It is true that the Bank of England, the Fed and the ECB have the independent power to set the base rate or short term interest rate. I do not deny that or even propose taking it away. That is not the same as these central banks being independent of the state and government policy.
The Central Banks have Governors chosen and appointed by governments and Parliaments. The Governors have to report to elected assemblies and answer questions and criticisms. They rely on state taxes should they not have enough revenue to pay their costs. They have to work with government or accept government policy on important matters like the issue of government debt, the management of their bond portfolios, and their attitudes towards the actions of commercial banks.
The governments/Parliaments can change the rules, alter the aims, change the budgets and personnel of these Central Banks any time they like. In the UK there have been major changes. Gordon Brown who gave the Bank the power to set base rates at the same time took away their powers to issue government debt and to regulate commercial banks, making the changes a net reduction in their independent actions. The successor Coalition government changed the framework again with major changes to commercial bank regulation. President Biden on taking office appointed several new Board members at the Fed including the two powerful Vice Chairs to change their policies as he was entitled to do, with two leaving the Fed ahead of their retirement date.
The main monetary policy these three Central Banks followed up to 2022 was money printing or Quantitative easing. In the UK every pound of that had to be approved by the government, who underwrote the Bank against any losses. In the last three years all 3 Banks have been pursuing Quantitative tightening. The UK government has been paying huge bills to the Bank to cover their large losses on bonds they have been selling. The ECB has not been selling bonds, presumably because their owners will not pay the losses. The Fed which like the other two overdid the QT had to pump large sums into the markets to prevent a collapse of regional banks. No government can afford to ignore Central Bank actions which help create a fast inflation by creating too much money, or create a recession by tightening too much.
The wrong belief that these Banks are “independent” other than over the base rate means much media and commentary refuses to ask why these 3 allowed or created a large inflation. It means they escape proper scrutiny of what they did wrong and how in the future they could use their power to set the base rate to promote faster growth and lower inflation. They all have to work with their governments.
August 28, 2025
Good morning
There are differences between various Central Banks, ours being the least independent. The US Central Bank and the German Bundesbank are by far the furthest away from political control, but not influence, than most, including our BoE.
I recently finished listening to a podcast by Tucker Carlson who had a gentleman and renowned economist on his show. Along with many things he advocated getting rid of Central Banks. He also stated what was behind China’s great success. The getting rid of just one bank, the Central Bank of China, and the creation of many small independent banks. This makes sense since, after the financial crash, we here in the UK have lost many small banks serving many small customers and growth as a result has been slow to say the least.
Interesting podcast if anyone wants to listen. I’ll try and dig it out and post its title later today.
Reply The German Central Bank takes instructions from the ECB. You cant have a powerful CB in the Eurozone other than the ECB. The Peoples Bank of China is a powerful Central Bank, implementing government policies. It kept inflation down over the Ukraine war/covid period.
August 28, 2025
To reply indeed. A good general rule is that any organisation that feels the need to claim it is “independent” almost invariably is not really. The government appoints and can fire the Governor for a start or close and replace the organisation in full. Osborne idiotically appointed the deluded green Mark Carney at vast expense and then we got the similarly incompetent Andrew Bailey (Sunak was it?) How is he getting on with saying sorry for misleading the house on Covid Vaccine Safety. Has he not yet read the Japan statistics on 18,000,000 people on deaths broken down vaccine status yet? Where are the UK’s similar statistics? Still being hidden because they know how damning they are I assume! Or the birth rate ones broken down by vaccine status 1/3 down for the vaccinated it seems. “Unequivocally safe” and he claimed to be good at maths did he not?
August 28, 2025
Yet another Conservative minister on Talk Radio “the last Conservative government made mistakes” on immigration levels no mate no mistakes deliberate policy was not to even try to deliver you various manifesto commitments. You also wasted £400+ billion on net vast harm Covid “vaccines” and vast net harm covid lockdowns. Were these mistakes or deliberate policy following deluded “experts”? So far not even an admission that these policies were total disasters from politicians or these “experts”?
August 28, 2025
@LL – Leading green banking group founded by Mark Carney the Net Zero Banking Alliance (NZBA) has halted operations, in essence the World, the real World found earning money to fund a tomorrow was their purpose in life. Another deluded bubble has burst
August 28, 2025
Indeed.
Why do most politicians and commentators get Central Bank independence so wrong? Ask JR? Well they get nearly everything wrong do they not? Net Zero, energy policy, state schools, public transport, Covid “vaccines”, HS2, the ERM, the EU, universities, immigration levels and skill levels, the NHS structure, tax levels, the size of the state sector, benefit levels…
August 28, 2025
I therefore assume that central banks are a quango that allows government to draw a veil over financial responsibility. In effect, base rates appart, they only do what government wants them to do, making politicians the Treasury and OBR fully responsable for the health of the economy.
