Apologies for replying to such an old post, but I'm intrigued by your call to "next put the money supply out of the reach of government, and thus control inflation".

This strikes me as a statement with potentially radical implications for the entire monetary system. Do you mean you want to:

1. Strengthen central bank independence (in which case why are you, as a politician as well as a perceptive economic commentator, always urging the MPC to cut interest rates by large magnitudes?)

2. Return to something like the gold standard or a commodity-backed monetary system to act as an 'automatic' discipline on inflation

3. End fractional reserve banking, ie remove the role of the banking system in money creation

Interestingly, the Thatcher governent argued precisely the reverse: that controlling the money supply was the government's chief economic duty; and that it was fully capable of doing so.

The unhappy experience of 1979-81 showed that "controlling" the money supply was in practice a lot more difficult than simplistic monetarism assumed, especially since the attempt to do so coincided with financial liberalisation which disturbed the relationship between the money supply and the price level.

(In any case, the British government was trying to influence the money supply indirectly through interest rates – the demand for money – rather than directly through open market operations/monetary base control; but both methods of control proved crude and problematic.)

But in any case, dramatic 3% cuts in interest rates (potentially creating negative real rates, although obviously there's a large gap between official and market rates) is a novel way to control inflation. You may be right that it's necessary to ward off a deep recession, but by it's hardly Sound Money when inflation is running at 5%.

It sounds to me like you in fact want to retain the discretion to stimulate the economy through lower interest rates when you deem them necessary.

Which is a perfectly legitimate point of view and one Mrs Thatcher had a lot of sympathy with – after all, she repeatedly resisted recommendations from her Chancellors to make the Bank independent because of her desire to keep control of interest rates (and by extension the mortgage rates of 'her' people). It does, however, sit uneasily with notions of sound money, still less "putting the money supply out of the reach of government".

Well, yes. Politicians encourage debt, while sneakily making use pay for their privileged lifestyle. It is a good short cut and alternative to building a really prosperous economy (based on credit rather than debt) while giving the impression of long term growth. I rather have come to the conclusion that politicians are a necessary evil, and for that reason we should have as few of them as possible.

It is also one of the most annoying things about Mr Redwood's commentary, he is advocating punishing folk who wish to take responsibility for themselves and at least attempt to achieve a modicum of independence, and rewarding those who have taken advantage of the free or low cost debt and ramped up their borrowing. That doesn't seem to me a principled Tory stance.

DBC REED: "Bush is by no means the worst,but the Republicans have a nerve calling the Democrats for it while the Ownership Society is still current."

Reply: I agree we need more savings. Market rates are well above indicative rates from the Bank of England and will remain so. If we do not try to take some of the pressure off borrowers much more money will be lost by the banks, which is money they need to pay the savers.

We may have a glimmer of agreement here. I did post a link to a New York times article that outlined not just how Clinton had 'deregulated' the market, but had actually brought in new regulations that actually forced banks and financial institutions to lend to bad risks.

Now, I agree, most politicians are disposed to do the easy, popular action, likewise most people will take a gift when it is offered to them. It would have taken a very strong minded individual to roll back Clinton's 'reforms'. Neither of the two Bushes strike me as such.

DBC REED: "It is becoming fashionable to say that lowering interest rates will not set off another housing bubble."

In the next two or three years I cannot see how low interest rates will spark another housing bubble. Housing asset prices are falling ~10% this year, despite the spin the chances are we will see similar decline next year. Who in their right mind will buy a house where the price is declining just because they might save 1% on the mortgage rate?

DBC REED: "We have n’t seen the present bubble deflate all the way yet."

Agreed.

But I think rather than encouraging debt, ( which has its place in an economy) we should be encouraging people to save. Or rather removing the disincentive to save, for a start abolish tax on credit interest. Next put the money supply out of the reach of government, and thus control inflation, which is currently used as in instrument of debt control by government. Cynically devaluing the currency in order to pay back its debt in devalued currency.

DEBT ( or in PC ) "De-regulated markets", is the scourge of our planet.

