mortgages are now available at 95% LTV. The growth of product availability followed the launch of the new Mortgage Guarantee Scheme (MGS) and there are now 49 mortgages available under the scheme.

Remember the days post credit crunch when politicians queued up on the media to say never again to this sort of thing? I guess we are not quite back to what had happened but we are back on that road. Still the banks will be pleased that the taxpayer is assuming a fair bit of the extra risk.

There is a lot going on.

The availability of mortgage deals at 95% LTV is changing daily as lenders launch and close new products due to high levels of borrower demand.

But the best deals as of the end of last week were 3.49% variable and 3.59% fixed-rate.

For those with higher equity ( 40%) May has seen offers of less than 1%.

TSB offers 0.99% (3.2% APRC) on a two year fixed deal, which is available at a 60% loan-to-value (LTV) and charges £1,495 in product fees. Hinckley & Rugby Building Society offers 0.99% (4.5% APRC) as a two year discounted variable, which is also available at a 65% LTV and requires a minimum loan of £100,000. It charges £699 in product fees.

That still feels rather extraordinary even in these times of zero interest-rate policy or ZIRP. Although the numbers are flattered by the fees involved.

Moneyfacts also suggest that there is something going on in the price of credit  for buy-to-let.

Landlords looking to lock into a fixed

Our research into the BTL mortgage market has found that since the start of this month, the average two year fixed BTL rate has fallen by 0.04%, down from 2.99% on the 1 May to 2.95% on the 21 May. Meanwhile, the average five year fixed BTL rate

has fallen by 0.05% during this same period, down from 3.35% to 3.30%.

A sign of what Nelly would call “its getting hot in here” would be borrowing spreading into other types of finance.

Data  from the Association of Short-Term Lenders (ASTL) shows the demand from consumers and businesses to get a bridging loan in the UK has increased at the start of 2021.  Applications have exceeded pre pandemic levels by just over a quarter and the value of these was up 18% comparing Q1 2021 to the same period in 2020.


The record on the Nationwide series for this was 6.4 back in late 2007 and the first quarter of this year showed 6.3 so with the increases we look to be back to the highs. Frankly if we look at what has happened to wages I think there must be some heroic assumptions here to keep it at that.

There is a similar situation for first-time buyers except the numbers are 5.4 and 5.3 respectively.


We will find out more tomorrow about a major driver of this which is the credit easing and monetary expansionism of the Bank of England. I note that they are increasingly deploying open mouth operations on the subject. Today’s effort comes from Sir David Ramsden in the Guardian who is apparently monitoring things.

The Bank of England is carefully monitoring Britain’s booming housing market as it weighs up the possibility that a rapid recovery from the Covid-19 pandemic will lead to a sustained period of inflation, one of its deputy governors has said.

A career as a civil servant is an odd way to become the expert on financial markets you might think.

Ramsden, the deputy governor responsible for markets and banking, said: “There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure. That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators.”

Those looking at the rise in house prices might think that Dave ( as he prefers to be called) is not much of a guard dog. I wonder if he thinks anyone will be convinced by this?

Ramsden said the Bank would not be complacent about inflation. “If it is not temporary we know what to do about that. We can push bank rate up from its historically low level [0.1%] and we know what that will do to demand.”

Meanwhile we have learned over time that the road to ever easier monetary policy and lower interest-rates comes pre-loaded with denials of any such intention. It is a form off PR for central bankers.

From August the Bank’s monetary policy committee will have the ability to push bank rate below zero but Ramsden hinted strongly that he would be wary about such a groundbreaking step.



Can the US Federal Reserve Taper and QT this time around?

A feature of 2021 so far has been the discussion over what the US Federal Reserve will do next? One factor in this has been the extraordinary amount of monetary stimulus it has pumped into the US economy with near zero interest-rates and a balance sheet expanded to just shy ( 7.92) of 8 trillion US Dollars. That compares the the previous peak of around 4.5 trillion back in 2015. On Monday the New York Fed gave us its view on what may happen next.

The exercise suggests that the SOMA portfolio could grow
through ongoing asset purchases to reach $9.0 trillion by 2023, or 39 percent of GDP. The portfolio is then assumed to be held constant, with proceeds from maturing securities being reinvested. After that point, the path of the portfolio will depend on choices made regarding the portfolio as the FOMC normalizes the stance of monetary policy.