At this point I lose the plot and fail to see why government via the bank should wish to sell off bonds disadvantageously. Bonds and QE (printing), in my simple mind, are instruments that allow government to live beyond its means, heaping ultimate responsibility on the tax payer to pick up the tab. Such financial irrisponsibility only arises because it is not their own money that politicians play with. What is forbiden of the individual should be forbiden of government.
August 28, 2025
The OBR is a quango. A notably incompetent one. The PM is on record saying that they ‘change their forecast every few weeks’. Yet he still depends on it’s 5 year forecast🤯
The Treasury and it’s First Minister is responsible for the economy.
August 28, 2025
They are indeed but Reeves does a Growth, Growth, Growth rain dance while delivering anti-growth policies in every direction. Endless tax grabs then largely wasted or spend doing harm, vest red tape increases, net zero, vast market rigging, rip off energy costs, benefits higher than pay to deter working, the worker rights act, a vastly bloated state sector delivering dross…
August 28, 2025
Good morning,
There is no mention by anyone on this topic so far, author or comments, of Money Supply. If you don’t know that Central banks main job is to manage the Money Supply of a country, best not to opine on the topic.
Reply The stated task is to keep inflation down. I have made proposals to Bank of England that they should concern themselves with money supply but they disagree. They do not usually report on it.
August 28, 2025
Perhaps this might be of assistance:
https://www.bankofengland.co.uk/boeapps/database/fromshowcolumns.asp?Travel=NIxAZxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=2020&TD=1&TM=Jan&TY=2040&FNY=Y&CSVF=TT&html.x=66&html.y=26&SeriesCodes=LPMAUYM&UsingCodes=Y&Filter=N&title=LPMAUYM&VPD=Y
Reply Yes it shows money surge in 2020 which the Bank thought was fine
August 28, 2025
Reeves must be incredibly weak within cabinet as she dances to the tunes of so many others.
August 28, 2025
@agricola – agreed. Got it in one, they(Government/Parliament) have the power to take money from the taxpayer, then they have the power and responsibility for what they do with it. No one else is higher than Parliament, they have the responsibility to manage and control.
We stand back and talk Treasury as if it to is some remote unworldly body but everyone in that department is controlled by the whims and decrees of the Chancellor, the PM and Parliament. They could at any time change anything, if they could be bothered
August 28, 2025
Sir John, I am sure there is a reason you have focused on this relationship between central banks and state/political authorities. The question is not one that immediately grabs peoples attention though in pure economic understanding perhaps it should?
You mention the ECB which needs more discussion and needs to be understood for being an outlier in economic terms, There is no government standing behind its decisions yet it has responsibility for setting conditions across the second largest economic/political body on Earth.
I would be far more interested to hear your views about the flaws in that arrangement and in particular the ongoing hazard associated with TARGET 2 balances held in Germany.
We would benefit from your view on this all be it the subject is a bit, erm… dry.
Reply I have written about this before. There is no current Euro crisis, though French debt problems are a worry.Target 2 balances the deficits and surpluses and is becoming the transfer mechanism Germany refused to back.
August 28, 2025
Germany refused to underwrite other Euro nations debts thus preventing mutualisation of debt responsibility in the Eurozone. The fudge that was introduced to cover imbalances was the Target 2 system which was fine while balanced trade existed between the creditor and the deficit trading nations. Unfortunately Germany was head and shoulders higher in efficiency than the other Euro zone members and consequently they of more correctly the Bundesbank became liable for the imbalance trades. These were mostly Southern Euro liabilities for trade balances with Germany.
The result of this mechanism is to make Germany the de-facto debt holder for the Euro. The Germans are not happy to have become the underwriter of other nations debts by default. Now the German engine of growth is failing this is becoming a big problem because it is a €trillian liability.
Reply Yes Germany large depositor, Spain and Italy large borrowers, with France now drawing down more. A liquidity facility is becoming long term deposits and loans.
August 28, 2025
Seems the Government has snookered itself.
Being in massive debt itself, it wants low interest rates, but long term rate is not set by Government employees in the BOE, who can obviously be ‘leaned on’ even in their single independent power of setting short term interest rates.
Lowering short term interest rates has stoked inflation, and the Government continues spending without let.
The government is between the rock of high inflation and the hard place of high interest rates. A lose-lose situation.
As JR repeats ad nauseaum, government spending must be cut, indeed it will be cut, one way or the other.
August 28, 2025
Another anomaly is the BoE has been put incharge of Net Stupid policy.
What on earth has this got to do with them.
August 28, 2025
We are still being affected by surplus savings built up during Covid handouts. That gives the great unwashed the huge spending power (plus population growth of course) that stokes demand and inflation. Another example of privatising the profits and socialising the losses.
