Readers will know I have wanted cuts in interest rates to stave off recession for many months. I have gone hoarse telling the MPC they have got it wrong again, lurching from too easy to too tight.
This week, instead of having their normal MPC meeting wasting time reaching the obvious conclusion that rates have been too high for too long and the economy is nosediving into recession and deflation, they should instead ask themselves what will the impact of the rate cuts we need be on the massive public debt the government needs to raise?
The Governor and his committee should spend a day penning letter to the Chancellor. It should say:
We accept that we need much lower interest rates than currently, to lessen the depth and length of the recession and to relieve some of the mounting pressure on borrowers. We accept this is disappointing for savers, but we wish to avoid a situation where banks and the authorities are offering interest rates higher than the market can sustain. Iceland should be a warning to us all, where high savers rates helped push the institutions into difficulties.
However, we are concerned that as the government is now planning to borrow at least £120 billion this year compared with the Budget forecast borrowing of £43 billion, it will prove difficult to fund all this at low interest rates. We recommend immediate action to cut the borrowing volume by the government, to give us more scope to cut interest rates.
We think the Bank of England needs to be given control once again over raising government debt so we can co-ordinate our interest rate decisions with the issue of government bonds, to improve our chances of successful sales. We wish to avoid too much downward pressure on sterling allied to a reluctance by foreign investors to help fund the government deficit.
We appreciate that the elected government is responsible for the overall conduct of economic policy and must remain so. We do feel it necessary, however, to point out that if we proceed with big interest rate cuts in the absence of better fiscal discipline by the government, other problems could emerge which may be painful for both the government and the economy.
We await your guidance, as we do not wish to see monetary and fiscal policy undermining each other, which is the current danger.
When I first called for lower interest rates the government was not planning to increase borrowing by £55 billion to buy bank shares. This makes a huge difference to the wisdom of the policy.