Monetary Policy
I thought it most helpful for The Bank of England to extend an understanding of the purpose of the bank through explaining their monetary policy:
In the first paragraph they talk about the banks understanding of its monetary policy. The bank has a committee which makes these decisions. So, monetary policy is not a magical thing. It is an established constant. Even when currencies fluctuate, the monetary policy is a constant. Currency and monetary policy is not the same thing. Monetary policy can have an impact on currencies as we have witnessed with the USA dollar and its relationship with The Fed.
One of the Bank of England's two core purposes (click here) is monetary stability. Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions taken by the Monetary Policy Committee (MPC).
In the second paragraph, the Bank of England talks about the monetary policy of the UK. One institution does not necessarily dictate the policies of the other, but, they do interact and create outcomes.
Monetary policy in the UK usually operates through the price at which money is lent – the interest rate. In March 2009 the MPC announced that in addition to setting Bank Rate, it would start to inject money directly into the economy by purchasing financial assets – often known as quantitative easing.
The interest rate is a measure of the price of money. Let's look at those words again. The interest rate is a measure of the price of money. When one seeks a loan they purchasing money in a contract from someone else. That money changes ownership and in return for that change of ownership, there is a payment of interest.
In Europe, primarily London, it is the Libor or LIBOR or BBA (British Bankers Association) Libor (London Interbank Offered Rate) that determines the interest rate.
Libor rates are calculated for ten currencies and fifteen borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters.
And of course everyone now knows about the manipulation of Libor, but, what was that all about? Did it effect a car loan? A mortgage? Maybe, but, that isn't the reason for the focus by the financial institutions.
By Kit Chellel
October 17, 2013
Current and former executives (click here) at Barclays Plc (BARC) knew that the bank submitted lower-than-accurate Libor rates as early as 2007, according to transcripts of conversations between executives cited in a U.K. court case.
Mark Dearlove, head of Barclays’s money-market desk, told another executive, Jonathan Stone, he’d received complaints about the bank’s submissions from an employee of JP Morgan Chase & Co., according to a transcript dated December 2007 and handed down in court. The document is being used as evidence in a lawsuit in London against Barclays over an interest-rate swap...
The Libor Rate is for short term loans. It effects Wall Street investment. One of JP Morgan's executives checks on the interest rate the bank is paying in any transaction. Oh, yes, they borrow money, too. So, this one particular time, an JP Morgan executive scratched her/his head and ran the numbers again and came up with a difference in the companies calculation of Libor and that or the British Bankers Association.
See, the formula is solidly constructed to eliminate short term volatility. So, the difference from day to day when calculating over a year the average of ten banks is going to be very small. So, when trends are falling off in the Libor it is somewhat easy to pick up.
As this point in global financial history, the Libor is primarily a tool of Wall Street.
The third paragraph states the current focus of the bank and it seeks to be partners with the people and their government to promote future growth.
In August 2013 the MPC provided some explicit guidance regarding the future conduct of monetary policy. The MPC intends at a minimum to maintain the present highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not entail material risks to price stability or financial stability.
Since Quantitative Easing is such a global concept now, I put a definition here.
The illustration to the left is entitle "Helicopter Ben." Coined from Helicopter Parents.
A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.
Monetary policy is about what makes money work for an economy in a way that is suppose to be beneficial to the OUTCOME.
I thought it most helpful for The Bank of England to extend an understanding of the purpose of the bank through explaining their monetary policy:
In the first paragraph they talk about the banks understanding of its monetary policy. The bank has a committee which makes these decisions. So, monetary policy is not a magical thing. It is an established constant. Even when currencies fluctuate, the monetary policy is a constant. Currency and monetary policy is not the same thing. Monetary policy can have an impact on currencies as we have witnessed with the USA dollar and its relationship with The Fed.
One of the Bank of England's two core purposes (click here) is monetary stability. Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions taken by the Monetary Policy Committee (MPC).
In the second paragraph, the Bank of England talks about the monetary policy of the UK. One institution does not necessarily dictate the policies of the other, but, they do interact and create outcomes.
Monetary policy in the UK usually operates through the price at which money is lent – the interest rate. In March 2009 the MPC announced that in addition to setting Bank Rate, it would start to inject money directly into the economy by purchasing financial assets – often known as quantitative easing.
The interest rate is a measure of the price of money. Let's look at those words again. The interest rate is a measure of the price of money. When one seeks a loan they purchasing money in a contract from someone else. That money changes ownership and in return for that change of ownership, there is a payment of interest.
In Europe, primarily London, it is the Libor or LIBOR or BBA (British Bankers Association) Libor (London Interbank Offered Rate) that determines the interest rate.
Libor rates are calculated for ten currencies and fifteen borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters.
And of course everyone now knows about the manipulation of Libor, but, what was that all about? Did it effect a car loan? A mortgage? Maybe, but, that isn't the reason for the focus by the financial institutions.
By Kit Chellel
October 17, 2013
Current and former executives (click here) at Barclays Plc (BARC) knew that the bank submitted lower-than-accurate Libor rates as early as 2007, according to transcripts of conversations between executives cited in a U.K. court case.
Mark Dearlove, head of Barclays’s money-market desk, told another executive, Jonathan Stone, he’d received complaints about the bank’s submissions from an employee of JP Morgan Chase & Co., according to a transcript dated December 2007 and handed down in court. The document is being used as evidence in a lawsuit in London against Barclays over an interest-rate swap...
The Libor Rate is for short term loans. It effects Wall Street investment. One of JP Morgan's executives checks on the interest rate the bank is paying in any transaction. Oh, yes, they borrow money, too. So, this one particular time, an JP Morgan executive scratched her/his head and ran the numbers again and came up with a difference in the companies calculation of Libor and that or the British Bankers Association.
See, the formula is solidly constructed to eliminate short term volatility. So, the difference from day to day when calculating over a year the average of ten banks is going to be very small. So, when trends are falling off in the Libor it is somewhat easy to pick up.
As this point in global financial history, the Libor is primarily a tool of Wall Street.
The third paragraph states the current focus of the bank and it seeks to be partners with the people and their government to promote future growth.
In August 2013 the MPC provided some explicit guidance regarding the future conduct of monetary policy. The MPC intends at a minimum to maintain the present highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not entail material risks to price stability or financial stability.
The focus also includes an ambition. That ambition is to maintain low inflation to benefit lending and customer wealth. The less inflation there is the further borrowed money will go and people can increase their wealth. Wealth is more than money.
Low inflation is not an end in itself. It is
however an important factor in helping to encourage long-term stability
in the economy with sustainable growth and employment.
Since Quantitative Easing is such a global concept now, I put a definition here.The illustration to the left is entitle "Helicopter Ben." Coined from Helicopter Parents.
A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.
Monetary policy is about what makes money work for an economy in a way that is suppose to be beneficial to the OUTCOME.
