How independent is a Central Bank?

In an autocracy the Central Bank is the instrument of the state and takes instruction from the government or Leader. In some democracies like Turkey and India the politicians clearly change personnel in the Bank to get the answer they want.

In an advanced sophisticated democracy the relative powers of the government and the Bank are more subtle. It is still fashionable to claim that the Fed, the Bank of Japan and the Bank of England are independent . The answer is, only up to a point.

It is true it is now common for Central Banks to have Committees or Boards of actual or supposed experts to review the domestic economy regularly and to set interest rates at the short end. This process is said to be independent. In practise it is heavily influenced by the appointments made to the committee which are under government control, and or to the views of the Bank Governor who is also appointed by the government.

Mr Trump took a strong interest in the appointment of Chairman of the Fed when the vacancy occurred and made clear his wish to have a Chairman who backed his expansionary growth oriented policies. When he did not do so sufficiently the President and the markets complained until he changed policy.

In the UK it was commonly reported that the former Chancellor was keen to appoint Mr Carney as Governor and got his way during the appointment process. Mr Carney had a negative view of Leave, a crucial and contentious issue. His view coincided with the Chancellor’s. The Bank did not rate the obvious upsides from ending the payments to the EU, having our own trade, fishing and farming policies and the other gains. The Bank joined the Treasury in making a series of short term forecasts about the immediate aftermath of a Leave vote which were predictably far too pessimistic.

The famous pioneer of so called independent Central banking was the German Central Bank set up after the War and continuing into the Euro era. It was true that for many years the German Central Bank made decisions on rates and money that were unchallenged by politicians. The truth was the politicians were happy with what the Bank was doing and  there was no need to challenge. The first major disagreement between Bank and  government came with the decision of the government to press on rapidly with amalgamating the Ostmark into the DM on the merger of the two Germanies. The Bank gave good advice on the rate of transfer and the timing which the government overrode, reminding the Bank of their supremacy. The Bank was right on the economics but overridden by the politics.

Further humiliation came for the once proud Central Bank when the German government decided to abolish the DM, the currency the Central Bank had to control and guide,  and to go into the Euro. The Central Bank had to accept its sidelining with the abolition of the very currency it had proudly championed for years.

In the UK Chancellor Darling rightly overrode the Bank of England on interest rate changes during the banking crisis. It was dressed up as  Bank decision by the Bank agreeing to hold an out of diary special meeting to cut rates to co-ordinate with other countries following Ministerial agreement. Gordon Brown changed the inflation remit of the Bank when he wanted to influence policy more directly.

The USA gets it right. The Fed has twin objectives of inflation and growth, and has to work closely with the Administration’s economic policy. The President was right to demand money loosening at the end of 2018 and the Fed came to accept his judgement for themselves.


  1. Lifelogic
    December 22, 2019

    It is indeed still fashionable to claim that the Fed, the Bank of Japan and the Bank of England are independent. They are not as you indicate really independent at all. Most organisations that feel the need to claim they are “independent” are not.

    As you say we need to balance inflation and growth. Above all we need to get some real competition (and sensible reductions in regulations and red tape) in banking – which is doing Vast economic damage. UK bank are slow, restrictive and are getting away with huge margins and fees which are deterring much sensible economic activity. Almost as much as the vast over taxation of the UK (highest for 40+ years is deterring. At least we’re now rid of the Corbyn threat which was also a huge deterrent to investment and business activity.

    So are Boris/Javid tax, borrow and piss down the drain, big government, expensive energy, climate alarmist, red tape spewing socialists or do they want growth, jobs, investment and to win the next election? The signs so far on this are not very encouraging at all.

    They should bear in mind that these things take time to act. So act now for the 2024 election. Voters want what works and small government will.

    1. Simeon
      December 22, 2019

      Did the ‘threat’ of Corbyn force the Tories towards expanding the size of the State, or did Corbyn provide cover for them to do so?

      The Tory agenda is clear. You might still be hoping for the best (hoping might be your best bet at coping), but I suspect you know what to expect.

      The next election will be decided by two factors in my view. First, if Labour elects someone half-credible, I think they have a very good chance of winning. (The Tory vote is incredibly soft, given Brexit was the determining factor this time. It won’t be next time – although the coming betrayal may play a small part, and obviously not to the advantage of yhe Tories.) This very good chance becomes a near-certainty if, secondly, the economy goes sideways. If only one of these things happen, then Labour still has a chance. But, given that Tory policy is very obviously not going to make the economy better, and given the Tories will not be choosing the next Labour leader, they are, by definition, hostages to fortune.

