Bank of England Expands Market Intervention to Avoid a 'Fire Sale'

[muriel_volestrangler]

4. The interest flows to the Bank of England, which is separate from the government

like the Federal Reserve should not just be classed as "the government". The Bank prints money to make the purchases, and can then cancel the money either when it comes back as interest, or when it sells the bonds.

This is indeed a liquidity problem - pension funds were set up holding government bonds as a "safe" investment, but the rise in interest the market now demands from the incompetent Tory government (the "moron premium", as Paul Krugman calls it) has depressed the price of those bonds so quickly that it's gone beyond the expected bounds - they have to meet some margin calls on bonds, and have to sell more bonds to pay that, which is in danger of depressing the price more, into a downward spiral.

The problem is that British government has gone from "average medium sized developed country" to "basket case" in a few weeks, and thus government bonds are suddenly unsafe.