From Mervyn King's opening remarks on this month's inflation report:
The story that inflation would be high in the near term but eventually fall back has been a feature of the past six Inflation Reports. We can take some reassurance from the fact that inflation is now falling. But we are still steering a course through choppy waters, and many people are experiencing difficult times.
Many savers continue to receive negligible returns on their savings. Over a million more people are out of work than was the case four years ago. And those who are working have seen the purchasing power of their pay sharply reduced. These are the consequences of the painful adjustment prompted by the financial crisis, and the need to rebalance our economy. Unfortunately there is no easy remedy.
We all want to return to a world with a more normal level of interest rates. But if we were to raise interest rates to such a level now, that would serve only to turn a gradual recovery into a recession, put more people out of work, and cut the value of assets on which many savers depend.
??? It's a bit worrying when the bloke who is supposed to be in charge of the monetary system can't tell the difference between "savers" and "borrowers", they are in fact opposites and their interests are diametrically opposed.
1. I see no evidence to suggest that increasing the Bank of England base rate a bit to its traditional level of inflation +1% would do much harm; that would mean interest rates going up to (say) 2.5% and inflation coming down to (say) 1.5%.
2. UK companies have deleveraged over the past few years and are not big interest payers; and for every £1 extra interest paid by borrowers (i.e. leveraged land price speculators), the disposable income of savers will go up by £1, net impact on the real economy precisely nil.
3. There are other things - like taxes, red tape, the National Minumum Wage, the welfare trap, and possibly even immigration - which have a far bigger impact on employment levels than nudging up the base rate ever so slightly.
4. Finally, what's all this chit-chat about "rebalancing the economy"? What he proposes is just more of the same old crap; he clearly sees propping up banks and leveraged land price speculators as his top priority, and to Hell with everybody else.
Blow that whistle
4 hours ago
11 comments:
On so many levels those statements are real, total and absolute bollocks. It's quite hard to accept that the Govenor of the Bank of England is such an complete numpty.
L, I suppose they make sense if you look at the world through the rose-tinted spectacles of Home-Owner-Ism.
They seem to grudgingly accept that putting away £1,000 out of your hard-earned, heavily taxed wages is "saving", but they put that on a par with simply sitting back and watching your house price go up by £1,000.
For them, the latter (in)activity is every bit as much "saving" as the former, and the £1,000 of fantasy wealth is as real as the cash savings out of income.
"It's quite hard to accept that the Govenor of the Bank of England is such an complete numpty."
Whilst I try hard not to be a conspiracy theorist, I'm still inclined to think that MK knows what he says is complete bollocks, but he says it because it justifies the course the BoE is taking and they are taking that course because of the political pain involved in raising interest rates.
Bayard - All right he's a lying numpty and what he is/they are doing is complete bollocks...
Mark, In addition to the reasons you give for thinking that interest rate adjustments are a waste of time, there are plenty more reasons. See:
http://ralphanomics.blogspot.com/2012/02/twelve-reasons-why-mmt-is-right-on.html
Completely agree, MW.
The real reason for the low interest rates is of course that the biggest interest payer is the government.
Actually, increasing interest rates might well boost the economy, if there is currently a credit shortage. By definition, if there is a shortage of credit, then its price is too low.
Since he was one of the 364 economists who signed the famous anti-Thatcher/Howe letter of 30 years ago and has never resiled from the opinions expessed therein, of course MK's talking bollocks. I'm not sure though that he knows he's talking bollocks.
Although I'm sure you knew this MW, "rebalancing" is the code-word used by the economic geniuses who rule us to de-emphasise high value (and BTW highly exportable) financial and other services which we're rather good at and go back to manufacturing a la China (and, presumably, at Chinese levels of pay - although it would be a bit embarrassing to admit it).
RM, good list.
AC, as a taxpayer, I am delighted if the government can cut its interest bill. But I don't think the government cares about how much interest taxpayers have to pay, all it cares about its land prices and banks.
U, yes, we're led to believe they mean a shift away from banking/land price bubble/debt fuelled economics and towards actual productive stuff/exports (did anybody say it had to be manufacturing?).
But whether you agree that's a good idea or not, they are doing absolutely nothing to help us achieve it, it's just more of the same.
"did anybody say it had to be manufacturing?"
Well, every time the subject comes up on the BBC Today programme (which, I reckon, has its finger on the pulse of the ignorati who run this country - it takes one to know one after all) or the FT editor opines on the matter, manufacturing is the star of the show. BTW I'm not saying that financing land price bubbles is a "service industry" any more than you are suggesting that bringing back British Leyland will save the nation (or at least I don't think you are).
The small change of international economics suggests you do what you're good at and (until about 15 years ago) we were extremely good at international financial services (including but not limited to international banking) largely based in the City. This was mainly for historical reasons but included being in the right time zone, having a reservoir of educated talent and being grown-up about non-doms and international salaries. Also banking then was properly (if, in practice, lightly) regulated. But then Eddie George not Mervyn (significantly a Labour appointment) was governor of the BoE. George was sound but failed to stand up to Brown: apparently he threatened but in the end did not resign when Brown reorganised the regulatory scheme for banking.
As to Osborne, I agree. Whatever he's doing - even were it right - it isn't much and, probably, it's much the same as Labour would have done had they stayed in power.
U, I think the obsession with manufacturing is a purely macho thing.
Somehow, it's seen as more virile and manly to earn money by selling cars to foreigners, so that British cars roll over foreign roads, than it is trying to earn money in a more passive way, like tourism, where we are the 'woman' in the relationship who patiently waits for the foreigner to come over here and have his dirty way with us.
I applaud the recent successes of UK vehicle manufacturers and wish them the best of luck, but suffice to say, tourism is a huge money spinner for us, and I go out of my way to be helpful to tourists.
We all want to return to a world with a more normal level of interest rates.
That's interesting, in the light of those 5 American banks technically dfaulting late January and March 23rd for Greece to default.
Whither interest rates then?
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