      I would be surprised if the Tories won the next election, although trying to second guess ‘The Great British Public’ is becoming increasingly tricky. But there are such things as good elections to lose. This last one will, I think, go down as one.

      1. Mitchel
        December 23, 2019

        Anyone familiar with the revolutionary lexic0n will probably know the meaning of “Thermidor” or “Thermidorian Reaction”-that process by which the Establishment takes back control,adopts a few cosmetic changes to fool the plebs and guillotines the radicals.That is what Boris represents.

        I agree with you,the Tory position is very fragile;if Labour stick with a Corbyn type programme they could win next time due to the inevitable betrayal.That’s probably why the media are doing their best to ensure that the Blairites take back control of Labour in the meantime.

    2. Mr Datum
      December 22, 2019

      Boris should call out the Climate Change religion for what it is. A fake God.
      At the moment they are planting trees so they can have more forest fires. But they don’t think forest fires are good. So stop planting them! They have chocolate for brains

      1. Lifelogic
        December 22, 2019

        I agree.

    3. Derek Henry
      December 22, 2019

      I can never understand lifelogic why you never study the government accounts the assets and liabilities ?

      Or ask the simple question why does the monopoly issuer of the £ borrow £’s.?

      I will try and explain the easiest way I can.

      Meet Bob, Bob works for an IT company. Bob banks with Barclays.

      HM Treasury instructs the BOE to credit Barclays reserve account at the BOE. Barclays then Credit Bob’s current account.

      The only rule is Bob has to spend all of his income and whoever gets it has to do the same.

      The spending chain starts.

      Bob pays his tax and buys a TV. The TV seller pays their tax and buys a bathroom. The showroom pays their tax and buys a wedding ring. The jeweller pays their tax and buys a kitchen table and so on and so on.

      This plays out all over the country until what was spent on the BBC comes back and destroys itself. The budget is balanced.

      The tax did not fund the spending it took everyone’s spending power within the chain to control inflation. The right amount of money was chasing the goods and services on offer. The tax came after the spending. The more spent the more taxes were collected. See Trump for details after breaking every US spending record.The

      Now change the rules

      Bob and everyone in the chain are allowed to save some of their income. They can pay for a pension an ISA a fixed bond or with NS&I. In their savings account or on the mantle piece.

      HM Treasury has spent 100 million but only collected 90 million from that spending in taxes.

      They are running a 10 million budget deficit.

      However, Bob the jeweller, the showroom and anybody who saved some of their income within the spending chain share a 10 million surplus.

      The budget deficit is the private sector surplus the national debt is just that surplus moved into gilts over time. When Bob invested in a pension or an ISA or NS&I. They call that government borrowing.

      Government borrowing is just an asset swap from a reserve balance at the BOE to an interest bearing asset a gilt.

      As you can see both the collection of taxes and the selling of gilts ( government borrowing) is done after the spending has taken place. Why government borrowing forecasts are always wrong. They never know how much money everyone is going to save.

      Some ideologue always comes along and says that only applies to a closed economy.

      Well if they had looked at the government accounts they would see we live in a closed economy.

      Say Bob wanted to move his savings abroad ?

      With flexible exchange rates you need a buyer and a seller of the transaction does not take place.

      So if Bob wanted to do this

      £————————-> $

      Then Bob needs a group of people or a person wanting to do this

      £ <———————— $

      The pounds do not leave the BOE all that changes is the name on the account.

      Bob moved his savings abroad into a new currency and the new owner of owners of the pounds has the same options Bob had

      1.Buy UK goods and services

      2. Move the pounds into gilts

      3. Keep the pounds in a reserve balance

      4. Exchange them into another currency.

      1. Edward2
        December 22, 2019

        Nice of the bank to just credit Bob’s account with free money.
        Can I have some free money?

      2. NickC
        December 22, 2019

        Derek H, Garbage. It is a recorded fact that taxes are collected by government and used on government spending (together with a – relatively – small amount of borrowing and money printing). No amount of MMT theory can alter that fact.

        Apart from the, usually, minor amount of money printing the government does not inject any extra cash into the economy (contrary to your example). The vast majority of money simply rolls over. The government extracts its share by taxation – and then spends the taxes back into the economy on social security, frigates, computers, etc.

        You are hung up on who is doing the spending. But (for these purposes) that is irrelevant – it simply does not matter whether I buy a computer or the government does. Taxation simply changes who is doing the spending. The only problems are that government spending is usually inefficient compared to private spending, and it puts too much power in the hands of the government.

