Bank of England

As part of the reactivation of its FX swaps with the Federal Reserve, the Bank of England also reactivated its dollar repo operation. As announced, "these operations will be at fixed interest rates with counterparties able to borrow any amount against eligible collateral. The first tender will be held on Tuesday 11 May. The Bank will keep the frequency and maturity of its US dollar operations under review, in light of market conditions." And in light of the assumed scarcity of dollars in Euroland it was somewhat surprising that today's dollar repo reopening after a 5 month hiatus (the last such transaction occurred on January 27) saw exactly zero bids. We speculate that since the dollar repo was attempted at 10 am GMT, that the swap line is now active, although we have not yet seen anything in the form a term sheet or a press release from the Federal Reserve. But who are we to presume that the Fed would be accountable to anyone, let alone us, and disclose something as irrelevant as information to the general public. Yet the take home is that England, at least so far, is not in need to dollar denominated funding. Which means, as we have long speculated, that "lack of USD liquidity" ground zero is most likely France, and Germany is probably in second place.

"As Nobel-prize winning physicist Richard Feynman observed, to call these numbers
“astronomical” would be to do astronomy a disservice: there are only hundreds of billions of
stars in the galaxy. “Economical” might be a better description. It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis
occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of
$1.5 trillion per year. The total market capitalisation of the largest global banks is currently only
around $1.2 trillion. Fully internalising the output costs of financial crises would risk putting
banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite." Andrew Haldane, Executive Director Bank of England

An article written by University of Tennessee professor John R Garrett, "Monetary Policy and Expectations: Market-Control Techniques and the Bank of England, 1925-1931" which describes in exquisite detail the gold falsification measures undertaken by the Bank of England in the interwar period in order to impact interest rates in a favorable direction, performed with the full criminal complicity of the Federal Reserve Bank of New York, may mean paranoid "gold bugs" could soon be forever absolved of their "tin hat" wearing status as outright gold, and other data, manipulation by a major central bank is now proven beyond doubt. The implications regarding the possibility of comparable deceitful and treasonous acts by modern central bankers are staggering.

In the latest attempt to prove that nobody ever learns anything from history, the Bank Of England is practically betting the Devonshire farm that by putting the UK's economy on nitrous, it will recapture all the lost output during the recession, and that it will be able to time the stimulus exit perfectly, thus avoiding hyperinflation, or so thinks Citigroup economist Michael Saunders. We are fairly confident that the Weimar Republic also did not have hyperinflation as a policy end goal. Saunders was quoted by Bloomberg, that “Policy has been set to produce a boom to close the output
gap in the next few years.”

The Bank Of England has announced that it is excluding the 5% 2014 and 8% 2021 gilts from buybacks until notice. As this is likely indicative of the major weakness in the gilt curve, the US better sell all the 5-12 year comparable Treasuries it can asap.

UK faces quite considerable headwinds
UK banking system not in strong position to lend
UK recession put downward pressure on inflation
BOE has bought GBP 96 billion of assets in APF
"If you withdraw stimulus too quickly face risk of renewed downturn"

UK faces quite considerable headwinds
UK banking system not in strong position to lend
UK recession put downward pressure on inflation
BOE has bought GBP 96 billion of assets in APF
"If you withdraw stimulus too quickly face risk of renewed downturn"
"Obvious first step to tighten policy is to raise bank rate, not on verge of doing this"
"More concerned about below target inflation than deflation"
"We do need more powers to control the growth of financial sector"