The Monetary Policy Committee says it doesn’t know

Andrew Sentance of the MPC has rushed into print this morning in the Sunday Times. He tells us we might have a very feeble recovery, thanks to the huge debt overhang in the US and UK, or we might have an inflationary recovery if India, China and other better placed economies generate their own growth and propel the world economy forward.

You don’t say! The MPC is not only meant to realise that, but to make a decision about which is the most likely and plan accordingly. It appears from their very loose money policy that they think the recovery will be weak and feeble. If they don’t they must have abandoned all pretence of trying to control future inflation, and be working under political instructions to try to generate any kind of recovery before the next General Election.

Make up your mind Andrew. We can judge what you think by what you do. What you do tells us you must think the recovery is going to be poor, hence all the extreme monetary activism. If it’s a normal recovery then beware the inflation your present policies will unleash.

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10 Comments

  1. Posted August 16, 2009 at 9:48 am | Permalink

    Brief, accurate and no wasted verbiage. brilliant,

  2. Posted August 16, 2009 at 10:58 am | Permalink

    Perhaps he should read your Blog John.

    Advance warning already given.

  3. Posted August 16, 2009 at 12:16 pm | Permalink

    Andrew Sentance might also like to give us a few clues about the new business plan of UK Plc. The old plan was based on a huge financial sector and a “knowledge economy” where services reigned supreme. We didn’t plan to grow very much or make very much and low cost imports were high on our list. Mr. Brown had abolished boom and bust. Even at that time many of us thought that Business Plan 1 did not add up and that the Labour Party was living in a fantasy world. However, we let Mr. Brown off because we knew he had an election to win and, in the unlikely even of victory, he and Lord Mandelson would have a severe collision with reality.

    Then Business Plan 1 imploded as a result of the banking crisis. UK Plc now has unsustainable debt on its balance sheet and a devalued currency makes imports costly. Bashing bankers is highly popular as a blood sport. Many people also worry about oil and gas reserves and where our energy supplies are going to come from.

    The Chairman of UK Plc, Mr. Brown, and his CEO, Lord Mandelson, must have consulted their colleagues on the Board about Business Plan 2. What is in store for us? Surely, when the banking and credit crises have been fixed and Mr. Brown and Lord Mandelson have pulled us out of the recession, it surely can’t be back again to the financial sector doing all the heavy lifting and the continuation of our visits to the estate agent’s window every Saturday morning to reassure ourselves about how rich we are?

    I don’t understand how Mr. Sentance can do his job properly unless he knows where the Board of UK Plc stands on Business Plan 2. I’m sure there must be such a plan and the IMF will be taking a keen interest in it if they have seen a copy. UK Plc ( which comprises two enormous banks with a medium sized country attached to it) is too big to fail.

  4. Posted August 16, 2009 at 5:04 pm | Permalink

    They seem to think that inflation is going up a bit at the moment, but that it is going to go back down in the next couple of years probably.

    http://www.bankofengland.co.uk/publications/inflationreport/ir09aug5.pdf

    I really do hope they are right!

  5. Posted August 16, 2009 at 6:04 pm | Permalink

    According to Andrew Sentance, it will take the next couple of years before it will be clearer which economic world we are in and then monetary policy will need to respond accordingly! If this is the way the MPC works then anyone could be a member. Clearly they have little or no foresight which confirms your often made point that they left interest rates too low for too long and then compounded their error by keeping them too high for too long. As regards inflation, this further reinforces my view that high inflation is the target.

  6. Posted August 16, 2009 at 7:54 pm | Permalink

    It doesn’t know, well they should all be fired and replaced by me because I do know, they are going to destroy our country and way of life unless they are stopped.
    Ever heard the bioiling of the frog analogy, that is what they are doing, slowly, so each incident is not noticable from the next.
    They have sold off our industries, our fishing and farming is being destroyed, our gold sold off, our Armed forces run down, the floodgates are open, our eductaion system is being dumbed down, our children are drugged with mercury and flouride, bombarded with Brain deadening Psychologically repressive Anti British, nation destroying rubbish.

    HMS Brittania is being Scuttled, why ? Control, they cannot have total control over our lives if we are free, prosperous, wealthy and well defended.

    This is not ineptitude, it is by design.

  7. Posted August 16, 2009 at 9:42 pm | Permalink

    Good post, even better replies & debate.
    The common response of politicians, economists etc is to say that today’s conditions are unprecedented.
    Unprecedented like 2001, 1990, 1980, 1974, 1972, 1964, 1959, 1947. 1936, 1933, 1929, 1922, 1907 maybe?

  8. Posted August 16, 2009 at 10:01 pm | Permalink

    dear john,

    this is more a question ( or rather a series of questions) than a comment that i hope you will cover in one of your blogs. i don’t always agree with you, in fact quite often i don’t agree, but i always find you switch on your brain, engage in the problem at hand and think through your ideas and solutions before sounding off.

    over the past ten to fifteen years, we have all been encouraged and forced as a result of different govt policies to pour more and more money into housing, whilst at the same time other govt policies for often good reasons have restricted the supply of housing compared to demand. ignoring the personal benefits or drawbacks of the obsession with bricks and mortar, is this the most productive way for our society to use valuable money and capital. would we be better of as a country if that money had been invested in for example real businesses that sell goods and services abroad? are we as a society disincentivizing people from going out and earning a living working and being productive by allowing them instead to live off paper profits gained from an artificial market that if it was any other sector would be put up in front of the Competition Commission and asked to explain itself.

    to me the 1990s -Noughties housing bubble has been a very unconservative phenomenom, despite the fact that traditionally the conservatives have been the biggest supporters of a property-owning democracy.

    i wonder what your views are on this.

    best wishes
    john

    Reply: yes, it was a bad idea to inflate housing – and other asset values – in the way they did. This was a monetary policy mistake. Building more homes would not have made much difference, as the sums being injected were so huge. The inflation mainly occurred in second hand house prices. I wrote about this at the time, and answered the mistaken Barker Review.

  9. Posted August 16, 2009 at 10:03 pm | Permalink

    Audit and Abolish the Private Fed gains ground in the US, can we have a similar campaign in the UK.

    http://larouchepac.com/lpactv?nid=11419

  10. Posted August 17, 2009 at 12:21 pm | Permalink

    The BoE inflation forecasting model is currently worthless. It’s forward-looking time-frame is 2 years, roughly the time needed for monetary stimulus to take effect. It completely failed to forecast last year’s very high inflation levels, and that was when the global economy was more or less normal. Now that the lunatics running the asylum are magicking money from mere electrons, can anyone tell me how the effects of QE are properly included in their (already devalued) inflation forecasts?

    That’s right, they haven’t a clue how to do it properly, and nor does anyone else. The future of our economy, our savings and our pensions are hanging on the ‘gut feelings’ of a bunch of incompetents (the MPC and Treasury) who haven’t a clue how to do it better. If they took some time to see how individual stimuli worked, there may have been a rational path out of this chaos, but no doubt under pressure/orders from The Brown One, they have fired all their cannon at the same time and haven’t a clue where the shrapnel will land. Irresponsible idiots, a curse upon their houses for a thousand generations.

  • 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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