These days normalizes does not mean what it did as those who recall its use back in 2018 or so will recall it meant interest-rates of around 3%. The reason for the expected expansion in the balance sheet is that the New York Fed is still buying at a fairly rapid rate.

In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per
month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum
employment and price stability goals.

The Economic Outlook

For this quarter we are being told this.

The New York Fed Staff Nowcast stands at 4.6% for 2021:Q2.

Later this afternoon the numbers for the first quarter will be revised and the New York Fed is expecting an increase to over 6%. The numbers are annualised but in our terms a bit over 1% and then around 1.5% are strong numbers. This has been added to by the Markit IHS business survey.

Adjusted for seasonal factors, the IHS Markit Flash
U.S. Composite PMI Output Index posted 68.1 in
May, up from 63.5 in April. The rate of expansion
was unprecedented after surpassing April’s
previous series record.

They went further.

At the same time, new export business rose at the fastest pace since the series covering both manufacturing and services began in September 2014.

Mostly we have seen manufacturing pick up and services lag but the US has moved beyond this according to Markit.

The seasonally adjusted IHS Markit Flash U.S.
Services PMI™ Business Activity Index
registered 70.1 in May, up from 64.7 in April. The
rate of expansion was the sharpest since data
collection for the series began in October 2009.

So the outlook for 2021 looks to be singing along with the Black Eyed Peas.

Boom boom boom
That boom boom boom
That boom boom boom
Boom boom boom


We have previously looked at an inflation rate ( CPI) of 4.2% and house price rises in double digits. The Markit survey above reinforced curreny concerns here.

Inflationary pressures continued to mount in May,
as rates of increase in input prices and output
charges quickened to the steepest on record.
Companies commonly noted efforts to pass through
soaring costs to clients, with prices of oil, PPE and
transportation often cited as fuelling the uptick in

They think this will be felt in the consumer inflation numbers.

Average selling prices for goods and services are both rising at unprecedented rates, which will feed through to higher consumer inflation in coming months.

Forward Guidance

Remember when we were supposed to listen to the open mouth operations of central bankers so we would be better informed about interest-rates? That went really rather wrong. But we can look at what is being said by central bankers who seem to have forgotten that. On Tuesday Mary Daly of the San Francisco Fed was interviewed by CNBC.

“We haven’t seen substantial further progress just yet. We’re still looking for substantial further progress,” Daly said during a live “Closing Bell” interview. “What we’ve seen is some really bright spots, some very encouraging news. It gives me hope, and I am bullish for the future. But it’s too early to say that the job is done.”

As to policy she told them this.

“We’re talking about talking about tapering, and that is what you want out of us. You want to be long-viewed here,” she said. “But I want to make sure that everyone knows it’s not about doing anything new. Right now, policy is in a very good place. Policy is supporting the American people.”

God knows where she is going with “talking about talking…” but what we see here is quite a revision of central bank behaviour which is supposed to look ahead along the lines of the famous take away the punch bowl as the party gets started statement. Whereas Mary seems to want to wait with the risk that the party is over before she does anything.

Vice Chair Randal Quarles spoke yesterday and he seemed quite keen on the house price rises.

Highly accommodative monetary policy by the Federal Reserve has fostered strong growth in interest rate–sensitive sectors of the economy such as housing and durable goods, offsetting some of the historic weakness in the service sector last year.

That is at least more honest than the Bank of England as we recall Sir John Cunliffe turning his blind eye to this issue last week. He also brought in the issue of the fiscal stimulus which is in play in the US.

Even as personal consumption expenditures rose at a huge 10 percent annual rate in the first quarter of 2021, the saving rate averaged 21 percent over those three months. Again, a lot of that reflected the most recent round of stimulus payments.

Then something else which would have in the past led his predecessors to raise interest-rates.

The underlying strength in hours and wages lends support to widespread reports that worker shortages are impeding hiring. Labor force participation remains about 3‑1/2 million people lower than before COVID-19.

But he has no such intention.

In contrast, the time for discussing a change in the federal funds rate remains in the future

Only some sort of vague promise to maybe look at tapering or QE reductions at some future date.

