All change on Carney street?


       The Governor elect of the Bank of England has caused a stir through his latest speech as Governor of the Bank of Canada. Whilst the speech comes from the CFA Society of Toronto and is researched and put out by the Bank of Canada, inevitably British audiences are applying its message immediately to UK conditions.

         Mr Carney argues that when a Central Bank is running a very low interest rate policy to stimulate a weak economy, it may also need to manage expectations to encourage faster growth. He endorses Canadian and US past  actions where the Central Banks have announced the maintenance of low interest rates for a lengthy period, to reassure markets and foster an expansion of money and credit. In Canada the promise of low interest rates was conditional, with a statement that if inflation rose too much they would increase rates anyway. For more severe cases  of income and output loss Mr Carney favours an outright promise of low interest rates regardless of the inflation rate.

         He went further. He said that when an economy has lost a lot of output (like the UK, which he did not mention) the Central Bank and the government may need to shift from an inflation target to a  nominal GDP target. This would allow the Bank to run very low interest rates even after inflation had picked up, if output was still below where the authorities wished it to be.

          This is an interesting and challenging new path. As it does not seem to apply to current conditions in Canada, naturally people ask if that is what he is hinting the UK needs. Will he ask the Chancellor to change the target? Will he be willing to turn a blind eye to higher UK inflation in the hope that this could allow more output growth?

          The problem with this approach is obvious. Last year the Bank’s inability or unwillingness to control inflation led to a sharp spike in price rises. This meant a cut in people’s living standards, which further depressed real demand. The danger with Mr Carney’s suggestion, if  it is aimed at the UK,  is twofold. Would higher inflation do too much damage to demand again if  allowed? Would shifting targets as fundamentally as this help to undermine confidence in longer bonds, leading to higher longer term interest rates? It is easy to lose confidence, more difficult to restore it. There would be dangers in signalling that the Bank under  new management no longer wished to even  pretend to curb inflation, in an economy which can be inflation prone.

          Meanwhile, on cue, the Fed has stated it intends to create a lot more money, and does not intend to put interest rates up for a long time, until unemployment has fallen substantially, whatever happens to inflation.


  1. lifelogic
    December 13, 2012

    Indeed confidence that the UK will not devalue the pound (any more than it clearly is doing) is very important. More important still is confidence that we have a government that is cutting the state sector waste, cutting taxes, cutting absurd regulation, sorting the banks and promoting private sector growth. Further that an even worse Labour government will not be elected in 2015.

    Personally I have no confidence in any of the above, quite the reverse.

    1. alexmews
      December 13, 2012

      Lifelogic – I have not read Carney’s speech but from John’s comments it is pretty clear further devaluation is exactly what will happen. No? Devalue and inflate the debt away?

      1. Mark
        December 14, 2012

        Debt can only be inflated away if it isn’t increasing faster than the rate of inflation. There are two ways to achieve this mathematically: cut the deficit, or pump up inflation.

        If the deficit is brought under control, then only very modest inflation will erode the debt, at least where it isn’t indexed.

        If the inflationary route is taken it becomes hard to achieve because lenders will be unwilling to lend unless they are promised a fancy return: i.e. interest rates rise sharply, leaving less to spend on other things.

    2. lifelogic
      December 13, 2012

      I have just heard Caroline Lucas the green (behind the ears) MP on the daily politics. She was showing clearly that she has not the first clue about the realities and economics of energy production. Another English graduate I see who should perhaps stick to poetry and fiction. Why on earth did the people of Brighton elect her? I assume because of BBC and EU brain washing and people like the fake green, toy house turbine, Cameron giving them tacit support.

      1. Bazman
        December 14, 2012

        We know green sustainable energy is not green or sustainable at the moment. That is the crux of the problem. You do not have to keep reminding us! Sustainable energy is needed and some money and energy will have to be expended on it. The future market for this is massive and at the moment we have a lead. Research needs to be invested in. Your free market idea is not sustainable, like banking was not.

