Comments on: Overcome the crisis before designing a new regulatory system http://johnredwoodsdiary.com/2008/10/29/overcome-the-crisis-before-designing-a-new-regulatory-system/ Incisive and topical campaigns and commentary on today's issues and tomorrow's problems Wed, 23 May 2012 13:35:04 +0000 hourly 1 By: Freeborn John http://johnredwoodsdiary.com/2008/10/29/overcome-the-crisis-before-designing-a-new-regulatory-system/#comment-7462 Freeborn John Wed, 29 Oct 2008 14:30:43 +0000 http://www.johnredwoodsdiary.com/?p=1927#comment-7462 The key questions are (i) what was at the heart of the problem, (ii) will it happen again and (iii) if so how could we prevent it happening again? It seems to me that the heart of the problem was an unsustainable worldwide house price boom that coincided with an era of low inflation in a globalising economy. We cannot rely on high-inflation to wipe out our debts anymore because there is still an almost limitless supply of low cost workers in Asia to hold it down. The pain will therefore fall on those who borrowed too much and the banks whose equity is also being wiped out, but we need to minimise the problem by making sure that Britons have the jobs they need to pay of their mortgages in due course. That requires they remain competitive to workers in China, India etc. such that their jobs do not re-locate. Part of the answer is therefore devaluation of Western currencies relative to the Chinese Yuan. If the government wants to do some pump-priming they should consider more university places to train the young people who will not be able to find jobs in the next few years anyway. This will help our productivity long-term. To prevent a repeat of this in future we need to put an end to the culture of borrowing to the hilt that fuels these runaway property booms. In an era of global finance that may require regulations on maximum size of mortgages and for them to to be put in place worldwide. The key questions are (i) what was at the heart of the problem, (ii) will it happen again and (iii) if so how could we prevent it happening again? It seems to me that the heart of the problem was an unsustainable worldwide house price boom that coincided with an era of low inflation in a globalising economy. We cannot rely on high-inflation to wipe out our debts anymore because there is still an almost limitless supply of low cost workers in Asia to hold it down. The pain will therefore fall on those who borrowed too much and the banks whose equity is also being wiped out, but we need to minimise the problem by making sure that Britons have the jobs they need to pay of their mortgages in due course. That requires they remain competitive to workers in China, India etc. such that their jobs do not re-locate. Part of the answer is therefore devaluation of Western currencies relative to the Chinese Yuan. If the government wants to do some pump-priming they should consider more university places to train the young people who will not be able to find jobs in the next few years anyway. This will help our productivity long-term.

To prevent a repeat of this in future we need to put an end to the culture of borrowing to the hilt that fuels these runaway property booms. In an era of global finance that may require regulations on maximum size of mortgages and for them to to be put in place worldwide.

]]> By: dalebassett.com » Blog Archive » Essential reading: don’t rush http://johnredwoodsdiary.com/2008/10/29/overcome-the-crisis-before-designing-a-new-regulatory-system/#comment-7463 dalebassett.com » Blog Archive » Essential reading: don’t rush Wed, 29 Oct 2008 13:28:53 +0000 http://www.johnredwoodsdiary.com/?p=1927#comment-7463 [...] John Redwood on why we should wait before redesigning our financial regulatory system. [...] [...] John Redwood on why we should wait before redesigning our financial regulatory system. [...]

]]> By: StevenL http://johnredwoodsdiary.com/2008/10/29/overcome-the-crisis-before-designing-a-new-regulatory-system/#comment-7461 StevenL Wed, 29 Oct 2008 12:28:40 +0000 http://www.johnredwoodsdiary.com/?p=1927#comment-7461 "He wishes to be the architect of a new Bretton Woods, a new set of institutions, regulations and government structures to ensure we never have a credit bubble again." (JR) Now I'm confused. The PM seemed to like the credit bubble at the time. He spent year after year standing there at the dispatch box telling us how wonderful his credit bubble was. Every time the Daily Mail rolled out yet another headline revealing how much up to our eyeballs in it we were, his faithful minions strutted out armed with statistics to rebuke the very idea that there was any kind of a problem. I can only conclude that the PM knows he might be looking for a new job soon and is gunning for something at the IMF or World Bank. The thought of Gordon Brown diligently buring the midnight oil pouring over borrowing figures, money supply statistics and asset-price trends with a view to making some kind of clumsey intervention in any market he doesn't like the look of makes for a dour world if you ask me. Economic bubbles happen because of human nature, I've always had a feeling he doesn't really like people the way they are, and consequently does not trust us to run our own affairs. I get the impression he thinks the world would be a better place if he was in complete control, and we were all only allowed to make decisions that he had somehow approved. I hope the guys at the IMF just sit him in an office with a small army of research assistants, allow him to produce big reports, attend all their jollies, make the odd speech and pay polite lip service to whatever plans he comes up with. Gordon Brown, World Financial Regulator-In-Chief is not something I like the sound of. "He wishes to be the architect of a new Bretton Woods, a new set of institutions, regulations and government structures to ensure we never have a credit bubble again." (JR)

Now I'm confused. The PM seemed to like the credit bubble at the time. He spent year after year standing there at the dispatch box telling us how wonderful his credit bubble was. Every time the Daily Mail rolled out yet another headline revealing how much up to our eyeballs in it we were, his faithful minions strutted out armed with statistics to rebuke the very idea that there was any kind of a problem.

I can only conclude that the PM knows he might be looking for a new job soon and is gunning for something at the IMF or World Bank. The thought of Gordon Brown diligently buring the midnight oil pouring over borrowing figures, money supply statistics and asset-price trends with a view to making some kind of clumsey intervention in any market he doesn't like the look of makes for a dour world if you ask me.

Economic bubbles happen because of human nature, I've always had a feeling he doesn't really like people the way they are, and consequently does not trust us to run our own affairs. I get the impression he thinks the world would be a better place if he was in complete control, and we were all only allowed to make decisions that he had somehow approved.

I hope the guys at the IMF just sit him in an office with a small army of research assistants, allow him to produce big reports, attend all their jollies, make the odd speech and pay polite lip service to whatever plans he comes up with. Gordon Brown, World Financial Regulator-In-Chief is not something I like the sound of.

]]>