        1. Derek Henry
          December 23, 2019

          I am terribly sorry but you are wrong.

          If it is a fact Nick then show me the accounting.

          The assets and liabilities.

          Unfortunately, what you describe does not exist.

          There is no huge shed on the Isle of Wight that holds our taxes for future use. The shed would be empty as we run deficits most of the time to meet the saving desires of the private sector.

          1. Edward2
            December 23, 2019

            The shed would be even more empty without the revenues taxes give the government.
            But thanks for your very appealing theory that we don’t actually need to pay any taxes and that we can all be millionaires by the government just creating magic money.

    4. Mark B
      December 22, 2019


      There are three types of inflation. Wage inflation. Material / Product inflation. And finally, State inflation (eg Council Tax). All these have an effect on costs to we the consumer. The State really needs to get a hold of State Inflation. Why does our council tax keep rising above the official inflation figures ?

      1. Martin in Cardiff
        December 22, 2019

        Generally because central funding for local government has been drastically cut under the Conservatives.

        It accords with the ideology of funding as much as possible by a poll tax rather than by progressive taxation.

        The CT is still, in central respects, a poll tax.

        A normal, detached four bedroom home incurs just as much as does Sandringham, for instance.

  2. agricola
    December 22, 2019

    After all that descriptive stuff do I gather that you wish thw Government and the BoE to work very closely together in future. It would appear sensible as we are about to move into new territory in banking as in many other areas.

    1. Brit
      December 22, 2019

      There are plots to wound us by the SNP taking some legal action in conjunction with Brussels. We can expect these two undemocratic forces to work well together as some EU nations have historically yearned to take over Scotland as with its relatively small population they can do as they wish with it.Also use it for stepping stone. I doubt Scots will fall for it.

  3. Shirley
    December 22, 2019

    There needs to be controls. No single person should have ultimate power. The last three years have taught us that nobody can be guaranteed to put the UK first. The division of loyalties was clear.

  4. Lifelogic
    December 22, 2019

    Reported in the Sunday Telegraph today:- A paper by the Centre for Policy Studies (CPS) think tank points out that a Bank of England “stress test” can “deny people mortgages that they could perfectly well afford”.

    Indeed they do , the banks being tied in knots by government lunacy (and a lack or any real competition too) is doing huge harm to the economy. This on top of the absurd stamp duty rates of up to 15% and the double taxation of landlord interest – when is Javid going to do something about this damaging insanity? He has said nothing so far. I am already loosing confidence in Javid. He does not sound like a real Conservative to me and is boring and tedious with it. He just seems like Osborne/Hammond continued to me. Where is some vision or direction? what is he waiting for, inspire some confidence and a sense of direction?

    1. Mark B
      December 22, 2019


      With all these ‘restrictions’ it makes you wonder how so many people can afford all these new homes we are building ?

  5. jerry
    December 22, 2019

    The BoE is independent in name only, otherwise it would have been Mark Carney announcing his successor not Chancellor Sajid Javid.

    Worst idea, of many, the newly elected Blair/Brown govt had in 1997, making the BoE nominally independent, their first lie?

  6. Richard1
    December 22, 2019

    The US is interesting. For all the rage about President Trump what has he actually done – as opposed to said – which is so objectionable? The US economy is booming by comparison with most of the rest of the OECD following Trump’s tax cuts and growth oriented policies such as cutting back regulation. he might even get re-elected!

    Meanwhile I can highly recommend an excellent and entertaining interview with the distinguished historian David Starkey (surely he should by now be Sir David?) conducted by a Sun journalist (on YouTube). I think our host is wary of links but it is easily found.

    1. oldtimer
      December 22, 2019

      I too found that value for the near 60 minutes watching. Starkey does not pull his punches.

    2. dixie
      December 22, 2019

      The David Starkey interview really is excellent and full of suggestions Boris & co should follow through on.

    3. Shirley
      December 22, 2019

      I watched it too. I like his direct approach instead of the endless spin we have accustomed to.

    4. Timaction
      December 22, 2019

      Very good video interview.

  7. Andy
    December 22, 2019

    Mr Carney was right to dismiss the economic arguments for leave. As we have seen proven since the Brexit vote there are no economic upsides to Brexit – the question is, and remains, simple how economically damaging will Brexit be. There has not been a debate about this since 2016. The fact that some still cling to claims of economic advantage for Brexit is irrelevant. It’s 2019 and some still cling to claims the world is flat.