The problem that the Bank of England has it that the government gave its printed cash to the plebs during Covid and that stoked inflation.
While they printed it and gave it to the banks it was only assets that inflated, making the rich richer but not taking away from the poor.
Helicopter money always screws the economy which is why China did not experience the same inflation.
August 28, 2025
Another means of government control is our honours system: some get gongs for the right reasons, others play the game to get their reward.
August 28, 2025
And so called “consultancy” fees, job offers (in for example the “green” grant farming industries, Big Pharma, Quangos, world organisations and “charities”…)
Looking at the list rather few get honours for the right reasons 10% perhaps! Why did the appalling Theresa May get one or Baroness Wasi yet Farage or Ann Widecombe get none. Why is JR not in the Lords yet?
August 28, 2025
I’m sure Widdicombe refused, after 25 years in Parliament you are entitled to a knighthood. May must have refused too.
The Lords is not good enough for JR.
August 28, 2025
Baroness May of Maidenhead it is already, for the great services of trying to subvert Brexit leading to the dire Boris botch, the destruction for the Tory Party and the total insanity of the net zero act. Nodded through by net zero fan Kemi the engineer one assumes!
August 28, 2025
Sir John
The words ‘They rely on state taxes’ as in the rely on money taken from the Taxpayer. This relates to all operations the Quangos as well as the BoE, in an instant none of them are independent.
The Chancellor, the Government, overseen by Parliament become the management of these entities. As such all MP’s in the chain are the one authorising these Taxpayer handouts, they all collectively have equal responsible for the failures as well as any success. It is as with any transaction those that are paying that as the say ‘call the shots’.
If the direction these bodies take don’t fall in with the wishes of those holding the purse strings they get removed and get replaced.
August 28, 2025
From 1694 up until the Labour Party Nationalized the Bank of England in 1946 it was actually independent owned by stockholders. The system worked, the BoE worked. So, for 250 years we had a system that worked, it cost the Taxpayer nothing.
Then came Socialism, the powers that think that as people that don’t do things they can do it better than those that do things. Then came the decline and it is still with us. More concerning is we are talking billions of pounds in loses, it will cost the Taxpayer £96bn over the next 4 years, to cover Governments and Parliaments refusal to manage. Yet no one owns the responsibility, no one is accountable we just have Government agreed by Parliament taking that money from us all. As Sir John often reminds us, these loses don’t have to exist.
Blackhole, what blackhole?
It also begs the question are the people employed at the BoE receiving bonuses?
If Governments, parliament want to be the de facto managers of everything it is about time they did. It is either Parliament that needs the sack or Parliament that needs to let go.
August 28, 2025
£400+ billion spent on Covid “vaccines” and lockdowns both of which did nothing positive and vast harms rather like Net Zero – they are still trying to hid this but will clearly fail!
August 28, 2025
@Lifelogic – we haven’t yet paid for Gordon Brown’s financial crisis. Then they go and pile it on without thinking about creating money, the wealth the country needs. The latest laugh is the GDP is said to be holding steady because the Government is spending more on growing the State, that is now classed as growth – spending taxpayers money for no return.
It does answer Sir John’s question as to why there is no out burst from the Unions, the Chancellor is growing the union base for them and the Taxpayer is in the end paying the union membership fees.
August 29, 2025
Often spending tax payers money to do vast net harms:- Covid “vaccines”, net zero, lockdowns, HS2…
August 28, 2025
Of course political leaders have a huge interest in fostering the erroneous view of central bank independence, because it enables them to shout to the world: ‘Not my fault!’, when things go wrong. It is odd though, how few journalists bother to question this.
Reply It is bizarre . Voters hold governments responsible for bad inflations. Most politicians do not blame Central banks for this.
August 28, 2025
”The wrong belief that these Banks are “independent”” last para, spot on SirJ
August 28, 2025
My own MP cited Bank independence as the reason for refusing to act on your thoughts on the disastrous secondary market bond selling. It is a grand way of shirking responsibility.
Otherwise, some may be interesting in learning that Lisa Cook, the Federal Reserve board of governors member recently sacked or not by President Trump, is an Oxford PPE graduate.
August 28, 2025
She’s also got a Batchelors in Physics and Philosophy and a PhD in banking systems from UC Berkeley.
August 28, 2025
PP,
Bachelor. I spelt it ‘Bachelor’ in a primary school test.
I was sure mine was the correct answer because the tinned peas at home were also ‘Batchelors’.
Tinned peas were eaten more frequently than fresh or frozen in those days.
August 28, 2025
BA Physics & Philosophy, Spelman College, Atlanta, Georgia 1986
BA PPE Oxford 1988
Had an accident, being in wheelchair for a while
PhD Economics, Berkeley 1997
Assistant professor Harvard Uni., Harvard Business School 1997-2002
Fellow, Hoover Institution, Stanford Uni. 2002-2005
Assistant then tenured professor, Michigan State Uni. 2006-2013
That, to me at least, looks a bit more like Mrs Cook’s CV.
