To ask someone to draw me a diagram to explain what happened with the BoE £65 billion bail out yesterday?

[Daysy]

I just can’t get it in to my head through words! Would someone clever and artistic try drawing me a diagram?!!

Do the Bank of England have £65 billion or do they just create it out of nowhere?

How much money does the Bank of England actually have?

Bump.
I think the bank are efectivly printing money to do it, short term its like cutting interest rates, long term it leads to inflation.......

But basically they had to do it to try and limit the negative effects of last week's mini budget......

Wasn't BOE's remit to keep inflation under 2%?

Yup. But rescuing the pension schemes takes priority, lest us peons figure out that actually our pensions are unsafe.

My very dodgy understanding:

Governments raise money by printing IOUs (bonds/gilts) and selling them. These IOUs give the buyer interest payments until the day the full payment is due, then the government will pay them back in full. They sell to places such as pension providers, because they give steady, reliable income and a guarantee of money back.

Yesterday, pensions and others stopped buying the IOUs because they suddenly panicked about the value of pound dropping so low that when they were paid back for them, they wouldn't be worth much. i.e. they suddenly because a lot less safe and reliable as an investment.

In a market of anything, if the buyers vanish then the value of the existing stock plummets. IOU values were suddenly dropping even further. We needed buyers, not sellers.

So the BoE stepped in as a buyer. They print money and use it to buy IOUs, which in turn holds the value of the IOUs up because it becomes more of a buyers markets again.

But the BoE have been doing this since 2008 to buy IOUs to prop up the market for them and keep them seen as a safe and reliable investment. You cannot do that forever, because printing money also devalues the pound.

We have a Fiat currency, which means it's backed by future growth and profits, unlike Commodity money which is backed by gold etc. The BoE effectively 'printed' £65 billion and bought back some of it's own bonds, therefore adding to an existing debt of around £2.4 trillion; effectively kicked a debt down the road to be paid for by future generations.