Free Republic

The dangers of printing money are well-documented. Too much money chasing too few goods leads to higher prices and lower growth. Hundreds of billions of pounds of so-called quantitative easing (QE) during the financial crisis skewed this perception as the Bank of England repeatedly fired up the printing presses to try to revive the UK’s ailing economy. Inflation at first failed to rear its ugly head, until it did. And policymakers and taxpayers are now counting the cost of Britain’s £895bn monetary experiment. QE is a process where Threadneedle Street creates money that is used to buy government bonds, known...

Both the Treasury and the BOE knew when the APF was implemented that its early profits (£123.8 billion as of September last year) would become losses as interest rates rose. However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. Higher rates have driven down the value of the purchased government bonds — known as gilts — just as the BOE began selling them at a loss. uly’s public finances data showed that the Treasury transferred £14.3 billion over the month...

Traders will be able to buy and sell government bonds at 1am on Friday morning for the first time so that they can react to the outcome of the general election. The London futures market (LIFFE) will open just three hours after polls close so that traders will have the chance to dump gilts if a hung parliament is looking likely.

Fears that Britain may be heading for its first sovereign debt crisis since the 1970s hit a new intensity after Pimco, the world's biggest bond house, declared that it is starting to sell off its holdings of gilts.The American investment group said it will be a net seller of UK Government bonds this year, at the very point when the Bank of England brings its £200bn programme of purchases to and end and the Treasury attempts to raise unprecedented sums through the capital markets. The move is doubly embarrassing for the Government because the head of Pimco's European investment team...