        1. lifelogic
          December 15, 2012

          It may be sensible to do some research, but not to litter the countryside with engineering that patently do not work in economic or energy terms without huge state subsidy. You find technology that works first before going into production if you have any sense.

          1. Bazman
            December 15, 2012

            This will also apply to fracking? I suspect it will not.

    3. Disaffected
      December 14, 2012

      Mr Carney will not be used to the EU pulling the strings of another country. Canada will not even sign up to Kyoto and the man-made global warming theory. A leaked report today suggests that the game is up. As it is more todo with the sun. Meanwhile Cameron is in Brussels trying to work out how to go along with an EU banking authority for the Eu superstate without showing his Europhile hand. Hands up who trust him? Hands up who think he will act in the national interest?

      At home Letwin, Osborne and Cameron key Tory policy strategists continue with gay marriage. While Mr Clegg thinks anyone who opposes is a bigot (comment later withdrawn by him). It was nevertheless a Gordon Brown moment.

  2. Mike Stallard
    December 13, 2012

    Little England! Just over half the workforce in employment! The rest hanging off the state! No wonder we are bust! We British are broke, in debt and virtually broke as a country. So much for the home market.

    ” This meant a cut in people’s living standards, which further depressed real demand.”

    No. What we need to do is to reduce prices across the board then go out of this tiny little island and SELL. That is what we have always done and it is precisely what the United Federal States of Europe are preventing us from doing with the Single – sorry Common – Market.

    1. uanime5
      December 13, 2012

      How exactly do you plan to reduce prices? Fire all the people working in manufacture and replace them with slave labour (unemployed on workfare).

      1. David Price
        December 14, 2012

        No need to fire anyone in manufacturing. You could instead;

        – reduce/remove VAT
        – reduce/remove fuel duty
        – reduce/remove government obligation tax levied on domestic energy
        – reduce/remove non-essential government/quango/public sector expenditure
        – emphasize the benefits to our economy of buying UK produce and goods

        I am sure there are a number of other measures that could be taken, all it needs is the will to focus on the needs of our citizens, rather than the bleating of those who happily squirt public funds up the wall, and do it.

        1. Bazman
          December 14, 2012

          VAT would help, but don’t expect it from this government. Regressive taxation and hitting the those in and out of work is the name of the game. Introducing competition between the strivers like cleaners who are cleaning whilst the rest of the workforce are in bed. Or like me just in bed.

      2. Leslie Singleton
        December 14, 2012

        Unanime5–Even if “slave labour” were a correct description, which of course it isn’t, nor even close, why isn’t it better, for the people concerned, than no work at all? You talk in hyperbole and daft riddles on too many subjects and certainly this one. What are you angling for exactly–nationalisation of manufacturing that has been unable to compete? I thought we tried that, time and again.

        1. Bazman
          December 16, 2012

          Almost slave labour for some central London cleaners on minimum wages.

      3. Lindsay McDougall
        December 19, 2012

        Increases or decreases in the general price level are a matter of MONEY – and that is under the control of the Bank of England (apart from forgeries). It is perfectly possible to have a monetary policy that delivers zero inflation.
        The BoE should try it.

    2. Conrad Jones (Cheam)
      December 13, 2012

      Seeing as we import a lot of Goods and Services, surely another better route would be to start producing those Goods and Services at Home to reduce the Trade Deficit?

      China is now beginning to focus on it’s domestic markets.

      One of the things it doesn’t do is Export it’s Gold.

