The Bank’s dose of realism today implies the authorities have at last got to where many of us have been for months. At last they admit that there will be very slow growth, no growth or even a recession over the next four quarters, and at last they recognise that inflation will soon peak.They acknowledge that the Credit Crunch remains a big problem. Why then do they take no action on interest rates or Money market liquidity to sort it out?
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August 13, 2008
JR: "Why then do they take no action on interest rates .."
US $ 1.87 = £1
Reply: Yes, that is probably part of their answer. The big fall in the dollar of recent years has been overdone, but it has priced the US back into world markets, and US exports are now booming.
August 13, 2008
Your views on inflation coming down are not echoed by the Telegraph leader this morning.
Even worse, they seem to have noticed that the TU people are flexing their muscles – especially the Public Service Unions.
It even uses the words" winter of discontent".
Things can only get better?
Reply: there may be strikes, but there will not be wage led inflation – there will be rising unemployment and low bargaining power for most groups of workers.
August 13, 2008
The Bank has the responsibility to bring down inflation and thankfully it does not seem to be prepared to accept your view that it has lost that battle. There is no avoiding the financial readjustments but the worse inflation becomes, the longer and more painful will be the consequences. You must remember the 1970s and the mess that Mrs Thatcher had to sort out.
Reply: It's not a question of opinion – it did lose the battle – indeed it failed to engage in the battle, 2005-7. it is both my opinion and the Bank's that they will win the battle over inflation in 2009 – the issue is how much collateral damage?
August 13, 2008
Good questions and answers so far, but let's not forget
a) BoE independence is a joke. Or is it a miracle that Brown/Balls have managed to predict rate moves correctly every time for ten years?
b) Prices have been rising faster than wage growth for at least a year.
c) Today's headline, e.g. in The Metro "prices rise faster than wages" is nothing new – so why the change of emphasis?
d) BoE announced back in May that there'd be no rate reductions until 2010. How do they know this? What sort of crystal ball do they have?
Aaah … perhaps there'll be a few rate cuts in the months leading up to the next General Election?
Npw I'm not one for conspiracy theories, but coincidence? I think not.
August 14, 2008
There is too much optimism over inflation falling off. I remember John warning last year about the Euro/Sterling differential getting too wide, very wise words, but if the MPC cuts and the ECB continues to hold we are going to see the cost of EU foodstuffs going up. This is important because it will be reflected in the high street and manifest in the weekly shopping and public expectations. This in turn will put pressure on living standards and wages, another area John warned us about last year. So is the trade-off going to be worth it? Once we get an inflationary dynamic into the system it will be very difficult to iron out. As John mentioned in an earlier post there needs to be a co-ordinated strategy from central banks at this time, if liquidity is to be increased then it has to be orchestrated across the board. Although even this strategy carries a danger and might lead to a further flight away from fiat money and into commodities.
August 14, 2008
Cricism of Mr King, here
John – do you think that Mr King should be sacked?
Reply: I would rather sack the PM and the Chancellor, who are most to blame!
August 14, 2008
I think you're assuming that the people minding the shop are competent to do so.
If the whole Northern Rock debacle has shown us anything it's that the banking and regulatory system is cracked from top to bottom and that the BOE is powerless to go against the will of government despite it's supposed independence.
August 15, 2008
Anon @ 10.19 Why not sack King ? It was he who spoke at the Mansion House. Not Darling / Brown FSA wallah.
He, and all his brilliant double first at the BOE, got the forecasts on inflation totally, completely, 100% wrong – by reliance on a model that simply extrapolated from the past instead of looking at market conditions and making judgements – ie a throughly academic exercise – and that is what King is – an academic.
One must remember also that not a single analyst, scribbler commentator – Bootle ,whatever, raised a peep.
He was however, smart to side step the Northern Wreck and fix up an under the counter, over the weekend traditional bankers "keep it inthe family" fix with Lloyds Bank and dump it on Darling's desk to make the decision.
Now the BOE – which is a one trick pony (it can adjust the Bank Base rate – whilst everybody now looks to LIBOR) and the MPC canjust sit and watch events unfold… and draw a modest stipend or three.