Bank of England buys government bonds

Public Finance by printing money: The Bank of England buys the first major central bank to government bonds to the economy of the jumps to help. The debt responded with a huge price jump.
The British Bank of England (BoE) on Thursday announced the purchase of government bonds in order to boost the economy. In the opinion of key interest rates by 50 basis points to 0.5 percent, it was said that the bank medium-and long-term government bonds on the secondary market will buy. Most would be over the next three months British Bonds ( “Gilts”) purchased, the Notenbänker with.

Overall, the central bank’s 75 billion pounds to spend on investment purchases. Purchases are financed through the extension of central bank reserves. This de facto means that Britain is printing new money. The government had the right of the central bank acknowledged papers worth a total of 150 billion pounds aufzukaufen.

The markets reacted strongly: The yield on British government bonds with ten-year period fell by 21 basis points to 3422 percent. That was the strongest rise since almost a month. In the case of bonds to develop courses to the returns counter. The pound lost its gains against the euro. The Community Currency cost 0.821 pounds. Also on pound-denominated corporate bonds to be submitted. The Markit iBoxx-sterling corporate bond index climbed 1.3 percent to 78.35 meters. The index includes 746 corporate bonds, including securities of Barclays and Vodafone.

Premiere for the banks
The Bank of England is the first of the major banks in the fight against financial crisis and recession, buying government bonds. The U.S. central bank Federal Reserve has in principle agreed to this if required to do so, but has not yet begun. In the European Central Bank (ECB), there are even strong reservations. The leadership role is all the more remarkable as the Bank of England after aggravating the crisis in August 2007 until the financial sector had refused any help.

With the purchase of government bonds may be banks, yields of long-term bonds and lower interest rates, which stimulates investment and consumption and thus aggregate demand boosts. Fed Chairman Ben Bernanke came in 2004 when scientists in a study concluded that such securities purchaser could soften the downturn.

Critical voices from experts
Many experts see such a step, but critically. Because the central bank to print fresh money, increases the circulation of money – and potentially inflation. In times of great worry is deflation, but rather consciously willed. The purchase makes it easier for the government on the other considerably in debt, because it is less dependent on the papers on the market get rid of.

For the Bank of England is particularly sensitive, because it only since 1997 independence. The bankers, therefore, have in recent weeks repeatedly emphasized that investment purchases only served the purpose, at sight of two years, the inflation in the price range of the target of 2.0 per cent to obtain.

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