  3. Steve Cox
    December 13, 2012

    If the economy is not growing, I fail to understand how targeting an NGDP number (let’s say 5% for the sake or argument), which would simply mean the BoE actively trying to push inflation up to that level if output is still stagnant, will help. Surely it will only cut most people’s real incomes as wages in a depressed economy will surely fail to keep up with inflation. It would also be bound to further depress the pound, pushing up food costs and energy costs even faster than they are already rising, hurting a large part of the population. Then there is the BoE’s extremely poor historical track record of controlling inflation once it takes off. The Blair and Brown years of low inflation gave the appearance that the Bank had finally learned how, but even its insiders admit that they did nothing to keep inflation low, it was the result of external forces such as China effectively exporting deflation. Once the Bank actively starts to deliberately push up inflation, I fear that they will quickly lose control, and young Mr. Carney cannot claim much in the way of personal experience in controlling rampant inflation in an already inflation-prone economy. I can only see some very major downsides to these proposals, I do not see any benefits at all for the average person. Of course, if the government stops index-linking public sector pensions as well as benefits, then it would soon get the real-terms deficit and even the debt picture looking better, so perhaps that is where they are coming from? Beggar 80% or more of the population, steal their savings and destroy their pensions, so that the rest can pay lower taxes.

  4. Antisthenes
    December 13, 2012

    Maybe the real message here is that the enormous deficits and debt mountains cannot be realistically tackled except by inflating them away. If politicians and popular will will not countenance slashing the public sector and the size of the sate then what is the alternative. There is no gain without pain and as economic forces have to reach equilibrium, which indeed depends on considerable pain at some point, before the economy can be put on a sound footing then inflation is the only course open.

  5. colliemum
    December 13, 2012

    I hope that you, John, and your colleagues will point out to Mr Carney that running low interest rates while not worrying about inflation means ultimately robbing from savers.
    This affects both those who are trying to get together a nest egg to buy e.g. their frist house, and especially those who were reckoning on using the interest from their savings to eke out a small pension.
    In the end inflation, the destruction of money, will affect not just the economy but the state which will have to make up the severe losses by increasing the benefits – i.a.w. using more tax money to keep people alive.

    Alex Fergusson’s book “When Money Dies” should maybe find its way onto the Christmas wish list for politicians and others …

    1. alan jutson
      December 13, 2012


      Agree absolutely

      Inflation and low (below market rate) interest rates are the enemy of those who are prudent, who and try to save and be self sufficient.

      Inflation and low (below market rate) interest rates is the dream of those who are in debt over their heads.

      Shame on any Government for supporting inflation and low (below market rate) interest rate policies.

    2. Sidney Falco
      December 13, 2012

      I hope you mean Adam Fergusson!!!

      Then again, Sir Alex has been quite shrewd over the years compared to Chelsea and Man. City. And, don’t mention Newcastle and Leeds…

  6. Jerry
    December 13, 2012

    Perhaps Mr Carney is just being honest, only UK statisticians and government believe their own inflation figures, the rest of us live in the real world of everyday prices and not just a carefully selected “shopping basket” of prices…

    1. Steve Cox
      December 13, 2012

      What, you can’t eat iPads, or heat your home with flash memory? I’m sure the people at the ONS, who probably drink at the same pub as Bilbo Baggins, will be astonished. 🙂

  7. Gary
    December 13, 2012

    Carney is undoing all the good work canada did after their 90’s banking bust. Canada is starting to show bubble symptoms.

    When you max out the credit card, what do you do if you are a central bank ? Why you just issue another credit card to pay down the first ! And you keep doing that until you reach economic nirvana.

    If there is still any doubt that the central banks’ are there primarily for the benefit of the banks the govt , then these latest missives should remove all doubt. If there is any doubt that the banks are still mostly bust then this should put and end to those doubts.

    This is just confirmation that savers and pension funds will continue to be looted to prop up the govt and the banks.

    This will end very badly.

    1. zorro
      December 13, 2012

      We explained this on the previous blogs covering this subject and the reason why Mr Carney will act as he does. The Fed has signalled it’s intention for some time of a continuous expansion of QE. We are following suit as has been predicted all along. The strategy is to buy up government debt through QE and hold interest rates low which is great if you have a tracker mortgage but lousy if you rely on savings. It also creates a perverse incentive in that people will not save to invest. It is all part of ceding more and more power to the government/state no matter what they say…..

