Yesterday the Governor said four very important things.
1. The change of inflation target from the RPI to the CPI was a government mistake, which led to a bigger credit bubble.
2. There are lags – we have not yet seen all the effects of much lower interest rates, and need to be patient.
3. The deficit is very large and should not be increased further.
4. He may not use all the money printing authority the government has given him.
Meanwhile the inflation rate ROSE to 3.2%, 60% over the target set the MPC. This useless committee has now comprehensively failed. It held rates too high for too long, causing mayhem in the real economy. Now it has slashed rates too far, undermining sterling and causing a lot of imported inflation. They had a lot of help from the government’s boom and bust economic policy.
None of this should come as any surprise to readers of this site. I called here for much lower rates of interest well over a year ago, before the end of 2007, to stave off deep recession. For the last six months I have been calling for higher rates to avoid a sterling collapse.
I am pleased the Conservative party has taken up the advice to recreate a stronger Bank of England, capable of regulating the banks and the money markets and running a more sensible monetary policy. It is much needed. The Governor has done the cause of a stronger Bank much good by his sensible and honest comments yesterday, admitting past failures and proposing greater fiscal restraint.