One cheer for the Governor – pity about the MPC

Yesterday the Governor said four very important things.

1. The change of inflation target from the RPI to the CPI was a government mistake, which led to a bigger credit bubble.
2. There are lags – we have not yet seen all the effects of much lower interest rates, and need to be patient.
3. The deficit is very large and should not be increased further.
4. He may not use all the money printing authority the government has given him.

Meanwhile the inflation rate ROSE to 3.2%, 60% over the target set the MPC. This useless committee has now comprehensively failed. It held rates too high for too long, causing mayhem in the real economy. Now it has slashed rates too far, undermining sterling and causing a lot of imported inflation. They had a lot of help from the government’s boom and bust economic policy.

None of this should come as any surprise to readers of this site. I called here for much lower rates of interest well over a year ago, before the end of 2007, to stave off deep recession. For the last six months I have been calling for higher rates to avoid a sterling collapse.

I am pleased the Conservative party has taken up the advice to recreate a stronger Bank of England, capable of regulating the banks and the money markets and running a more sensible monetary policy. It is much needed. The Governor has done the cause of a stronger Bank much good by his sensible and honest comments yesterday, admitting past failures and proposing greater fiscal restraint.

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12 Comments

  1. Posted March 25, 2009 at 7:46 am | Permalink

    Let us not rock the boat or the good ship Britannia here, and instead let us support Brown’s global dream to save the planet with regulation. I mean regulating things works doesn’t it? Like 11 years of regulation for the finance industry worked because there isn’t an economic crash, UK banks are not stuffed to the gunnels with taxpayers money, 4 5ths of them aren’t nationalised, business is booming, no businesses are closing, there are no homes being repossessed, there are no job losses, and everyone’s savings are totally safe.

    Brown didn’t increase National Insurance and he didn’t increase business tax, and 140,000 more businesses are not saying they can’t afford this rise and will have to close if forced to pay.

    Good old Gordon is making a lot of headway with his plans to globalise the banking industry and to install a global regulator, which will be good for business because bankers love to tick boxes all day, they love being constricted in their activities by having to account for minute detail in their daily lives, and all their customers will be totally happy with the extra costs they will have to incur to pay for it all. In fact America will have no problem being under European scrutiny, Germany and France will love to give more money away despite their banks are on the verge of going bust due to Ukraine and Latvian economies already being bust and unable to repay their national debts, and everything in Europe, bar the rioting in several countries at the same time, is perfect. But only in Brown’s dreams.

    I had to resurrect this video from my side bar as it saves me a lot of bother typing out the real world for good old Gordon as to the state the UK economy will be in if he doesn’t wake up soon and hand the reigns over to someone else who is prepared to deal with the reality of the mess he left behind when he went to sleep in 1997.

    http://rugfish.blogspot.com/2009/03/wake-up-gordon-wake-up.html#links

  2. Posted March 25, 2009 at 9:00 am | Permalink

    Its not widely known but the Governor did fight hard against the change to CPI at the time and there was a lot of bad blood between the Bank and the Treasury after it. It is unfortunate that the politicians in the Treasury are better spinners than the bank.

    However, it doesnt excuse the present MPC including that total ass Blanchflower who frankly is a disgrace. Guess who nominates the MPC, it isnt Mr King.

    I was so glad to see Mr King say he wont use all the 75bn to buy gilts, he is obviously worried that Gordon had seen a magic way to increase spending and cut taxes and have interest rates at zero!!!

    The budget will be very interesting, lets see if Gordon doesn’t try to call Mr King’s bluff!!!

  3. Posted March 25, 2009 at 9:00 am | Permalink

    The only people surprised that the CPI has gone up would be the Government, BoE and all those pundits who don’t inhabit the real world that we mere mortals do. For us it was as clear as day that prices are continuing to rise and we are not surprised given the massive DEVALUATION of our currency. The scare of deflation has been raised to allow the Government through the BoE to print money as a way of inflating their way out of this crisis. The good news today was that the Governor has at last stood up against the foolishness of the Prime Minister’s manic borrow and spend policy. We must have a general election right now. The Queen held an audience with Mervyn King today. This was the first time the Queen had held an audience with the Governor of the Bank of England. Are Brown’s days numbered? We can only hope and pray but you politicians must try harder to rid us of this menace.

    • Posted March 25, 2009 at 10:35 am | Permalink

      Don’t you just wish Her Maj asked Merv the question; “If one sent one’s army in to take over the government, how do you think the markets would react; would one’s currency appreciate significantly?”

      I hope Her Maj is seriously considering the matter on behalf of her subjects. Is there not a little used royal prerogative somewhere in the archives that could be used?

      She could put the whole of the Privy Council in the Tower and tell them “one is going to stick it to this f**kwit bunch teutonic style”.