      So the strategy of slow inflationary default on the accumulated debt continues. We know the strategy so need to arrange our affairs to make the best of the situation.


      1. zorro
        December 13, 2012

        Oh and just to reinforce the point, the interest rates are for the benefit of the governments and banks, so don’t forget it slaves……


        1. zorro
          December 13, 2012

          No, it’s all for the benefit of the people, and not for any very large investment banks honest, really honest……. 😉


  8. Brian Tomkinson
    December 13, 2012

    What better way to meet the government’s aims to deal with the deficit by taxation and the debt with inflation than appoint a Governor who doesn’t want to traget inflation. We have seen how inflation has continued above target when it was supposed to be controlled; how much higher will it go if the BoE targets growth?

    1. formula57
      December 13, 2012

      What better way indeed. It would seem that the sooner Mr Balls is back at the Treasury to accelerate the confiscation of our hard-earned, prudently gathered savings the less we will have to worry about preserving. He may well find a ready ally in Mr Carney.

  9. Acorn
    December 13, 2012

    The coalition is still pushing the idea that monetary policy is the solution, that is, central bank operations on interest rates and commercial bank cash, or near cash piles. Personally, I am convinced that the quickest way out of the doldrums is fiscal policy. That is, government treasury first spending and later taxing to control the aggregate demand for the resources available in the economy. When the private sector, households and non-financial corporates, stop spending; the government sector has to spend if you want to keep output and employment at near full throttle. The government has to run a deficit to supply money for private sector savings and to pay for the current account deficit with the rest of the world.

    etc etc

  10. Glenn Vaughan
    December 13, 2012


    I’m not sure that I’ve understood you. Are you advocating a rise in interest rates in the UK now to reduce inflation? If so then you may well be correct.

  11. James Reade
    December 13, 2012

    “sharp spike”? I assume you’re referring to inflation hitting 5%? I hate to be funny here John, but the real squeeze on living standards has not been initiated by the Bank of England but by the Coalition government. Now, those coalition movements (because despite your protestations without evidence, austerity is real and has happened) may lead to a “better” outcome longer term, but that’s more than open to debate. But it is them that left people out of work or on stagnating pay. Inflation was at 5% but growth was essentially zero for reasons that cannot be laid at the door of the Bank of England.

    You also write that “The problem with this approach is obvious”. Why not instead write the potential problems with this approach? No policy approach is devoid of problems, but some are more likely to happen than others. What a competent Bank governor would do is weigh up the likelihood of all of the negatives actually happening. What you write is completely devoid of any evidence regarding the likelihood of these things happening. In fact, it’s worse than that, as this statement shows:

    “Would higher inflation do too much damage to demand again if allowed?”

    “again”? Can you point me to the data analysis that shows to a 95% level of confidence that demand was inhibited by inflation, rather than high unemployment and a lack of available jobs, allied with essentially zero wage growth – oh and the impact of the eurozone crisis?

    To sum up, you make assertions about things that supposedly happened but without presenting any evidence to support your assertions, and then you draw future policy conclusions strongly without having first established what you believe previously happened.

    1. Lindsay McDougall
      December 14, 2012

      In FYR 2009/10, the UK ran an annual deficit of £159 billion, which is £170 billion in today’s money if you allow for the 7% inflation that has taken place since. ANY set of measures to reduce this amount, whether public expenditure cuts or tax cuts or a mixture of the two, would have produced a degree of austerity. Incidentally, the government has been underselling its record of deficit reduction. If you allow for inflation, it has reduced the annual deficit by 30% rather than the headlined 25%.

      Contrast this with what would have happened if Labour’s neo-Keynsians had been in charge these last 2.5 years. The annual deficit would have remained constant in real terms, total public sector debt would have carried on growing at a fast pace, and the interest on that debt would have increased even faster because the confidence of the money markets would have been lost. These interest payments would have crowded out real and useful public expenditure. The upshot would have been austerity without dealing with the debt problem, just like Greece but on a bigger scale.