If my expectations about economic growth, employment, and inflation over the coming months are borne out, however, and especially if they come in stronger than I expect, then, as noted in the minutes of the last FOMC meeting, it will become important for the FOMC to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings


There are three especially significant starting points for all of this. The US Federal Reserve is the world’s most important central bank due to the size of the US economy and the reserve currency role of the US Dollar. Also the US economy is presently leading us out of the Covid-19 economic malaise. Finally whilst other central banks have reduced purchases of bonds and the flow of QE it is the only one to have cut back the amount or apply Quantative Tightening or QT in 2017-19 when some US $700 billion was pruned.

But now as you can see it looks to be scared of its own shadow and unsure of its role. It raised its inflation target on dubious grounds and now finds that if April was any guide it has underestimated the push the reopening would give it. It seems to be hanging onto QE on two grounds. Fears for what would happen to the US bond market and in case the economy dips at any point. Along the road we are seeing policy swing both ways. Firstly as has been discussed in the comments the market situation has applied a sort of short-term QT.

Demand for an overnight funding through the Federal Reserve Bank of New York’s overnight reverse repo program (RRP) has begun to flirt with recent records highs, after almost no one used it for months.

Daily repo usage jumped to $450 billion on Wednesday, its highest level since the December 30, 2016, according to Fed data. ( MarketWatch)

This is in many ways a response to the fact that some short-term interest-rates rather than rising as you might expect have fallen to 0% in response basically to all the cash in the system.

Another way of looking at all of this is that just as you might reasonably have expected US bond yields to be rising ( the recovery plus inflation) if anything they have drifted lower. Back on the 17th of March when we looked it was 1.63% whereas now it is 1.58%.

If we step back the issue post credit crunch was that they would delay taking the stimulus away. So we are on the verge of the same mistake.

China and its house price problem

This morning brought us up to date on an issue which has been concerning the Chinese authorities. It is the issue of inflation but not the more recent producer price one but the much more long-running issue of house prices. As 2021 has developed China has shown more signs of concern over this area and has moved to try to take some heat out of the situation. Or as CNBC reported last week.

The People’s Bank of China said in its first quarter monetary policy report that house prices must be kept stable, and emphasized that houses are for living, not speculation.

It must have been hard for them to write that as central bankers much prefer to concentrate on the wealth effects from higher house prices.

Reuters has crunched the numbers for us from the official spreadsheet.

New home prices in China rose at the fastest rate in eight months in April, according to data Monday, despite increased efforts by the government to tame the searing market and tackle an alarming rise in debt.

Average new home prices in 70 major cities rose 0.6% in April from the previous month, the fastest pace since August 2020 and up a notch from a 0.5% gain in March , according to Reuters calculations based on data released by the National Bureau of Statistics. .

Minds may well be focused in Beijing because it has the second fastest growth rate at 1.2% for the month and 10.1% for the year. Not everywhere grew as Mudanjiang saw a 0.1% fall leaving prices some 8.3 below last year but as a collective the position is below.

On an annual basis, new home prices hit an eight-month high of 4.8%, compared to a 4.6% increase in March.

Concerns over this have led to new measures.

This month, authorities in a dozen cities have stepped up their campaigns to drive speculators out of the property market, taking more targeted measures such as capping prices set by developers and preventing some real estate agencies from setting property prices. excessively high second-hand homes.

But if we look at the numbers the last couple of months suggest that things are picking up steam rather than slowing.

The Causes

Michael Pettis has pointed out that relatively property looks attractive.

With deposits at 0.35%, and government bonds yielding between 2.6-3.2% (1-year to 10-year), even low rental yields of roughly 2% make buying an apartment seem a good investment.

Looked at like that if you add in expected house price growth of even a few per cent per year then property looks good. Maybe as we have seen in the UK rent is to cover costs and the real game is hoped for price rises.

He then goes onto note not only the persistent nature of this but also the reason why macroprudential policies got abandoned in the past.

Beijing has been growling about surging real estate prices for years, and more than…ever recently, even threatening a real estate tax, but until regulators implement sharper-toothed measures — which of course if credible will almost certainly cause prices to fall — there is little they can do to prevent ever more speculation in Chinese real estate.

That is the issue with the so-called mactopru. It either does not work or it works so well it gets abandoned as authorities have no stomach for falling house prices.