      Alas, we can but dream. Merv must be feeling like he had a Botox injection in his testicles, now he has the keys to the back door at Buck House.

      BTW. Have a look at the last set of accounts for the Privy Council; this looks like a sweat little number to get in on. See the notes to the accounts; particularly the bits about pensions at 1.9 and 7.

      The real hoot is the line where it says, in note 7, “Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. No employee has opted to do so.”

      I wonder why.

      http://www.privy-council.org.uk/files/pdf/HC%20656%20-%20Privy%20Council.pdf

  4. Posted March 25, 2009 at 9:34 am | Permalink

    One way to provide the equivalent of fiscal stimulus in the UK is by raising interest rates. The Government has slaughtered savers who now earn virtually nothing on their capital. Many of them are over 60 and depend on income from savings to supplement their lifestyle.

    We all know that savers don’t matter. They tend to be middle class and are probably inclined to vote Tory. However, if the Prime Minister wants economic stimulus he should do what it takes to raise interest rates.

    It would be interesting to compare rates of interest paid on savings in the UK, the US and the EU. I understand that this may be of academic interest in the US where very few people save anything and the country relies, for its financial survival, on the Chinese continuing to buy and hold Government bonds. Let’s hope Mr Obama does nothing to make the Chinese lose their nerve.

  5. Posted March 25, 2009 at 10:26 am | Permalink

    Why don’t you put forward an opposition motion of no confidence in the Government’s handling of the crisis. Surely all opposition parties would support it and so how isolated the Government are?
    And, forgive my ignorance, but why can’t the House of Lords do something similar to send out a very strong message?

    Reply Because we would lose it whilst temporarily uniting the Labour party

    • Posted March 25, 2009 at 4:29 pm | Permalink

      I have asked the same question before and received the same answer. I have also suggested Simon Heffer’s idea of a debate in Parliament to reduce the Prime Minister’s salary due to his economic incompetence. John liked this idea but of course no action. I have another similar suggestion: Brown is always mouthing off about no rewards for failure so, before it is too late, there should be action taken in Parliament regarding the overgenerous pension he will receive on being kicked out of office. I suggest he get zero. Regrettably none of these things will happen as it is clear that the Conservative leadership is as keen as is Brown to delay the election for as long as possible. Sadly we shall have to endure the daily muggings and the relentless journey into penury.

  6. Posted March 25, 2009 at 10:47 am | Permalink

    What really hacks me off is the some of us, mere mortals who run businesses (in my case in financial services), have been saying from the day it was announced that the CPI was a load of old dingos kidneys and its use would inexorably lead to disaster and massive inflation, inflation as in the excess of money. I had this conversation with an FSA apparatchik as an example of something useful he could ‘regulate’ rather fiddling about getting in my way and costing my clients millions.

    It really does wear you out doesn’t it? You bang on and on about this sort of thing, but because you are ‘only’ a voter and have no power and are not in the magic circle of the great and the good and the BBC all you get is the great pooh pooh ‘Oh, you’re just an oik. We are the experts. We know what we’re doing. We all went to Oxbridge y’know. We are so frightfully clever’.

    My rule of thumb? There are three classes of mankind. People you like. People you do not like. And tossers. (I usually use the more Anglo Saxon word, but….).

    You work out what I think of these people.

  7. Posted March 25, 2009 at 5:21 pm | Permalink

    When Edward VIII proved himself to be utterly unsuited to be King/Emperor, there was a behind the scenes decision to unload him. George VI became King/Emperor and, to my mind, he made an extremely courageous and faithful job of it.
    I wonder whether such a decision is being made now?
    I regret that the Prime Minister looked quite deranged when he addressed the European parliament. Dan Hannan was completely right to compare him to a Brezhnev apparatchik. The difference was that he has a sort of mad laugh too.
    Whatever the truth may be, full marks to Her Majesty the Queen for her audience with perhaps the one man who can save a little of our future.

    • Posted March 25, 2009 at 5:23 pm | Permalink

      On re-reading this post, I want to make it completely clear that the parallel is between Edward VIII and Mr Brown!

  8. Posted March 25, 2009 at 6:09 pm | Permalink

    JR: “For the last six months I have been calling for higher rates to avoid a sterling collapse.” [Sterling has declined 25% since June 2007]

    If HMG’s next gilt sale is not fully taken up do you think this would precipitate a further significant fall in sterling? If so, is it possible that HMG would then have to offer gilts denominated in another currency like the Euro?

    Reply: I am strongly against foreign currency borrowing, in case sterling falls more and makes repayment very dear.

  9. Posted March 25, 2009 at 8:34 pm | Permalink

    5. A few days after the election, a former senior member of government is interviewed on Newsnight and asked repeatedly whether he threatened to over-rule the Governor of the Bank of England.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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