      Please don’t quote Alistair Darling’s final financial statement at me. He had barely begun to implement it and didn’t have the support of his Party.

      1. Lindsay McDougall
        December 14, 2012

        Sorry, …… tax increases ……………..

  12. Caterpillar
    December 13, 2012

    (1) There was a (very) good article in yesterday’s WSJ, ‘Inside the Risky Bets of Central Banks’

    [My democratic view is that the Coalition needs, with urgency, to take monetary policy control back from the BoE and into the Commons for debate. The Italians may be moving away from from technocrats but I would worry about backdoor technocrats in the UK.]

    (2) I think there has already been some discussion in responses to much earlier JR diaries on whether the BoE/MPC has already been targetting nominal GDP. Whilst I would think this is a stupid policy, I do think that the Government could tie things like pensions, benefits etc to nominal GDP growth.

    (3) The reason I think nominal GDP targetting is stupid are what should be the standard ones (not necessarily independent); (i) inflation threshold behaviour in real terms growth, (ii) unstable prices disabling clarity in the pricing mechanism, and adding uncertainty to investment decisions.

    Overall the dangerous impression that I, rightly or wrongly, get is that central bankers like to play with their ‘new’ unconventional monetary policies, with limited underlying understanding of how savers, consumers and businesses behave.

    1. Caterpillar
      December 14, 2012

      I should have added on (2).

      Though I think nominal GDP targetting is stupid, if it has to happen then it should be done via a ‘level’ rather than a ‘rate’ approach. We have seen the failure of the rate rather than level approach with the BoE/MPC’s treatment of CPI inflation. At least if a nominal level approach were the route taken then this would demand adjustment when moving off target, and similarly Govt expenditure could be planned to target.

      BTW what would be the initially assumed rate (on which a level should be set if the stupis idea does go ahead)? Would it e.g. be 3% (based on 1% growth and 2% inflation) or 6% (3% growth and 3% inflation)?

    2. Mark
      December 14, 2012

      Start with a population of 100, who make an average of £10,000 each. Now add immigration of 5 who make just £5,000 each. GDP grows by 2.5%, yet GDP per head has fallen to £9,761. Politician targeting growing GDP prefers high immigration to deliver the wrong KPI. Carry on in the same vein, and you will end up encouraging emigration of the skilled and you will impoverish the country. GDP is indeed a bad target to pick.

  13. JimF
    December 13, 2012

    A more thoughtful speech could now be made on “the benefits of conning the public into thinking you’re targetting inflation versus being honest with them and targetting GDP or real estate prices all along” Perhaps the former policy has run out of road, or the latter is representative of a more honest approach. If the government is unwilling to balance the budget, why not be honest and say that you’ll continue to steal a greater and greater portion from those with any assets or income to support those without? At least Clegg is pretty honest about this, and Labour would be given the chance to do it. Brown could never get his head around being a socialist and smiling at the bankers. On the other hand UKIP is honestly anti- this steal and provide policy.

    It’s only your party which pretends to face one way and actually faces the other.

  14. Lord Blagger
    December 13, 2012

    He went further. He said that when an economy has lost a lot of output (like the UK, which he did not mention) the Central Bank and the government may need to shift from an inflation target to a nominal GDP target. This would allow the Bank to run very low interest rates even after inflation had picked up, if output was still below where the authorities wished it to be.


    Why’s it lost output?

    Because the numpties in Westminster have taxed and taxed and taxed. The end result is that

    1. People don’t have the money to spend. You are still taxing those in poverty.
    2. Business rates. People have shut up shop because of the rates.
    3. Corporation tax. At 21% way above 12.5% in Ireland. End result – move to Ireland or other places where its even lower.

    All because your running a massive deficit and a massive set of debts you can’t pay, so you are prepared to tax and destroy, rather than admit to the scam over pensions, and take the hit of default.

