The MPC runs the printing presses

The hapless MPC members are still drawing their huge salaries, and not a whiff of an apology for failing to hit their inflation targets for months, nor a hint that they recognise they contributed to the crash through their boom-bust monetary policy.

Now they are firmly back in boom boom mode. This time they have not only pressed the interest rate accelerator flat to the floor, wrecking returns for savers in the process, but they have put a couple of turbo chargers on the vehicle in the form of quantitative easing.

With these novice drivers at the controls, here are some questions they should answer in public this month as some kind of justification for their super salaries.

1. How much money are you going to print? Is it £75 billion, or £150 billion, or as the Governor suggested, less than £75 billion?
2. What do you want to achieve from printing all this money? How will we judge your success or lack of it?
3. Should we assume you are no longer worrying about inflation? Or do you have some plan to improve the value of the pound, to stop the imported price rises? Can you stop the incompetent government putting up all the public sector fees charges and taxes in an inflation busting manner?
4. Are you trying to get down to a specified level of longer term interest rates for the government to borrow at? If so, why have these rates been rising over the last month?
5. Are you trying to reach a specified level of corporate borrowing rates? If so what are these? How are you doing?
6. Do you have a target for monetary growth? It has been fast in recent months. Is it fast enough for your liking? If not, how much more monetary growth do you want?
7. Why should we believe that longer term inflation will be under control? We all know measured inflation will be seen to be falling over the next few months, but the issues you settle today will affect inflation in 2010-11.


  1. Ian Jones
    April 9, 2009

    Finally some questions to the MPC on what the hell they are doing!!! To now we’ve been told very little or the usual “trust us”.

    In my view they are trying to fool people into thinking there will be no inflation when in the end printing 150bn will do nothing but create inflation in the longer term as well as causing a debt crisis in 18 months time when the process of QE stops.

    The bank of England and Fed are the cause of this recession, they turned on the taps for the banks to gorge themselves on and then turned it off. Now its full on again. Useless.

  2. Acorn
    April 9, 2009

    I am now taking bets on how many of JR’s questions get answered by the MPC, (which I will welch on, naturally, in true Gordo style). Taking due recognition of the National winner, let’s start with 100:1 on none of them.

    BTW. Redwoodians know just how good politicians are at picking winners. See the following links.

    The second link will give you the real answer as to why the first is occurring. (I refer the House to my entry in the Register of Members’ Interests; I have been a number cruncher on some of these projects).

  3. oldrightie
    April 9, 2009

    These novices are so focused on driving over a cliff, they have no spare time to amswer questions from mere passengers!

    1. alan jutson
      April 9, 2009

      Think you are correct.

      On Radio 5 live this afternoon/evening a very nice sounding young lady reporter was attempting to explain all about Quantitive easing to the listeners.
      Her conclusion:
      It was all a good idea, because it would enable the Banks to lend more to Businesses, and to poeple who wanted a Mortgage.
      So there you are, so simple.
      With this sort of reporting what hope is there for convincing the electorate that perhaps, just perhaps, it also has some drawbacks.

  4. Blank Xavier
    April 9, 2009

    The Government is now spending more than 50% of GDP.

    Let me put this in a more penetrating manner;

    You start work at about 20. You retire at about 65. Your working life is about 45 years.

    Of those years, all the money you earn from 22.5 years goes to the Government.

    Think about this; if you weren’t paying for Government, at what age would you retire?

    1. APL
      April 9, 2009

      Blank Xavier: “Of those years, all the money you earn from 22.5 years goes to the Government.”

      And the leader of the Conservative party is on record as endorsing the opinions of Poly Toynbe, who thinks the government needs to rasie more tax.

  5. Colin D.
    April 9, 2009

    8. Since you have cut interest rates to almost zero on the expectation of deflation, what is the date you are working on for when inflation will actually hit zero? If that date FAILS to be met, what action will you take in view of the fact that savers will have been ruined and debtors/the profligate rewarded for a strategy based on YOUR forecast that has shown to be completely in error? Note that merely to set a new revised date is unacceptable – the onus is now upon you to set interest rates to recompense those who have been damaged by YOUR folly in setting rates in anticipation of an event that never occurred.

