For those who didn’t full understand or want to understand why the govt wanted the “Pokémon cards” in the first place - further explanation below…
Why did the piggy bank buy all those Pokémon cards in the first place?
It wasn’t trying to make money from collecting Pokémon cards. The Bank of England deliberately bought huge quantities of them to push their prices up.
When the Bank bought lots of government bonds, bond prices rose and the interest rate paid by those bonds — their “yield” — fell. That helped push borrowing costs down across the economy and was intended to encourage people and businesses to borrow, invest and spend rather than sit on cash.
At the time, interest rates were already extremely low, so buying bonds was another way for the Bank to try to stimulate the economy.
The snag is that the Bank was buying many of those bonds when bond prices were very high and yields were exceptionally low. When interest rates subsequently rose sharply, the market value of those bonds fell.
So why does the parent want to buy the cards now?
The parent doesn’t particularly want the old Pokémon cards. The problem is that the piggy bank wants them off its books.
Instead of forcing a huge pile of unpopular old cards onto collectors, the parent buys the old cards from the piggy bank and destroys them. To pay for that, the parent issues new cards — or, more accurately, new IOUs — in the sizes and types that investors are more willing to buy.
The original QE gamble has already left the public sector exposed to the losses. This new arrangement changes how the bonds are unwound and how the borrowing is presented to the market; it does not make the economic cost disappear.
Here’s a little explainer about bonds so that a child could understand as most journalist don’t appear to have a clue (and I suspect none of the Labour Party do either)
Imagine the Bank of England is like a giant piggy bank that belongs to the country, and the Chancellor (the government’s money boss) is the parent in charge of the family budget.
A few years ago, the piggy bank bought a massive pile of Pokémon cards (these are the "bonds"). But they bought them when the cards were super expensive, and now the cards have lost a huge amount of value.
•The Problem: The piggy bank wants to get rid of these cards, but if it sells them to strangers right now, it will lose a massive amount of money.
•The "Help": To avoid looking bad by selling the worst cards for a loss to the public, the piggy bank is handing them over to the parent (the Chancellor). The parent is going to use family money to buy up all the other overpriced cards left in the piggy bank.
•The Catch: Where does the parent get the "family money"? From you (the taxpayer)!
The Bottom Line: The government is shifting losing investments from one pocket to another. In the end, regular working people are the ones stuck holding the cards that are worth much less than what was paid for them, and our taxes will have to cover the bill for the lost money.
Hope that helps.
@trussliz