    This is not to say that there are not any arguments for Brexit. There clearly are. Just not economics. Or sovereignty – which we already have. Or independence – which we already are. But there is probably something about immigration and foreigners.

    1. Richard1
      December 22, 2019

      the forecasts were: a recession; an increase in unemployment; a collapse of house prices. Happily these were all wrong. With a majority Conservative govt- assuming it pursues sensible policies – we will likely see the UK again become the most dynamic economy and among the best places in Europe to live work and invest. Get ready for a frustrating few years as the good news comes through!

    2. Anonymous
      December 22, 2019

      If you can’t control your borders (or if your politicians *refuse* to control them) then you control absolutely nothing and have not sovereignty or independence.

      Boris has just won a landslide because the people are utterly sick of being called xenophobes. Even Remain voters are appalled by the conduct of Remain in the past three years.

      So thank you. Keep it up. I put your and Newmania’s postings on a big screen to show friends that people like you are for real.

      I am not exaggerating when I say that Coogans, Grants, Thompsons and the likes of you won it for Boris.

    3. Edward2
      December 22, 2019

      How can you possibly say “there has not been a debate about this since 2016”
      It has been almost non stop, in Parliament and in the media.
      Remainers like you have been been giving us their Project Fear, doomsday vision of life outside the membership of the EU from the moment the referendum was announced.
      It is going to be so wonderful watching you realising how wrong you are as the UK carries on successfully and all your predictions fail to come true.
      Like all the ones made by Project Fear 1.0.

      1. Andy
        December 22, 2019

        You have not been paying attention if you think the debate is about the economic merits of Brexit. Most of the Brexiteers have long since stopped even pretending there are any economic benefits. Mr Redwood is pretty much a lone voice still arguing there is and even he will tire eventually as the already overwhelming evidence turns into a tsunami of disappointment.

        I have long argued on here that the economics are just about the least worst part of Brexit. Yes, we will pretty much all be pointlessly poorer than we would have been but as someone in a fortunate position I can be pointlessly poorer and still be more than okay. I also have never subscribed to the idea that there will be a massive cliff edge on day one. Rather Brexit will be a long, slow and permanent decline compared to our nearest neighbours. You might not notice that 1%, 2% a year. But two decades from now your kids and grandkids certainly will.

        But everything else about Brexit, aside from the economics, is even worse.

        1. Edward2
          December 22, 2019

          We keep saying there are benefits to leaving the EU but you are not listening.
          For example.
          The Treasury do not say we will be poorer.
          They say growth might be a little less than it might have been over a 15 year guess into the future.
          So still better off.
          Not poorer.
          And if you look at their track record they have been pessimistic on nearly all their previous predictions.
          And they didn’t feed into their computer models any positive economic stimulation by the UK government.

        2. NickC
          December 22, 2019

          Andy, You lost in 2016 when a majority of voters decided the UK should Leave your EU empire. You’ve just lost again at this general election. Your attempts to twist reality does you no favours, and is totally unconvincing.

          Then you drone on about “Brexit [being] a long, slow and permanent decline” as though no other country in the world is outside the EU. Again you are detached from reality – most nations are separate from the EU, and none suffers “permanent decline” because of it.

    4. Sir Joe Soap
      December 22, 2019

      Andy lets his neighbours use the family’s bank account and offers free insurance to his own family, in case the neighbours go on a spending spree and leave them hungry at Christmas. Andy tells his family it will never happen anyway, but when it does, they’re on the street, destitute. He’s old, the insurance policy has lapsed, but Andy blames his family for not using their garden to provide food for next door over the years.

      1. steve
        December 22, 2019

        More likely his neighbours voted leave, which might be why he comes on here in anonymity with his stuff. Wonderful thing, hiding behind your pc. Expect it from a little remainer.

        You remain not going so well, is it, Andy.

    5. jerry
      December 22, 2019

      @Andy; “As we have seen proven since the Brexit vote there are no economic upsides to Brexit”

      Except Brexit has not happened yet – Duh.

      What we have actually seen are the dire problems of remaining in a political project the majority do not want to in (any more), causing economic/investment stagnation and a political quagmire.

      ” independence – which we [the UK] already are.”

      The EC and ECJ would disagree… Have you ever bothers to read even a summary of the Lisbon Treaty @Andy?!

      1. Andy
        December 22, 2019

        Actually I have read the Lisbon Treaty. And I even read the proper one – and not the false version you read on Facebook. You know the one that comes in in 2020 and abolishes everything?