As the South China Morning Post pointed out yesterday taxes are another possible alternative.

China’s latest move to introduce a controversial property tax represents a fresh crackdown on property speculation and a curb on runaway home prices, but analysts believe it is also an “inevitable” solution to help solve the nation’s debt crisis and ensure financial stability.

A new scheme, like many Western countries, would eventually cover ordinary Chinese households. At the moment, taxes and fees are mainly collected only at land auctions, or in the property development or trading process, with few additional costs for residential homeowners.

The trouble is that such things can be the equivalent of just around the corner for many years and in fact this has been like that.

Local Government

This is another problem because these have come to rely on the house price boom for revenue.

Local authorities rely heavily on land sales revenues, which have nearly tripled in the past 10 years to 8.4 trillion yuan (US$1.3 trillion) in 2020.

Guiyang, the capital city of the Western province of Guizhou, said its net revenues incurred from land sales totalled 61.7 billion yuan (US$9.6 billion) last year, while its general budget revenues were only 39.8 billion yuan.  (SCMP)

Of course property tax revenues could replace that but the house price industry appears in other parts of the economy as well.

Real estate has been a pillar industry since home privatisation in 1998, and despite repeated efforts to lower the reliance, it still accounted for 26.8 per cent of the national fixed-asset investment last year. ( SCMP)

Today’s update suggests that the heat remains on.

the investment in real estate development grew by 21.6 percent year on year, an average two-year growth of 8.4 percent. The floor space of commercial buildings sold reached 503.05 million square meters, up by 48.1 percent year on year with the average two-year growth of 9.3 percent; and the total sales of commercial buildings were 5,360.9 billion yuan, up by 68.2 percent year on year with the average two-year growth of 17.0 percent.

Also there is the issue for the banks and indeed shadow banks.

Outstanding real estate related loans, including lending to developers and mortgages for individuals, hit a high of 50 trillion yuan (US$7.7 trillion) at the end of March, accounting for 28 per cent of total outstanding loans.  (SCMP)


Many of these issues are familiar to us in the west and the commentary below from Think China actually seems to echo Japan.

In April 2018, renowned Chinese economist Fan Gang put forth the “six wallet theory” in response to a question from the audience in a CCTV2 TV programme (大讲堂). In a nutshell, according to this theory, if a typical couple wanted to buy a house, they would have to empty six wallets — that is, the kitties of their respective parents and grandparents besides their own. And this is just to pay for the down payment of the apartment!

So things were already too expensive before they rose further as we note “the bank of mum and dad” Chinese style which goes a generation further.

They go on to highlight an issue I have regularly made about the UK which is how the property market can crowd out other types of investment and hinder innovation.

But as I mentioned earlier, the down payment of an apartment can amount to millions of RMB. This amount of money could have been used to realise the entrepreneurial dreams of passionate youths instead.

The problem with acting to stop this is that China is trying to switch from production to consumption but the two-year numbers below tell us that is not going well.

In April, the total value added of the industrial enterprises above the designated size grew by 9.8 percent year on year, an average two-year growth of 6.8 percent………In April, the total retail sales of consumer goods reached 3,315.3 billion yuan, up by 17.7 percent year on year, an average two-year growth of 4.3 percent;

Pushing consumption higher often involves policies which also benefit house prices.

Next on the list comes demographics.

The average annual growth rate was 0.53% over the past 10 years, down from a rate of 0.57% between 2000 and 2010 – bringing the population to 1.41bn.

The results add pressure on Beijing to boost measures for couples to have more babies and avert a population decline.

The results were announced in a once-a-decade census, which was originally expected to be released in April.  (BBC)

Personally I think that is a good thing on quite a few grounds but it does come with implications.

China’s working-age population – which it defines as people aged between 16 and 59 – has also declined by 40 million as compared to the last census in 2010. ( BBC)

Can they solve all this? It will need to be unique as they are facing many of the problems of the western capitalist imperialists.

The Chinese way
Who knows what they know?
The Chinese legend grows
The Chinese way
Who knows what they know?
The Chinese legend grows ( Level 42)



The Bank of England thinks optimism is for the Royal Society for Arts

Something of a metamophosis has been going on in one corner of the Bank of England over the past year. That is the corner with the title Chief Economist above it and late last night an interview with Andy Haldane was published by the Daily Mail.

