Wed Jan 23rd, 2008 at 03:07:11 AM EST
An interesting snippet from a banking guru on the Gang8 Yahoo list.
I don't have the Financial Statistics Table 4.2A he refers to, and probably would have difficulty interpreting it if I did!
How daft can Central Banks get?
I attach the latest table 4.2A from the Financial Statistics. It shows the Bank of England balance sheet post the loan to Northern Rock.
You will see that the Bank has financed the loan to a very large extent by cutting back on Open Market Lending. In other words it has stripped the rest of the banking system's liquidity to the extent of the advance to Northern Rock, and as a result the latter cannot be repaid!
For the love of Mammon! - promoted by Migeru
Fold inserted here
This is what happens when you put the Bank of England under the control of a former LSE professor who lacks understanding of the principles of double-entry bookkeeping. If the Open Market advances had been left at their previous level, the banks would be rushing to lend money to the Rock rather than have money on deposit at the BofE and earning no interest.
Effectively the government has overfunded and is investing the excess in the advance to the Rock, making it impossible for anyone else to do so.
Of course it would help if the BofE would lend to the Rock at the normal discount rate, not a penalty rate which
a) makes if look as though it does not trust the Rock and if so why should anyone else?, and
b) makes the Rock barely profitable if at all.
Can we get this into the press?
It seems that he does not have much regard for the current Governor!
Presumably the Governor is doing this because he fears the result of leaving the liquidity in the system would be inflation, which is the least of our problems right now.
Darling should let the Governor go back to academe in the Summer when his term is up.