    Next, why GDP? Ah yes, because it’s a fudged figure. It’s a finger in the air statistic.

    If you want an output related target, target taxation from non-government employees.

    1. Mark
      December 14, 2012

      I think he believes “pushing on a string” works.

  15. Leslie Singleton
    December 13, 2012

    Oh well, just as I convince myself, having thought about what’s in it and the imprecision measuring it, that GDP, though fine enough in the abstract, is a worse than useless measure in practice, we fly in a foreign Central banker who wants to promote its use to the brazen detriment of inflation. It’s always the same, just as we begin to control inflation again, and given the ridiculously low interest rates, I think that can be said to be the case, some genius decides that inflation doesn’t matter very much or even that it is beneficent (and BTW reduces debt, nudge nudge) and lets it out of its box again, in to which it had been forced after inevitable pain of every sort. Absolute rubbish, I say. Have not the Germans shown us the benefit of keeping inflation low? Personally I think it obvious by definition that the inflation target should be zero. That should be one of the givens, says me.

  16. Pete the Bike
    December 13, 2012

    Carney is jumping ship just in time to avoid the blame when the Canadian economy goes off the rails. By the time he’s got his feet under the table at (words left out) new Threadneedle St branch the cracks will be showing. He’s a one trick pony, all he wants is low interest rates, that’s gone as far as it can in Canada and has totally failed here. Only thing he can do now is rig our economy even more to favour his bankster chums.

  17. RB
    December 13, 2012

    Is this not what we’ve all been waiting for – a confirmation that the debts will be inflated away and therefore paid by all of us? Isn’t it really the only way out?

    1. Mark
      December 15, 2012

      If I were to steal something, would it be restitution if when I was caught I then smashed it up so only the useless bits were returned?

      Why is it different if I borrow more than I can repay, and then get the debt annulled by inflation? Surely the only difference is that the lender might have taken more care before making the loan, which is hardly the fault of the depositor whose money he loans out. Even then, the theft might have been prevented by better security, just as the loss on the loan might be prevented by better security (i.e. not bubble priced property).

      Inflation as theft is not the most moral of choices. Most would expect the burden to fall on profligate borrowers and their accomplices who lent to them, instead of being rewarded by debt absolution and bonuses.

  18. Major Frustration
    December 13, 2012

    The story so far – as taxpayers we get stuffed to bailout the banks, as savers we experience low interest rates, and now inflation is going to be the flavour of the month and we can say goodbye to our savings.

  19. Martyn
    December 13, 2012

    Seems to me that such a course of action would relatively quickly lead to devaluation of the £UK. If the £UK sank towards parity with the Euro, or worse, the Euro-fantatics in goverment could then claim it to be critically important for our survival to join the Euro club. Naturally, if that came about and our government were to say we must now adopt the Euro, it would no doubt be at the worst possible moment vis a vis the exchange rate.

    I read today that Mr Cameron is about to strongly support the formation of a Eurozone consisting of 17 nations whose budgets are to be governed by appointed EU Mandarins, presumably to show that he is a ‘good European’. But this would also be helpful if, despite what he says now about not joining the Eurozone, there is a longer-term aim through devaluation of the £UK to position us into adopting the Euro.

  20. Paul H
    December 13, 2012

    Well it is at least now clear why Continuity-Brown chose him and what understanding they reached, including a salary designed to ensure inflation will not inconvenience Carney himself. Although I never believed King was that serious about inflation either, for all his fine words.

    Gold at $10,000?

  21. PrangWizard
    December 13, 2012

    What with this and Bernanke too, printing money ’til the cows come home. I wonder what Max Keiser will say, have missed him so far today. Should we buy silver, buy gold, (though the latter is down today). I just haven’t a clue about what’s going on. At least we’ve had a go-ahead with fracking, I hope.
    What should we do, folks?

