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    (Original post by GwrxVurfer)
    Again, did you read the link I provided you?
    About the DMO?

    Yes, but at no point did they say that banks who buy gilts can do so from anything other than existing assets. Or why banks bid less than 100% of the allocation. Or why yields aren't negligible.

    Is there are particular page that would help?
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    (Original post by GwrxVurfer)
    Ok, the Government can issue a Gilt for £100, at 5% interest. This means that the Gilt will go to whoever offers the Government £105. You or I could buy this, buy spending real money that exists in circulation. A bank can also buy it, at the same price, but they do not require the money they use to be backed by deposits, and can therefore essentially "create money" to buy the Gilt.
    WHY WOULDN'T A BANK UNDERCUT 'ANYONE ELSE' AS ANYONE ELSE HAS TO RECOUP THEIR CAPITAL WHEREAS A BANK DOESN'T??????

    ie how can any other entery than a bank have a cat in hells change of buying a gilt as a bank xan never lose whereas any other entity can.

    For example:

    10 year Gilt at £1 nominal value, 2% yeild
    Bank Bid: £0.01
    Any one else bids: £0.83 (any lower and they'd be projected to lose money)

    Bank wins.
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    (Original post by GwrxVurfer)
    Ok, the Government can issue a Gilt for £100, at 5% interest. This means that the Gilt will go to whoever offers the Government £105. You or I could buy this, buy spending real money that exists in circulation. A bank can also buy it, at the same price, but they do not require the money they use to be backed by deposits, and can therefore essentially "create money" to buy the Gilt.
    Oh, and you don't have a source still.
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    There may be a touch of confusion in this thread.

    If some of the foregoing is a discussion of QE it is wrong, it appears to be a mixed analysis of QE and reserve banking.

    QE works something like this:

    1. The Government has for years issued Gilts, these have a coupon rate. They use the funds raised (real money extracted from the purchasers) to meet/pay some of their costs that cannot be met from taxation.

    2. These Gilts are owned by various entities, retail banks, insurance companies, individuals. They receive the coupon interest on them, and at maturity are repaid at par by the government.

    3. The retail banks, those that lend to you/me, business etc are short of funds to lend at present, up to 2007 they relied on a wholesale lending market amongst themselves, this had within it a substantial amount being lent within the UK by overseas banks, with the crunch this source of lending dried up, a large amount of funds become invested in Gilts and corporate bonds. (Safer than equities)

    4. The Bank of England, in an attempt to put liquidity into the retail banks, started purchasing these Gilts (and also corporate bonds) from the retail banks and other financial institutions, they paid the retail banks for these assets by the BOE "creating" the funds to so do. The retail bank received these transfers, in exchange for the assets they sold to the BOE, and then had these funds available to lend i.e. the asset Gilt or corporate bond has been swapped for funds available to be lent.

    5. The BOE on its balance sheet has the Gilts/ corporate bonds now as assets and as liabilities has the "created" funds.

    6. The theory is that in due course the BOE will resell these Gilts/corporate bonds into the market place and the funds they receive for these will be destroyed. (in effect the created funds balance will be reduced.)

    The advantage for the government of this approach is that because of the deficit we are running they need, net, to issue quite a lot of Gilts over the next few years, the BOE buying gilts from banks etc reduces market supply and therefore helps create a market appetite to purchase these new issues.

    QE in itself does not allow retail banks to create money supply themselves, the BOE creates the money supply increase, the retail banks are merely the delivery mechanism.
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    (Original post by DJKL)
    If some of the foregoing is a discussion of QE it is wrong
    As far as I can tell its not a discussion of QE.

    (in fact GwrxVurfer has not referred to QE even though I have asked them twice about it it fits their model)
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    (Original post by GwrxVurfer)
    Sadly that seems to be the case. Although, in theory, anyone can buy a Government Gilt. But banks can buy Gilts by expanding the broad money supply, or in laymen's terms "conjure money out of thin air to buy things". This is the system I oppose. There is no reason for any Government to go into debt borrowing it's own money supply.
    So can you answer the question of why any gilt auction would be left unsold?
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    Theres more debt than there is money in circulation, after all, Banks dont give you £100k in cash to buy a house, they simply change a number on your account.

    Thats why money states (at least British money) on the front of the note "I promise to pay the bearer on demand the sum of" Money isnt money, its a debt note - mainly for gold. Back in teh day, as everyone knows gold and silver was used as payment, until money became a debt note.

    Its common knowledge for banks to lend more than they have in deposits.. Usually at a rate of £9 lent for £1 held. Because they know not everyone will want to take their money out of the bank at the same time, known as a run on the bank which we all know happened to northern rock and blam.. dead bank.

    Of course Britain has lent money to countries, why do we always hear (well, not so often now) that the G20 clear billions of dollars worths of debt from developing countries in Africa.. It just so happens we owe China more.
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    (Original post by GwrxVurfer)
    I believe there are some regulations to stop banks just buying up every Gilt as you suggested, but I do not know the specifics. However banks are allowed to increase the broad money supply when buying Gilts.


    Quady, let's say you buy a Government bond with £100. Who do you believe created that money in the first place, and how did it make it's way into circulation?
    Here, learn yourself something.

    http://en.wikipedia.org/wiki/Money_creation

    When a commercial bank loan is extended, new commercial bank money is created. As a loan is paid back, the commercial bank money disappears from existence. Since loans are continually being issued in a normally functioning economy, the amount of broad money in the economy remain relatively stable. Because of this money creation process by the commercial banks, the money supply of a country is usually a multiple larger than the money issued by the central bank; that multiple is primarily determined by the reserve ratio set by the relevant banking regulators in the jurisdiction.
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    Hey guys,
    If you really want to know how money works, try this vid, its done in cartoon style and as well as its information value its also really entertaining

    Money As Debt Ep1
    http://video.google.com/videoplay?do...6773770802849#
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    (Original post by GwrxVurfer)
    I see your post is quoted word-for-word from Wikipedia. What one has to remember about Wikipedia however, is that anyone can edit it to say anything.

    I was meaning to quote Wikipedia - but forgot the quote marks.

    Yes it has its limitations, but its a source.

    Do you have a better source which backs up what you're saying?
 
 
 
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