Brewster's millions
Well-Known Member
- Joined
- 9 Apr 2012
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It will very likely make money actually, or at the least limit the government’s losses when they do start to sell gilts back to the market, as the MPC intends to do this year. Overall it should be fiscally positive.
The funds used in the new bailout purchases are just newly created central bank reserves, not new government borrowing, and in theory the BoE is now buying gilts at distressed levels, at least relative to recent history. If we have a new government in the near future (i.e. Sunak), then there would be a very good chance that gilt values will rise significantly, and so the gilts the BoE will be buying in the next fortnight could then be sold back to the market at a higher price.
This bailout should therefore make money in itself, and more importantly limit the losses (which could be materially larger) the government faces when it eventually unwinds the APF. Most of the gilts bought in the APF were purchased at much higher prices than current market levels, and if a loss is made when the BoE sells them back to the market, the government has to stump up the difference.
So today’s actions should reduce the potential losses presented by any APF unwind, but the whole issue and the dynamics behind the APF and gilt values just demonstrates how idiotic Kwarteng’s actions have been, and why he should be kicked out of office.