August 28, 2025
Is the economy of a country with open borders controllable?
August 28, 2025
The idea that NIC should be paid on unearned income is typical of these desperate people in Downing Street. Will this include State Benefits? If not why not?
August 28, 2025
Why should income that you have worked to earn be taxed more heavily than income that you have not worked to earn? Also, why should where your income comes from (or your age) mean that it is taxed differently?
If this (or any) government had the guts, NICs would be scrapped as a separate tax and the tax system would be simplified such that there is a single tax on income (earned or unearned) which applied to all income equally.
The Conservatives never had the guts to do it as it would upset their pensioner voter-base.
August 28, 2025
It would also expose just how high total deductions from gross earning are.
I agree we should amalgamate the two payroll taxes.
August 28, 2025
‘Payroll taxes’ will no longer exist if they are universally applied to all income.
Perhaps we can all copy the political parties, invest abroad and repatriate capital only, leaving the interest to accumulate. Then you have no income. Pay no tax. And of course it’s legal.
August 28, 2025
Ah so now you want pensioners to pay NIC as well?
On their pensions?
August 29, 2025
Why not?
Why should someone aged 30, 40 or 50 pay more direct tax on an income of £30,000 than someone who is 70 pays on the same income?
August 30, 2025
Peter
It will expose that tax on income is over 50%.
My opinion is that it is theft when the State takes more than half of your money.
PS
Someone who is 70 has already paid perhaps 50 years NI
Currently requirements are that 39 years is what you need to pay to receive a State pension.
August 28, 2025
You are right, the BOE has minimal independence, and ultimately the responsibility lies with the Chancellor and PM. The problem is that we have had a succession of weak PMs and Chancellors, who won’t face up to their responsibility. Mark Carney was ineffective, as Canada is now discovering, and Andrew Bailey should never have been appointed; his conduct should have led to his dismissal.
As we will find out, things go wrong slowly over time, and then suddenly speed up, and it is a disaster.
The PM, Chancellor, and Ed Miliband are all zealots who are blind to reality. Between them, they will destroy the UK economy. Their ignorance and stupidity are unbelievable.
MPs and the media are all attacking Nigel Farage regarding illegal immigration, but who reflects the view of the people?
August 28, 2025
Today the hearing into ‘right’ gets underway.
Who’s rights does the so-called Human Rights Laws protect?
Quotes
“The rights of asylum seekers are more important than those of Epping council, Home Office lawyers have said.”
“Housing asylum seekers is not “more important” than addressing local concerns, lawyers for Epping Forest District Council have said.”
Is it the UK’s majority or is it those that invade the Country to steal from the Taxpayer that has rights? I can’t see how the people that forceable enter the UK from safe countries, even from their own safe countries can be considered as asylum seekers. Asylum is for people seeking oppression not those people seeking to steal from others.
Its another situation where the UK Parliament refuses its job, refuses its duty to those that empower and pay them. Why do we have so many free-loaders wanting to stroke their personal self-esteem and refusing to recognise the job the signed up for, if they cant do it the should leave.
In a democracy the people create the laws to suit how we want to live, and we do it through our representatives in Parliament. As such we all supposed to be equal under those laws. That is until 2 tier Law was imposed by Parliament
August 28, 2025
Yes they have to work with governments – consisting largely of incompetent and innumerate politicians incapable of understanding what the Central Banks are doing, let alone what they ought to do.
Nor has public understanding advanced much – those of us who understood the harmfully reckless actions of the BoE Governor during the brief period before and after Truss’s Budget, must be in something of a small minority.
August 28, 2025
I think people here are over-thonking it.
USA’s problem is that so many people are much more dysfunctional and lazy there compared to 100 years. And that so many of the rich are taking their business abroad because they want to earn even more money / less patriotic than 100 years ago.
So the problems in the USA are mainly cultural / social – not economic.
Politics / economic policy is not nearly as powerful as Trump (and others think). He can mess around with the dials and switches which will only slow things down in the mid term (and trying to turn into a true autocrat would be disastrous for the USA and the world – long-term – and for Republican / Conservative / right-wing politics (as right-wing autocracy breeds socialism – and vice versa).
As Michael O’Leary said what we have to do now is just to patiently run down the days until Trump is out of power and then we can get back to ‘normal’ again.
Trump is much a do about nothing except making politics and USA more vulgar than it was before he arrived on the scene.
The real issue is how do you get the average American to be more productive and a better citizen and the wealthier Americans, with businesses, abroad more patriotic (that is if you’re serious about making the USA ‘great’ again)?!