Britain’s economy will bounce back from Covid-19 like a ‘tennis ball’, putting the country at the top of the G7 growth league, a Bank of England  boss says today.

Chief economist Andy Haldane says the UK’s recovery will be so strong that as many new jobs could be created as lost this year, meaning ‘little or no’ further rise in dole queues.

He foresees that the UK’s performance may surpass other nations in the G7, made up of the world’s leading economies including the US, France and Germany.

So he is expecting strong growth and he expects that to be relatively good. We would have to go some to surpass the US but maybe it is a Daily Mail addition rather than something from Andy.

We then get to the meat of his views.

‘Spring has sprung for the UK economy,’ Mr Haldane declares in an article for the Daily Mail today. But he warns that the boom will turn to bust if inflation is allowed to run riot.

A year from now, it is ‘realistic’ to expect economic activity to be ‘comfortably above pre-Covid levels’, for unemployment to be falling and for UK growth to be in ‘double-digits’.

The housing market is ‘going gangbusters’, helped by the extension of the stamp duty exemption in the Budget, he adds.

We see that he is noting inflation fears and they will have echoed on a day we saw these numbers from the US.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008. ( Bureau of Labor Statistics)

Care is needed with the annual figure because we are comparing with the initial impact of the Covid-19 pandemic but monthly rises of 0.6% and 0.8% give food for thought. Also replacing Imputed Rents with house prices would give an annual rate of 6.6%. Also this theme of stronger inflation adds to what we saw with producer prices in China earlier this week.

The house price issue which in his words is “going gangbusters” is more complex than simply blaming the Stamp Duty cut and extension. After all back in March last year Andy voted for this.

Over recent weeks, the MPC has reduced Bank Rate by 65 basis points, from 0.75% to 0.1%, and introduced a Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). It has also announced an increase in the stock of asset purchases, financed by the issuance of central bank reserves, by £200 billion to a total of £645 billion.

The real drivers here was the new version of the Term Funding Scheme or TFS. For newer readers there is always hype about it going to smaller businesses but it is a way of funneling liquidity to banks so they can offer cheaper mortgages without the inconvenience of attracting depositors. Of course in a large dose of irony they got a wave of deposits from the furlough scheme. But Andy and his colleagues did their bit to pump up UK house prices. Although at the latest meeting Andy did call for a slowing of some stimulus,

For one member, the improved economic outlook warranted a reduction in the degree of additional
stimulus being provided to the UK economy at this meeting, by reducing the scale of asset purchases in the
current programme from £150 billion to £100 billion.

He was outvoted and another £3.45 billion was added this week on our way to £895 billion. But he has fears based on this.

By the end of this year, close to £1trillion of extra liquidity will have been provided by the Bank to the UK economy since the global financial crash, almost half of it over the past 12 months.

Which he feels will lead to this.

And experience during the 1970s and 1980s demonstrates that, once out of the bottle, the inflation genie is notoriously difficult to get back in.

By the end of this year, inflation is likely to be above its 2 per cent target, largely due to the temporary effects of higher energy prices.

It is amazing that higher energy prices are always represented as “temporary” by central bankers because as readers will know domestic energy prices keep rising. I wonder who pays their bills and if it is them whether they ever make the connection with their job?

Indeed at this point he seems to think we may be growing too fast.

At that point, the UK economy is likely to be growing rapidly above its potential. This momentum in the economy, if sustained, will put persistent upward pressure on prices, risking a more protracted – and damaging – period of above-target inflation. This is not a risk that can be left to linger if the inflation genie is not, once again, to escape us.

Perhaps he has been listening to Christina Aguilera.

I’m a genie in a bottle, baby
Gotta rub me the right way, honey
I’m a genie in a bottle, baby
Come come, come on and let me out

Savings Number Crunching

A distinguishing feature of this view comes from expectations for savings.

This is boosting households’ confidence and encouraging them to splash more of the £150billion in cash they stockpiled during lockdown.

Surveys suggest a growing fraction of these savings are now being spent, contributing to the 8 per cent growth in household spending the Bank of England now expects in the second quarter of this year – the second fastest quarterly growth rate ever,

Also he expects businesses as well as households to splash the cash.