  22. David John Wilson
    December 13, 2012

    There is far too much concentration on trying to raise exports which in the current world economic climate is very difficult. We need to see a greater concentration on import replacement. This needs to happen not just at the government level but also at a personal level.

    Take the simple example of cheese. In many cases there are British alternatives to foreign produced cheeses. Not only that the British ones are often cheaper and better than the alternatives. Individuals need to be made more aware of the home alternetives.

    Where we do need government action is in reducing the number of British companies that are being bought by foreign competitors. Each time this happens more profits are taken abroad. We need are banks to be primed to help in situations where this can be prevented.

  23. Ralph Musgrave
    December 13, 2012

    JR, I think your claim that a permanent low or zero central bank rate will lead to inflation is based on the assumption that only monetary policy influences demand, and hence inflation. The reality is there is fiscal policy as well. That is, one could perfectly well have a permanent zero central bank rate and impose whatever deflationary effect was needed to control inflation via fiscal policy.

    Indeed, the latter policy is advocated by Warren Mosler – see:

    I’ve also argued that interest rate adjustments are a total and complete farce. See:

    Plus I argue here for a permanent zero rate:

  24. Chris Sheldrake
    December 13, 2012

    After spending my whole first career in the finance business, I follow the economic debate with great interest.

    One of my biggest concerns is that if the Bank of England continues to have inflation as it’s only target, the MPC will start to increase interest rates well before there is any real improvement in growth.

    Millions of families and companies are keeping their heads above water only because interest rates on their mortgages and loans are keeping repayments at a record low.

    Large increases in repayments caused by higher interest rates will be catastrophic if they occurred before there is a sustained increase in economic activity, wages and profits. A short burst of inflation would help also devalue our debt and the resulting fall in sterling would help our exports.

    A switch to a growth target is the obvious solution because if the Chancellor doesn’t do it, rising interest rates we cause a wave of new repossessions and company failures that will make 2008-2009 look like a walk in the park.

    But do the mandarins in the Treasury understand the real world enough to allow him to do it ?

    I somehow doubt it.

    1. Mark
      December 15, 2012

      Perhaps you can explain why those who made commitments they cannot honour and those who encouraged them to do so should be bailed out at the expense of others.

  25. forthurst
    December 13, 2012

    People with savings are not spending because they are not getting a disposable income from them. Solution: spend their savings for them through inflation. Let the improvident, the government, borrowers have a binge. Ensure the banksters get the lion’s share (actually not necessary as they are quite good at helping themselves) and show us all how spend, spend, spend.

    The reason for ‘independent’ central bank setting of interest rates was as a cure to ‘boom and bust’, the implicit component of the normal electoral cylce; sacrificing the future for unsustainable activity now will not fix anyting. There will be an immediate worsening of the balance of payments as consumer goods which we no longer make (we are a post-industrial service led economy) flood in. Purchasers of government debt will be looking for interest rates comparable with those for Greece. There will be confrontations with public sector unions. The IMF might as well make their hotel bookings now.

    There was a time when the medical fraternity’s response to any ailment was bloodletting; have central bankers and politicians advanced beyond this phase? Do they seriously think that tinkering with interest rates of itself will cure those systemic problems they fail to acknowledge still less address?

  26. sm
    December 13, 2012

    So the softening up starts. Ever felt like the game is rigged or like a rat on a wheel.

    I will never forget watching an interview of a certain bank executive, when his eyes lit up … at the mention of the word inflation. Why do bankers love inflation and recommend it whilst maintaining their private money creation privileges or access to the cheap state money first.

    Why not drop the banks into a special form of administration, to resolve them whilst protecting the public purse from private liabilities. Lets create our own debt and interest free money and spend it into the real underlying economy.

    Why not them QE for the public direct and increased reserve requirements for banks.

    I bet the way they target nominal demand benefits the banks first and foremost.

    Maybe the banks should be managed more like the state v the miners, no problems using the force of law there.

    In terms of strategic threats , do the government consider our current political/banking system to be a clear and present danger to the nation and democracy?