      2. Martin in Cardiff
        December 22, 2019

        If the UK were not sovereign and independent, then it would not have been able to leave.

        1. steve
          December 22, 2019


          True, but given the EU’s tactics of late it is obvious that if we stayed in the EU we would end up not being sovereign.

          1. bill brown
            December 22, 2019


            In this interdependent world no nation is any longer totally sovereign , this is history

          2. Martin in Cardiff
            December 22, 2019

            But the Leave campaigns claimed that it had not been sovereign since 1975.

            So you accept implicitly that they were lying.

            Now Scotland is not sovereign, because they can’t even have a referendum unless Westminster says so.

          3. Edward2
            December 23, 2019

            Sovereignty has been slipping away for decades.
            Originally it was a Common market.
            Now it is the United States of Europe.
            Steve is right.
            Dont deny it.
            If you love the idea then accept it and argue why it is a good thing.
            The more you deny it the more people think it will not be a good thing.

        2. Denis Cooper
          December 22, 2019

          From Martin Howe in 2009:


          “But some have argued that the consequence of the UK’s membership is even greater. By passing the European Communities Act 1972, which gave internal effect in UK
          law to the Treaty of Rome and the later European Treaties, has Parliament incorporated into our law the ECJ’s rule of primacy and thereby repealed the sovereignty of Parliament itself?

          This study considers that question. It suggests that if our courts were confronted with this question directly today, they would answer it: ‘No, Parliament retains the ultimate power to unmake any law, including the 1972 Act and any EU law which has force in the UK under the 1972 Act’. However, no one can be confident about what might happen in future circumstances. The rule of the supremacy of Parliament rests, in the end, on the opinions of judges. Such opinions are capable of changing according to the climate of the times as judicial attitudes and loyalties change.”

          In other words, continued recognition of the sovereignty of the UK could have depended on whether or not judges on the Supreme Court joined you by transferring their primary allegiance from the UK to the EU.

          Once we have left the EU UK patriots will no longer need to concern themselves about that risk, because the small minority of committed eurofederalists like you – at most 12% of the population, I estimated here:

          will become a small impotent minority and no longer a threat to our continued national sovereignty.

          Even so I would still remove your voting rights, at least until you had publicly recanted and sworn a solemn oath of allegiance of the UK.

          1. steve
            December 22, 2019

            Dennis Cooper

            “Even so I would still remove your voting rights,”

            Only their voting rights ?

          2. Martin in Cardiff
            December 22, 2019

            As Al would say “pifflepafflewhifflewaffle”

          3. Denis Cooper
            December 23, 2019

            Once again a pathetic reply from Martin.

        3. NickC
          December 22, 2019

          Martin, That’s why a Leave article (Art50) was written into the Lisbon treaty – precisely because we were no longer sovereign and independent. Declaration 17 spells it out for you in black and white.

        4. Anonymous
          December 22, 2019

          You’re quite right, Martin (@12.30)

          A quality Remain commentator if I may say. Much respect.


          I never argued on the grounds of sovereignty, only against *uncontrolled* immigration which our Remain establishment said was requisite of EU membership.

          Calling me a xenophobe for thinking such has failed for one simple reason and that is because it is untrue.

          Had there been just a few tweaks on immigration – only so that we could have a breather to assimilate newcomers- then Brexit would have been averted.

          No. Couldn’t do it.

          Then Remainers banged on about how nasty we all were once they lost the referendum – to nullify our vote (not you, I realise Martin)

          I feel a change in this country. Some may say for the better, others for worse but there is definitely going to be a shift in culture.

          The Left have well and truly blown it. Pushed us too far. You must realise this by now.

    6. steve
      December 22, 2019


      “there are no economic upsides to Brexit”

      In the short term no. Then again there was never an economic upside to any challenge this country has ever faced.

      But we are British, and in times of crises we shine like nobody else.

      “..there is probably something about immigration and foreigners.”

      Take heed of what our country is known for around the world, before casting aspersions like that.

    7. Denis Cooper
      December 22, 2019

      And some still cling to false claims of economic advantage for EU membership, no matter how much evidence to the contrary may be presented to them.

    8. sm
      December 22, 2019

      The only person I know who voted Leave in the Referendum because of ‘immigration’ was a long-term LibDem voter!!!

    9. Roy Grainger
      December 22, 2019

      No shortage of medicine here yet Andy you’ll be surprised to hear. How did you get that wrong ?