Businesses, too, are putting their accumulated £100billion of savings to work, with investment intentions picking up and firms’ hiring intentions, as reflected in posted vacancies, rapidly approaching pre-Covid levels.


It is unusual to say the least these days to find a Bank of England policymaker who is so bullish about the UK economy. It makes me wonder how different things might be now if Andy Haldane had succeeded in his campaign to be the (new) Governor of the Bank of England? Returning to his bullish views on the economy being the exception perhaps they led to this.

Andy Haldane, Chief Economist and member of the Monetary Policy Committee, is leaving the Bank of England to become Chief Executive of the Royal Society for Arts, Manufactures and Commerce (RSA).

There seems to be a merry-go-round for people at that level where regardless of talent they cruise to the next role. Also is the RSA the equivalent o being sent to Coventry?

As to his economics it is strange in a way to have the “loose cannon on the deck” make some sensible points. It is sad that none of the external members have done this as surely the point of them is to offer alternative lines of thinking rather than “me too sir”. I think that the issue of some overheating is in play right now and is highlighted by this.

On the other side of the coin is the fact that Andy Haldane predicted a surge in the economy last year. This time around the vaccination programme seems to have put him on firmer ground. Looked at like that then one should be looking to unwind the emergency measures. However his view that we will be surging ahead next year ignores the fact that pre pandemic economic growth has slowed to a crawl.

Is Dogecoin really money or just an illusion?

Saturday night brought something really rather extraordinary as the worlds of finance and entertainment came together at least for a while. Here is The Hill on Saturday Night Live which was on NBC in the US.

Musk appeared on the show’s “Weekend Update” segment as fictitious financial expert Lloyd Ostertag. When asked about Dogecoin by co-host Colin Jost, Musk explained it is “the future of currency.”

“It’s an unstoppable financial vehicle that’s going to take over the world,” he said.

“I get that, but what is it, man?” co-host Michael Che asked.

“It’s a cryptocurrency you can trade for conventional money,” Musk responded.

“Oh, so it’s a hustle?” Che asked.

“Yeah, it’s a hustle,” Musk replied, letting out a laugh.

This begs quite a few questions of which the first is should NBC be showing this sort of thing which leads into the behaviour of Elon Musk to whom financial regulation foes not seem to apply. If we start with the claim that it is going to take over the world that is not a little bizarre but does feed into this sort of hype.

Speaking of hype there was also this.

CALGARY, ABMay 9, 2021 /PRNewswire/ – Geometric Energy Corporation (GEC) announced today the DOGE-1 Mission to the Moon—the first-ever commercial lunar payload in history paid entirely with DOGE—will launch aboard a SpaceX Falcon 9 rocket.

Geometric Energy Corporation’s DOGE-1 Mission to the Moon will involve Geometric Space Corporation (GSC) mission management collaborating with SpaceX to launch a 40kg cubesat as a rideshare on a Falcon 9 lunar payload mission in Q1 2022. The payload will obtain lunar-spatial intelligence from sensors and cameras on-board with integrated communications and computational systems.

Of course this involves Elon Musk again and we are running on the future of currency vibe again although maybe the view of space needs refining as last time I checked the Moon is not a planet.

“This mission will demonstrate the application of cryptocurrency beyond Earth orbit and set the foundation for interplanetary commerce,” said SpaceX Vice President of Commercial Sales Tom Ochinero. “We’re excited to launch DOGE-1 to the Moon!”

What is Money?

There is then a switch to implying this means that Doge is money.

Indeed, through this very transaction, DOGE has proven to be a fast, reliable, and cryptographically secure digital currency that operates when traditional banks cannot and is sophisticated enough to finance a commercial Moon mission in full.

We have seen a lot of claims for security for the various coins that have then hit issues. The statement about traditional banks seems to be in fact them saying no as they could finance this.Also “sophisticated enough” merely means you have enough money to do so and with the rise in the Doge price which tells me has been 21,666% over the past year you could buy quite a few things. There is no sophistication here.

But the bit that stands out is “reliable” because over the weekend we also saw this.