  6. Demetrius
    April 9, 2009

    I have just explained to someone the basis of systemic risk, as in my post of Friday 13 March. It is quite simply that there is a point when the complexity means that those involved do not know what they are doing, and sometimes why they they are doing it. They are simply making guesses on the basis of past information that may be neither reliable nor relevant. The MPC are orphans of the storm, albeit in a well upholstered lfeboat.

  7. John E. Forbat
    April 9, 2009

    John Redwood’s article in the Daily Telegraph earlier this week “Give taxayers a break from cuckoo banks” points to policies for smaller banks as being a key to the future prosperity of the Economy. Earlier, James Quinn, Wall Street Correspondent reported a highly relevant development in the USA and I quote this:
    NEW York mayor Michael Bloomberg is to invest up to $45m (£31 m) in encouraging out-of-work bankers and financiers to return to Wall Street to ensure the city does not lose its place in the global financial order. Mr Bloomberg wants some of the 65,000 finance staff expected to lose their jobs as a result of the crisis to do what he did and launch financial start-ups. The mayor formed financial media giant Bloomberg after being made redundant from Salomon Brothers in 1981, using $10m in redundancy pay. He hopes others copy his example, and will even invest in the start-ups, in the hope it will encourage private venture capital to do likewise.
    “We can be certain that cities around the world will compete for the jobs that the next revival of the financial services industry will bring,” said Mr Bloomberg. “The time to begin winning that competition is right now.”
    Some of the money is being used to create ‘incubator” offices for startups, with Thomson Reuters providing the technology to allow new businesses access to market data. New York city officials are also understood to be trying to attract Asian financial institutions to locate their US operations in New York. If the scheme works, over 10 years it is estimated the investment.

    George Osborne is reputed to be in favour of smaller banks and I hope he develops the theme with urgency.

    Businesses in the UK are totally dependent on all to few and much too large and bureaucratic banks. Competition is almost totally lacking. If UK business could offer lending opportunities to competing banks, such banks would have the acumen to take a more commercial and business friendly approach to making loans. This needs carefully thinking through, but the following ideas should be urgently explored:

    1. Reform the banking industry, to create a multitude of smaller, localised and business oriented banks, as well as the present ‘very big very few’.
    2. To achieve this, find financial backers among wealthy entrepreneurs (e.g. Alan Sugar, Richard Branson), ‘fat cat’ bonus recipients from the City, major insurance companies etc., entrepreneurial managers willing to break away from the big banks and motivate them to set up small regional banks.
    3. To motivate lending, it appears to have become necessary for Government to offer a form of backing, such as insurance against bad debts. This must however be a last resort backstop, for these new banks which must establish the usual and sound principles of matching opportunity to risk in their lending, to properly researched and diligence checked business customers.
    4. Let these small banks depend entirely on their business judgment and acumen, without over regulating their day to day activity, beyond requiring the usual liquidity ratios and such traditional factors to be beyond reproach.

    Once competition is established among banks, whose main business is to profit from lending to manufacturing and to service industries, the financing of businesses would be totally transformed – and liberated from the excessive risk aversion and bureaucracy, which presently inhibit the banking sector. While this would take time to establish, its growth could be rapid and would provide a much better solution, than to involve the Treasury and Government or quangos in the business sector they mostly do not understand.

    An interview with Lord Henningfield, leader of Essex Council on Radio 4, on the subject of this council’s plan to set up a small bank for making loans to small businesses in the county. One of the county’s sources of the required finance is a small bank in Virginia. He said that in the US, the small banks are not in financial trouble, “only the big banks”.

    This reinforces the basis of my ideas and could be the first of other county councils, which take it upon themselves to do something positive to help small businesses. They are already opening their first Post Office, to counter the closings programme and others are said to be considering following them. Perhaps other counties might also follow their banking proposals. Surely, private enterprise and private equity could do likewise.

    How about the Conservative Party taking up the suggestion?

  8. Lola
    April 9, 2009

    8. Do you realsise that in the view of many economists printing money and expanding the money supply is inflation. Price rises in the future are the result of this.

  9. Waramess
    April 9, 2009

    They are in the s++t and clearly too busy shovelling.

    At first it was suggested they wanted to bring long term rates down, now they are trying to make it easier for corporates to borrow, and of course none of it is working.

    But what would you say, if you had just impoverished the electorate in an effort to stimulate the economy and it wasn’t working?