    10. Jiminyjim
      December 22, 2019

      Andy, there’s a Christmas phrase for your contribution: ‘A voice crying in the wilderness’. I’m worried for your health. How about a New Year’s resolution to accept the result? It will help you, I promise

  8. Mark B
    December 22, 2019

    Good morning.

    I have no problem governments overriding the decisions of central banks. What I do have a problem with, is them doing so and then blaming others when it all goes wrong.

    The advantage of a central bank free from political interference is, just that, they are ‘free’. Free to make decisions that are unaffected by the democratic process but, are still answerable to those who are at a given point in time. This is important and must be maintained.

    No one believes that the BoE is independent no more than people now believe that we live in a functioning democracy. I mean, for many I am sure, the antics of government, parliament, the speaker, the media etc has been a real eye opener.

  9. Bye!
    December 22, 2019

    I’ve always felt Germany has been humoured. Our politicians always spoke of how much better the German economy. Lots of places depended on the spending power of occupying soldiers.In honesty, both East and West Germany.
    In my prowlings of Germany, decades, I found little British-advertised work-ethic. The reverse.
    Germany is going down.He always knew we were humouring him. France! Now Macron is begging them all to get back to work so the French can have a Christmas.
    Remainer MPs have so much to answer for in delaying our departure from the Trouble EU.

  10. Everhopeful
    December 22, 2019

    At ground level as it were…a worm’s eye view… it all looks very unfair.
    Banks/bankers caused the crash in 2008 with all the salami slicing etc and people are paying for their mistakes with historically low rates of return on their savings.
    They are also being encouraged into never-heard-of-before borrowing.
    Presumably all of this was overseen by B o E?
    Saving has become a mug’s game and ordinary people ( Woodford??) are being led into investments with risks that only the rich should take.
    The rate of inflation as as declared by B o E seems to bear little relation to real life where prices can double overnight. Who decides what goes into the “basket”? Who did away with RPI?
    Not content with destroying the ordinary person’s ability to save, the banks have also by closing so many branches ( presumably as an economy measure)..parted us from our cash. Most transactions now carried out on unreliable mobile/ internet sites.
    And where is the high and stable growth the B o E is supposed to deliver?
    And how come Brown was allowed to sell half our gold?

    1. BJC
      December 22, 2019

      The simplest answer to your questions is probably short-termism. In recent times our institutions have concentrated their endeavours on short-term fixes for long-term problems. We routinely shovel shed-loads of money at issues to settle them down in the short-term without tackling inherent problems, i.e. we’ve adopted the EU ethos for problem-solving. In truth, the fixes themselves have created multiple and greater problems, so an ever-increasing proportion of finite resources are diverted for “fire-fighting” purposes, a la the NHS.

      The role of our institutions should be far more mundane and boring, with every policy/action working towards the overall objective of laying the solid foundations needed for our long-term success. Strong, visionary management is always the key.

      1. Everhopeful
        December 22, 2019

        Yes..totally agree.

      2. APL
        December 23, 2019

        BJC: “The simplest answer to your questions is probably short-termism. ”

        So called ‘short termism’ is a convenient peg to hang the blame on. It has the double convenience of pointing the finger of blame away from where it rightfully belongs.

        It may be gratifying to blame the City, and Bankers in general, but the blame lies entirely at the door of the British Government. Successive governments have implemented a policy of 3% devaluation of the currency each and every year*.

        This has resulted in all sectors of the economy taking the rational choice to go for the ‘quick buck’ AKA ‘short-termism. Why invest for the long term if the long term means your investment will have been devalued by 50% when you get it ( return on investment ) back.

        So for example. If you invested £1000 in 1950 in a long term project, your return on investment would be eroded each year to the extent that in 2018 if you wanted to make the same investment, you’d have to invest £23,618 in 2018 sterling to get the same value of your 1950 £1000.

        Moral of the story. Don’t invest for the long term because you will be financially raped by the government.

        Always go for the fast buck.

        Or, as Gresham’s law would have it:- Bad money drives out good.

        The result has been the de-industrialization and increasing financialization of the British economy.

    2. steve
      December 22, 2019


      “At ground level as it were…a worm’s eye view… it all looks very unfair.”

      Andy would agree with that.

  11. Sir Joe Soap
    December 22, 2019

    1 A tension between the CB and government is good, and this should be open for the markets to cast judgement.
    2 The irony of CB independence being set up to benefit the long term stability of the UK financial system and governor Carney’s interventions to secure a short-term perceived stability associated with Remain, but to the long term detriment of the country, isn’t lost on 17 million or so voters.