Dogecoin DOGEUSD, -6.22% slumped Sunday after Musk’s “SNL” appearance failed to rally prices toward $1. Instead, the price of dogecoin, which was around 70 cents before the show started Saturday night, plunged as low as 47 cents. By Sunday evening, it had rebounded to about 57 cents, according to Coinbase. ( MarketWatch)

As you can see hopes that Doge would cruise to US $1 were replaced by quite a drop. On this there are two perspectives because if you have held Doge for only a month or so you were only losing some of your profits. But those who bought the SNL hype were making pretty quick losses and at the time of typing the price is 53.6 cents.

Next we get a mention of another of the functions of money which is as a type of measuring stick.

 It has been chosen as the unit of account for all lunar business between SpaceX and Geometric Energy Corporation and sets precedent for future missions to the Moon and Mars.

That’s going to be fun! Quite how you account with such swings I am not entirely sure. Ordinary or fiat currencies do have swings at times. Some consistently fall but that tends to be over quite long periods and moves like Doge has seen this weekend are vary rare. Even something like the Turkish Lira has only fallen by 16% over the past year versus the US Dollar. So in general they work as a unit of account although not always which is why the US Dollar is so popular in places like Argentina and Venezuela.


According to Dogecoin it is this.

1 Dogecoin = 1 Dogecoin

Also this

Dogecoin is an open source peer-to-peer digital currency, favored by Shiba Inus worldwide.

Shiba Inus is the dog in the pictures.

In case you think that there is more to it than this here is an interview with Max Keller who is a Core Developer for Dogecoin.

I was not involved in its creation specifically, but I think Billy and Jackson, the original creators, explained that quite well. DOGE was meant to be a joke and was built that way…….. it has become much more serious. Now, we are dealing with a lot of funds. Every time I look at the market cap, I get goosebumps. Thus, Dogecoin has developed into something more serious while managing to keep its fun side.

The market capitalisation referred to rose as high as 92 billion US Dollars on Friday and is 67 billion now.

Interestingly we move onto another of the functions of money but not the one mentioned.

As for the Dogecoin being a store of value, I believe it is more of an actual currency. I mean, there are lots of things in my apartment that have been paid for in DOGE…….. By the way, I used a service selling gift cards for DOGE, so I paid half the bill for my sofa with it. And just yesterday, I bought a keyboard for DOGE directly from someone.

Thus it is beginning to fulfil some of the medium of exchange function of money. In a sense the moonshot example we looked at earlier did that too although these seem to be quite specific examples because he only bought half off his sofa with it.


We can look at this from the context of the very last part of the Bank of England press conference on Thursday when Bank of England Governor Andrew Bailey said this.

You mentioned cryptocurrency. I don’t like using that phrase and I’m afraid currency and crypto are two words that don’t go together for me so I’m trying to use the more neutral crypto-assets. I would only emphasise what I’ve said quite a few times in recent years. I’m afraid they have no intrinsic value. That doesn’t mean to say people don’t put value on them because they can have extrinsic value but they have no intrinsic value so I’m sorry, I’m going to say this very bluntly again, you know, buy them only if you’re prepared to lose all your money.

The first undercut is that the Bank of England can hardly be seen as a beacon of technology when the press conference is virtual but with no video. It was at least better than the previous “lack of bandwidth” issue but combining both makes you look archaic. Next is the issue of the Pound notes issued by the Bank of England which promise to pay the bearer the sum on the note but that is not really an intrinsic value either. The use of the word “fiat” in fiat currencies means that in another way. There are a couple of nuances to this as the Bank of England has some gold reserves but they would not go far especially if we note the expansion of the money supply over the past year. Also with commodity prices high some coins will have a far bit of intrinsic value, but that is not what he meant.

So as you can see Doge may have begun as a joke but in the famous words of Bob Monkhouse.

nobody’s laughing now….

It may be used more as a medium of exchange but for that to last it needs a more stable price. That is a problem because many or only in it to make money which leads to instability. But the central bankers are mostly upset because it disturbs their game of controlling both the amount and price of money. Indeed the expansion of the various coins looks to me to be a direct response to the expansion of the fiat money supplies.

So if it works The Waterboys were on the case.

You saw the whole of the moon
I was grounded
While you filled the skies
I was dumbfounded by truth
You cut through lies

If it doesn’t it seems they were also ready.

You stretched for the stars and you know how it feels to reach too high
Too far
Too soon
You saw the whole of the moon