DEBT is simply the fulfillment of desire for things one can't afford.

DEBT empowers governments which like to make lists of things to spend the extra revenue on and tell you how good THEY are.

DEBT is the means to shackle the spirit and to rid mankind of an ability to protest.

DEBT makes people feel good but only when they use it not when they pay it back.

DEBT created an elite rich which divided societies.

DEBT gets you that fancy car, that fancy house, that fancy holiday and a whole load of misery with a thing which holds no value.

DEBT feeds the system and replaces manufacturing where men actually work, where they gather and argue, and where they demand more, and thus their protests are silenced by DEBT and their political influence is stifled by it.

DEBT helped to kill democracy.

DEBT feeds a faster burning environment which needs more taxes to stem the pace of it before it burns our planet.

DEBT kills men, women and children and their thoughts, hopes, dreams and aspirations and our planet.

DEBT makes men think they are bigger than they are and those who have it to make demands on others to change society to accomodate THEIR needs.

DEBT is bad and in some cases evil.

DEBT and all of the above can be beaten by a simple realisation that you don't need it if you rid yourself of desire.

The world will then be righted.

I remember before finance was deregulated when a credit card ( advertised as your flexible friend ), could not be used for normal everyday foodstuffs and many shops didn't even take them.
Then, Tesco's and others got them in, caught on to the power of too easy credit ( thrown at people ), and started to compete with non-foods and clothing.

Up went the bills overnight !

I remember when 'saving up' was compulsory before getting a mortgage, and I remember when you were 'posh' to have one, and I remember when retailers didn't do insurances, loans, visa's and mortgages.

The culmination of this madness ended in £1.4 trillion of personal indebtedness in the UK.

Some people say it's peoples fault, no control etc, but I blame deregulation……frittered manufacturing bases, jobs for the boys and a lowering of personal esteem and commonsense.

The governments did this not the people and yet they control every other facet of our lives !

Debt has caused people and society to divide themselves with envy of thy neighbour instead of love and respect for someone in the same boat.

But through it all, politicians carry out their programmes, fill up the services, knock down factories, and change the rules we live by whilst people are out "shopping" and taking not a blind bit of notice of what they do……just how much is it, ooo that's nice, and then the bills…..oh, I have £400 a month spare since I paid my car loan so that means I can get another loan !

It means I can get a better car than my neighbour.

I tell you, this world is full of idiots and it's time governments stopped feeding on their weaknesses.

Gladly, there are many who are not and that's the only thing which makes me want to help to change it all, otherwise I'd just say stuff it.

Me and Scrooge and the rest of my family will be having a whale of a time this Xmas with all the money I haven't bothered spending whilst many people are being evicted from their homes because of envy and greed, their own stupidity and because political decisions were made to deregulate the financial sector and and inflict easy credit on our citizens whilst simultaneously knocking out Britain's manufacturing base.

"Someone" needs to Change it before Broken Britain sinks into a cesspit of debt and poverty.

Sorry, it seems to me, you are advocating additional complexity which to me is counterintuitive.

If I want to trade with Germany, I will buy Euro's to do so. I don't want to buy a world currency fixed at some arbitary rate and then convert that back to Euros. That is just naff!

The real solution to the issue, is not to set up a world government – God haven't we got it bad enough with the European Union or the United Nations – but to fix our economy, reduce government spending, eliminate governmentally induced bias to behaviour that currently destroys our competetiveness.

DBC REED: "and the efforts of politicians to spread the free-market benefits … "

Mr Reed, one contridicts the other.

Either you have a free market, in which case politicians have nothing to do with it.

Or you don't.

Since you claim that politicians have been incentivising people to behave in a partucular manner, then clearly we do not have a free market.

DBC REED: "George Bush’s original recipe for disaster is still on the Net accessible by Googling:"

At the risk of covering old ground, Fannie & Freddie have distorted the market (in the US) and incentivesed a particular behaviour. That is not a free market, the distortion of the market predates Bush, you ought to get treatment for your Bush Derangemend syndrome.