  12. Mike Stallard
    December 22, 2019

    I have always wondered about this question. Thank you for a very readable and helpful article.

  13. a-tracy
    December 22, 2019

    Thank you for this article, I thought the BoE Governors job was mainly to keep the inflation rate within certain tolerances (was it 2%?) this seemed like such a big thing mentioned by GO when he was Chancellor. I wonder what his targets are now?

    The cost of housing in the Capital of England has gone up disproportionately, yet no-one within zones 1 and 2 expect to pay more for their morning latte to pay for the extra wage demands that then are necessary either for extra rent or transport costs from outer zones. I think all unemployed able bodied people in London zones-1-2 (for a start) needs investigating properly and people asked to take on required skills training I.e. for carers, nursing, IT, or told to take on basic jobs if they’re not willing to do the training, how many % are living in zones 1 and 2 have no income coming into their homes for over one year. Housing is required there for workers not shirkers. Workers should not be forced to the extremities then charged extortionate transport fees.

    1. a-tracy
      December 22, 2019

      Each Borough in the UK should have 15% of the housing as social housing or rent caps, I’m not keen on people profiting from other people’s inability to buy a home (I was never keen on the selling off of Council housing). The % of social housing/rent capping should not get out of hand with some Boroughs having 25% and some less than 10%, everybody in an area should put something in.

  14. William Long
    December 22, 2019

    Calling the BoE ‘Independant’ was a good political move for Gordon Brown, but it did not remove the fundamental point that ‘He who pays the piper, calls the tune’: the Bank ultimately remains accountable to the Government, which is accountable to Parliament, and therefor keeps the right to the final decision. ‘Independence’ has the advantage of providing a fig leaf for the Chancellor in the same way as the ‘Office of Budgetary Responsibility’. If the new Chancellor is serious about his job an early step should be to disband the latter and take responsibility for his own actions.

  15. Derek Henry
    December 22, 2019

    I have known for a decade it was a sham.

    The Maastricht treaty clouded the picture further with their reforms making the UK act as if we were using the Euro.

    Then Trump came along.

    Merge the central bank with the treasury and then we live in a true democracy after brexit instead of unelected technocrats we can never get rid of in the voting booth.

    Simon Wren Lewis and Jonathan Ported ( liberal left) not only wanted unelected technocrats at the central bank. They wanted to create fiscal councils to decide government spending again filled to the brim by people we can’t vote for.

    The simple truth for me is a moral issue and a democratic issue.

    a) You trust the people you vote for if they do not deliver you vote them out.

    b) We are heading for 2020 the time is over to keep a group of human beings unemployed just to control the inflation rate.

    You know my preference instead replace the Euro budget constraint with an inflation constraint

    December 22, 2019

    The Tory party’s been in power since 2010. It has made zero reforms to Labour’s pro-EU client state.

    John’s got a bee in his bonnet about the politicised nature of the Bank of England. That’s because the central bank is a political organisation. More than that, it is an activist organisation

    1997 saw the death of impartiality throughout the British State. The Tory party and many of its MPs have stood back and watched it happen

    Labour is a crime against the truth, decency and morality. Unfortunately the Tories indifference to the Gramsci-fication of the British State is the real travesty

    Johnson’s aim is simple. It is to remove the influence all those who have damaged the British State since 1997

    1. Simeon
      December 22, 2019

      I think you meant to say ‘Johnson’s TASK is simple’. It certainly doesn’t seem to be his AIM!

    2. steve
      December 22, 2019


      “Johnson’s aim is simple. It is to remove the influence [of] all those who have damaged the British State since 1997”

      Dominic you say that’s his aim, I don’t yet see evidence of that. However in my opinion I’d say it was his responsibility to do so.

      Then again I’ve yet to see a government that actually did reverse the damage done by it’s predecessor. Conservative and Labour alike.

      Take Blair for example; regardless of what one’s views are regarding privatisation, Blair promised to reverse all of those made by Lady Thatcher, however once in power how many did he reverse?. In fact he went on to privatise more.

      Boris has hinted at taking the first step by suggesting decriminalisation of the BBC licence fee. However actions speak louder than words. I’d love to see the BBC’s left wing propagandists explain themselves when millions of people refuse to fund their rotten organisation.

      “Gramsci-fication of the British State”

      That is an excellent analogy, well said.

  17. Roy Grainger
    December 22, 2019

    A separate issue which I note you are not commenting on John is the specific appointment of the serial incompetent Bailey to the BeE role.