    I would probably keep my head down, keep shovelling and keep saying that I’m getting on with my job.

    What is most concerning is the lack of cohesive attack from the opposition front bench. They won’t win an election like this.

    Keeping ones head down should be the game plan for the Prime Minister, not the whole of the opposition front bench

  10. mikestallard
    April 9, 2009

    Kate Barker and Dr Andrew Sentance seem to be the only two of the MPC who have ever been outside either academia or the banking system. I don’t know any of these people, but did read their c.v.s which, as you would expect, are impressive.
    How much risk have they experienced outside their ivory towers, I wonder?
    Three at least of the posts above are from the poor wretches who have to live with their indecision outside.
    Don;t they ever think to ask themselves sensible questions like yours?
    PS George Osborne is getting his act together pretty sharpish now. Did you have any influence there about the banking system?

  11. Gareth
    April 9, 2009

    Inflation has been above target for 18 months and counting. If the BoE is politically independent, it has one job and one job only – to hit that target. Yet it now seems to have an implied remit to avert a deep recession? It is taking dangerous anti deflation measures like QE when the CPI has *risen* to 3.2%! Give them an A level economics text book and open it at the page about the J curve, somebody! The authorities wouldn’t be trying to use inflation to erode the value of (public and private)debt at the expense of the most vulnerable members of our society by any chance?

    If I consistently failed to do my job, I wouldn’t just keep being asked to write a letter of explanation to my employer, I would be fired.

    In my opinion, if the MPC allows inflation to be above target for a 12 month period, all members of the MPC should be dismissed. That should focus their minds a bit better on actually doing what they are paid for.

  12. Eleanor
    April 9, 2009

    Well Mr Redwood at least George Osborne has read your column in the Telegraph this week. Are you back in the fold now? I shall be most interested to hear his comments on your blog today

      April 10, 2009

      What we cannot easily overlook is that Messrs Cameron & Osborne goaded Mr Brown into re-apponting Mr King for, we believe, reasons of political expediency. Do they now endorse that request?

  13. Steve Cox
    April 9, 2009

    John, you frequently report that you fail to elicit replies to your sensible questions from those responsible for the mess we are in. Your continued quest to get Captain Darling to specify how much public borrowing is acceptable is a case in point. If you, asking such questions in the House, cannot get answers to perfectly reasonable questions, then we mere mortals have no hope whatsoever. It’s very depressing that our democracy has somehow become subverted to a totalitarian instinct on the part of the old socialists (aka NuLab).

    I think you missed one question, though, which you might add to your list: what criteria will the MPC use to determine when to cease and, indeed, to reverse QE; also, as they are clearly ignoring the CPI target, what criteria will they use to decide when interest rates must be raised once more to choke off rising inflation?

  14. Denis Cooper
    April 9, 2009

    To make more sense, I’ve changed the original order of some of the questions.

    Q – “2. What do you want to achieve from printing all this money? How will we judge your success or lack of it?”

    A – “On the face of it we are trying to ensure that the economy does not slide into deflation. There are a number of different ways in which we could use our newly printed money to that purpose, but at the instigation of the Chancellor we have agreed to use two thirds of it to rig the gilts market, so that he can more easily fund his exploding budget deficit.

    As cover for that, we will use the remaining one third to buy up private sector assets, such as high quality corporate bonds, for which there is already a reasonably liquid market and which are doing nobody any harm, but that’s just a sideshow.”

    Q – “1. How much money are you going to print? Is it £75 billion, or £150 billion, or as the Governor suggested, less than £75 billion?”

    A – “We will print as much as the Chancellor needs.

    Yesterday we ran off £3.5 billion and used it to buy up previously issued gilts:

    while on Tuesday the Treasury raised £3.0 billion by selling new gilts:

    and yesterday another £1.1 billion:

    Therefore this week the government has raised £4.1 billion from sales of gilts, but extracting only £0.6 billion net from gilts investors.

    So far, we’ve used £25 billion of newly created money to buy up existing gilts:

    all of which has in effect migrated into the Treasury coffers through its parallel sales of new gilts.

    However some commentators believe that we’ll need to print much more – maybe even more than £100 billion.

    Q- “4. Are you trying to get down to a specified level of longer term interest rates for the government to borrow at? If so, why have these rates been rising over the last month?”

