Banks face a huge hike in financing costs as $2,000,000,000,000 of funding comes dues in the next three years. From the FT:
Moody’s estimates that a lender wanting to refinance a short-term government-guaranteed bond with 10-year paper could see costs rise nearly 7 percentage points.
This surely of huge concern. The end of QE may be a really fraught experience. Or – central banks see this coming, and don’t have the nerve to end it. On the subject (loosely), how might it be helping London property prices?
The most dramatic improvement has come in London, where 95 per cent of surveyors are reporting rising prices, a level unseen since 1996, including during the whole of the last housing boom. Some properties in London were now back above the 2007 peak prices, according to Simon Rubinsohn, economist at Rics, helped by hopes of big financial sector bonuses.and an influx of foreign investors taking advantage of the weak pound.
So, great for the London market. Great if you got on the train in time. What about if you can’t afford houses? Um . . . affordable home starts drop by a third. Oh dear. No wins for QE on the social justice side. It may be blowing bubbles. Mishkin is not worried. Some are more concerned about the Chinese one.
Not sure it’s been good for the rest. As Tracey Corrigan says, banks make hay, the rest of us pay. It’s becoming the conventional wisdom. Perhaps more fiscal policy would have worked. Of course, Krugman would agree, but here is some major empirical evidence to back him up. “Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.” As he wisely points out, you have to ask not whether fiscal stimulus has worked in ordinary conditions (think Tony Benn, and go ‘no’), but what about during a liquidity trap?