I am not Mark Wadsworth
http://www.ft.com/cms/s/0/4e53a2de-a3f3-11df-9e3a-00144feabdc0.html
The link is to an excellent piece by the FT (also pointed to by Guido).
Basically it says that it is impossible for the (any?) central bank to set interest rates and 'control inflation'.
Well, beat me up with a breadstick. It's taken them how long to work out what von Mises and the Austrian school have been saying for years. That Central Banks are the problem, not the solution.
This is one of the best real world analyses I have yet seen by someone other than the Austrians that shows just how pointless the Bank of England is - pointless as in having a monopoly granted by the State to make our money. To me it's little different to the monopoly patents granted by the King in days of yore, and about as dangerous.
Of course the article also links this failure to the Bank's failure the 'control inflation'. For Christ's sake (and I mean that literally, not as a blasphemy) don't they read? Don't they know that there is solid evidence that for the two hundred years prior to about 1900, that without a central bank and centralised currencies, the USA and UK exhibited the predictable success of capitalism in delivering both lower prices (deflation in the current argot) and rising wages? Don't these two connected facts tell them bloody anything?
It fair makes you weep.
Lola
Tuesday, 10 August 2010
And they still don't get it.......
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14 comments:
But if there was no central bank who would print the funny money to bail out the banks and homeownerists?
SL - hahahahaha
SL, you're saying that as if it were A Good Thing :-)
It seems that governments want central banks to control (achieve) growth as well as controlling inflation too - based on the assumption that there is a trade-off between the two. Astonishing that global economic policies should be so consistently based on nonsense, isn't it?
economic forecasting is rubbish !
it is indeed a service to us all, to demonstrate how bad at forecasting the BoE has been. The US EIA (Energy Information Agency) is honest enough to post all the long-term energy-price forecasts it has made over the years, and one can ridicule them at leisure, marveling at how bad they are (on average, around 50% wrong over time! - i.e typically about half the actual out-turn prices)
trouble is, (a) they have been taken as 'authoritative' by all and sundry; (b) upon publication they were generally viewed as 'conventional' / 'consensus', meaning that all the commercial forecasters, producing this dross for sale, were forecasting roughly the same
'econometrics' is, as they say, astrology with numbers: why anybody ever parts with £ for it, is beyond me
It's a mathematical model with lots of variables, lots of interaction, lots of parameters, and no chance of being tested by use of controlled experiments. Therefore the probability of success is vanishingly small. On this matter I know whereof I speak.
Although the Bank of England was not nationalised until the 1940s, it certainly acted as the Central Bank in a recognisable way from the early 19th century. A key restraint on inflation was the Gold Standard, rather than the non-existence of a Central Bank.
And I also think that the Royal Mint and Bank of England would have been rather surprised to learn that we didn't have a "centralised currency".
@Lola In what sense does the BoE "make our money"?
H - AFAIAA other banks also issued 'bank notes' over the period I mentioned.
DBCR - yes, well I suspect you are on the cretaion of credit thing, with which you know I broadly agree. I was being shorthanded, in that they do make the stuff via the Mint and do to some extent try to control supply, which is where we came in I think.
AC, ND, D, exactly. The whole central banking thing has transmuted into another pillar of Home-Owner-Ism, no more or less.
H, agree, but 'the state' was much smaller then, so the nascent central bank had less power and couldn't wreak as much damage.
DBC, L, the whole 'coins and notes' thing is pretty much an irrelevance in terms of credit creation (about 1% of 'money' in circulation is cash, if that).
As a matter of fact and observation (rather than logic), it seems to be A Good Thing for each country to have state-issued coins and notes, or to allow ceratin banks to issue them if they are properly regulated.
Respect to Lola who rightly suspected that I wanted to turn the argument to the issue of credit creation.No sport there then: he shot the fox.
BTw the old quote from the Rt Hon Reginald McKenna, previously Chancellor of the Exchequer (to Asquith),then head of the Midland Bank speaking to the Midland's shareholders in 1924 , re-surfaced on House Price Crash:"I am afraid that the ordinary citizen will not like to be told that the banks can and do create and destroy money.The amount of money in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases.We know how this is effected.Every loan,overdraft or bank purchase creates a deposit and every repayment of a loan,overdraft or bank sale destroys a deposit."
He is so right that ordinary people do not want to hear this.
There is no point in moaning about central banks when it is the ordinary banks which are creating credit,with the central banks and governments ineffectually trying to restrain them.
Lola, yes, the Bank of England did not have a monopoly on the production of bank notes then and it doesn't now (Northern Ireland, Scotland, Jersey etc. all have their own notes), although the Royal Mint did have a monopoly on 'real' money. But issuers other than the BofE, then as now, are effectively issuing IOUs against BofE money (unless they decide to defraud their customers). They are not creating 'new' money.
In any case, as MW points out, cash is a very minor part of credit creation (although greater in the past than now no doubt).
DBC, excellent quote, hits nail on head, I wish you would leave links to the source.
As to 'credit creation', the BoE are no longer 'ineffectually' trying to restrain it, they are at the vanguard of Home-Owner-Ism/credit creation.
H, good summary :-)
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