    A – “No, that’s just camouflage, just something which might fool the casual or ill-informed observer, especially as we can usually rely on the media to help with that. The important question is not the interest rates at which the government can borrow, but whether it can borrow enough to cover its budget deficit.”

    Q – “5. Are you trying to reach a specified level of corporate borrowing rates? If so what are these? How are you doing?”

    A – “No, see our Answers to previous Questions.”

    Q – “6. Do you have a target for monetary growth? It has been fast in recent months. Is it fast enough for your liking? If not, how much more monetary growth do you want?”

    A – “Ditto.”

    Q- “7. Why should we believe that longer term inflation will be under control? We all know measured inflation will be seen to be falling over the next few months, but the issues you settle today will affect inflation in 2010-11.”

    A – “Ditto. Please understand, we’ve agreed to help the Chancellor to borrow enough to cover his budget deficit, and really that’s all there is to it.”

    1. Denis Cooper
      April 9, 2009

      Actually I missed a £2.5 billion reverse auction on Monday, so this past week it’s been:

      Bank has bought £6.0 billion of previously issued gilts

      Treasury has sold £4.1 billion of new gilts

      Therefore net drain on gilts market = – £1.9 billion.

      But it seems that the money-go-round needs to go round faster, possibly because the budget deficit is expanding faster than anticipated:

  15. Adrian Peirson
    April 9, 2009

    Isn’t this a Double Whammy, Printing more money means inflation, it devalues the money we already have, worse yet, they are not simply Printing it but borrowing it ( Presumably someone has printed an equal amount of Gilts ) which means we will need to repay this Printing excercise as increased taxes at sometime in the Future.
    A double whammy for us, Inflation AND increased taxes later.

    With nothing productive to show for it, this money will not lead to real Productive jobs with which we can trade with other nations but socialist Jobs, Nursing, road building, housing.

    Is there any doubt anymore that we are headed towards a Communist state, and throughout the Western World, this is Browns New World Order.

    The Renegade Economist

  16. The Economic Voice
    April 9, 2009

    The £75bn is a tad over 3% of the nation’s £2.13 tr GDP, so how much actual inflation can this really cause?

    One question that has not been asked is the following:

    Is what the BoE doing pure quantitative easing?

    Dolphin commenting in The Economic Voice:

    “One little point that seems to have been overlooked is the concept of qualitative easing, not to be confused with quantitative easing.

    Quantitative easing is where the central bank buys assets from banks for new money, which can then be lent out. But because it is a balance sheet exercise the assets it buys should be worth the amount paid, ie NOT toxic.

    Qualitative easing (to do with quality not quantity) is where the central bank changes the composition of its balance sheet by buying other banks bad and toxic assets with existing money to ease the qualitative pressures on that bank.

    The question I have is, does what the BoE is currently doing constitute pure quantitative easing, or is qualitative easing happening on the quiet as well?

    Qualitative easing has not yet hit the public conciousness, but in my view should and probably will once someone asks the question.”

    The impact of qualitative easing on interbank lending should not be ignored.

    ‘Switching on the printing presses’ is a glib statement, not necessarily the complete truth when considering what quantitative easing actually is.

    Reply: The Bank is buying mainly government stock. Toxic assets are being handled in a different way, by the taxpayer nationalising the banks that own them and by the insurance scheme. That all has to be paid for by more taxpayer debt being issued.

  17. Julian Boulter
    April 9, 2009

    No inflation? Deflation? Just received the school fees table for next year. 5% rise. Petrol up. Council tax up 3.29%. My Korean wife’s imported rice up 200%!

    No salary rise but increased taxes, hmmm, maybe I should apply for a job on the MPC!

  18. Derek
    April 9, 2009

    To put the figures involved into context, which the mainstream media conveniently never does. If the BoE prints the £150bn that is equivalent to tipping approximately five times the annual turnover of Tesco, the nation’s largest retailer, into the economy.

    I have a feeling this genie will be near impossible to put back in the bottle. On the plus side Zimbabwean bank notes are fetching reasonable amounts for their novelty value on ebay.

  19. Brigham
    April 10, 2009

    I was at school during WW2. Our history teacher in those days offered a simple explanation of printing money. He said,”If a country is worth £10 and you print another £10, the country is no richer and the money has halved in value.” This, he said, is what happened to Germany after the first world war. Perhaps our hapless leader should just think about this.

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