DanAronG
Joined: 17 Oct 2008
Posts: 103
|
| Posted: Fri Mar 20, 2009 10:08 am Post subject: What are good signs to look for? |
|
|
If banks used the extra liquidity they received to fund increased lending. We are constantly advised by government that they expect the money supply to ease up soon, but it doesn't! In today's difficult times banks may feel it more appropriate to sit and wait (and I think they will) until they feel a bit more of a floor under the economy.
Why do they want to lend in such a difficult time when it's hard to know how impacted the economy is likely to be? This is probably why the purchasing of gilts has been aimed at the medium and long end of the market where the capital is invested by institutions. Banks tend to hold shorter dated gilts. So follow this: The Bank of England buys its gilts from the investment company. That company deposits the new cash in its bank account. The key is what happens now. Sitting on it is no good. It is hoped that the bank will use this to lend or buy more assets in the market, thereby having a multiplying effect on liquidity. That of course, is the theory. Prepare for the reality which may or not be similar. |
|