  18. Javelin
    December 22, 2019

    I have a question about student nurses.

    A friends daughter is currently in her third year of being a student nurse. She was the first year where student nurses were not paid a bursery. So there is a window of three years of student nurses who are now much more debt than their colleagues. With my friends daughter having paid for her full course for three years despite working 12 hour shifts and looking after bays of patients in the NHS.

    It means in future that this small snapshot of nurses will not receive so much disposable income and will not be able to afford the same housing that other nurses can afford.

    This seems grossly unfair. I was hoping you could highlight this to Gavin Williamson (education) and Edward Argar (health).

    1. Fred H
      December 22, 2019

      Sept 2018 – – Data obtained by Nursing Standard and the Health Foundation show that of 16,544 UK nursing students who began three-year degrees due to finish in 2017, 4,027 left their courses early or suspended their studies.
      According to the figures, 15,790 students in England have been placed on a nursing degree course in the country in 2019, up from 15,210 in 2018.

  19. Alec
    December 22, 2019

    The Fed is the worst example of oppressive banking on the planet. It has never been audited. It has destroyed 98% of the value of the dollar thereby impoverishing most of the population whilst enriching it’s owners (bankers). It has enabled war on a global scale. It has caused more boom and busts than any other organisation. If you call that getting it right I really would hate to see getting it wrong.

    1. Peter
      December 24, 2019

      Quite. I am surprised your post was not deleted though.

      If you are aware of the secretive manner in which the Fed was set up it is nothing new.

  20. Richard1
    December 22, 2019

    It is reported that Mr Carney has flown 65,000 air miles during this year to promote alarm about global warming. And that under his direction the BoE has warned that £20 trillion worth of financial assets should actually be worth zero (because of their fossil fuel linkage). That’s to say that the market says they are worth £20tr but mr carney says they are worth zero.

    I suggest that Mr Bailey is requested to focus on the important formal parts of the BoEs role – monetary policy and regulation of the banks – and to avoid political posturing on issues which are outside his remit and outside his area of expertise.

  21. formula57
    December 22, 2019

    Concerning Germany, there was of course the earlier disagreement of some importance about interest rate increases that saw Adenauer in a May 1956 speech lament that the Central Bank was accountable to itself and responsible to no one. He remarked famously that the discount rate increase was like a ‘guillotine’ falling down on the West German people.

  22. acorn
    December 22, 2019

    The Ostmark being swapped with the DM at one for one, for wages and pensions, was an economic mistake; it priced East German workers with their poor productivity, out of any inward investment from anywhere. Fortunately Ostmark savings got a poorer exchange rate, as did spiv currency traders particularly.

    Constant price GDP per hour worked in the UK is a problem. The UK is 15 – 25% less productive than France; Germany and particularly the US. Most foreign direct investment (FDI) comes into the UK from EU entities directly; or, via EU subsidiaries of non-EU entities.

    The East Germans are stuck with using a foreign currency they still can’t afford, the Euro. They have no control whatsoever over the Euro. The UK fortunately, has its own freely floating currency that can adjust to bring the Gross domestic product per worker hour, more in line with its G20 competitors.

  23. margaret
    December 22, 2019

    Interesting article John.

  24. steve
    December 22, 2019


    “Now Scotland is not sovereign, because they can’t even have a referendum unless Westminster says so.”

    At the last referendum Nichola Sturgeon said it was a once in a generation decision. Would you say she was lying ?

  25. Arnie from Newington
    December 22, 2019

    I would be interested on your views on the mortgage prisoners and the vast amounts of money that the government has made from the nationalisation of Northern Rock and Bradford and Bingley.

  26. MeSET
    December 22, 2019

    The book bit prediction is true, will be true, by one way or another, in many ways it has all ready been read by persons who can hope to understand it.
    Happy Christmas JR. Sincerely. My words are worse than my bite.BUT you know that! 🙂

  27. Tim M
    December 24, 2019

    Sir John

    Did you ever as a director of a company decide for an investment for growth and job because the the interbank rate was moved 0,25% lowers !! Your posts are rubbish !!

    So fine are you as a masters but you know nothing about the real world … my BC credit card interest is +20% What world do you live in ? No Inflation ????

    You are the best MP … but you all have no idea ……


    Reply I am arguing for more borrowing availability through LTROs or the equivalent and money market ops at the short end of the duration curve. I am well aware of some very high short rates for overdrafts and credit cards. I am trying to ensure adequate provision of car loans, mortgages and longer term business loans at rates related to the 0.75 base rate.

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