  27. Vanessa
    December 13, 2012

    What is it with these people who run our banks and financial system? If you go on keeping and reducing interest rates, inflation, the experts say, will go through the roof and therefore the majority of the population will be unable to afford to buy anything. The blinkered approach of the banks is supposed to help mortgage holders and businesses but if the money is inflated then it is not worth the paper it is printed on and results in people being unable to keep the economy growing. Surely, it is time to raise interest rates and give us prudent savers some respite so we can spend and keep the money at its, admittedly, low value, but of value nonetheless.

  28. PrangWizard
    December 13, 2012

    Supplement to my post above about Max Keiser and Stacy Herbert on their Keiser Report programme on Russia Today. He didn’t mention Carney except to give him a side-swipe! And he had another justified go at the BBC.
    The first half – one of their best – about ( alrge bank) and money laundering, ‘too big to fail, too big to Jail’!! No criminal charges against the perpetrators in case the banking sytem is destabilised! Drug money providing liquidity for failing banks. Brilliant. Go Max and Stacy, go!

    Reply Even bankers are innocent until proved guilty. The authorities have to find evidence and bring charges.

  29. Conrad Jones (Cheam)
    December 13, 2012

    Interesting Lecture by Jesús Huerta de Soto, author of ‘Money, Bank Credit and Economic Cycles’ and Professor of Political Economy at Rey Juan Carlos University, Madrid.

    He traces the origins of our current crisis and preceding crisis, back to 1844.

    Although he says that the EURO has highlighted the fact – in his opinion; that Government’s can just carry on spending when in control of their own currencies, causing inflation, inorder to create the illusion of wealth.

    The key to this lecture is the discussion on how the Banking System works by expanding the amount of Bank Deposits through lending. More blame is aimed at the Politicians and Central Banks for orchestrating our Financial System.

    De Soto makes the analogy between a Central Bank rushing to the aid of a Private Bank in trouble, and a Fireman who covertly sets someone’s House on Fire, then courageously rushes to the Rescue in his Fire Engine to put the blaze out, in order to look like a hero.

    A comparison of our system (Centrally Controlled) and that of the old Communist Union of Soviet Socialist Republics is made.

    Our Central Banks adjusting Interest Rates, printing money and encouraging Banks to create bank deposits because someone at the BoE thinks it’s a good idea, giving the wrong signals to Entrepeneurs who are trying to make rational decisions on what to invest money in. Long Term Capital Projects or Short Term Consumerism?

    De Soto also criticise the Bank Charter Act 1844 (Peel’s Act) as it only prevented Private Banks from creating Bank Notes while allowing the Barn Door ‘wide open’ on allowing Bank Deposits to be created. Malinvestment, Boom and Bust being the result.

    1. Conrad Jones (Cheam)
      December 13, 2012

      De Soto points the thinger of blame at Fractional Reserve Banking and advocates a solution using Full Reserve Banking.

  30. Conrad Jones (Cheam)
    December 13, 2012

    Yes – Mark Carney’s policy will be the same as the FED (Central Bank of America).

    PUSH – PULL effect.

    PUSH – INFLATION: push economic activity (increase the velicity of money) using Inflation.
    (People less likely to hold off from buying that Cooker if the price is likely to keep going up)

    PULL – LOW INTEREST RATES: draw in more borrowers through negative interest rates to prevent and discourage savings, also acts as a way of transferring wealth into the banking system through negative real interest rates.

    Mark Carney will also point the the finger of blame well and truely at Bankers and Government Spending, encouraging more Austerity. There’s been a good deal of stories in the press about the Major Banks and their involvement in a whole array of scandals.

    Mark Carney’s solution is for the Private Sector to take over as the prime mover of Economic Growth. Unfortunately, the Crisis was created from Private Sector Debt, so just how is that a feasible option??

    There is one thing missing from Mark Carney’s speeches, a mention of Fractional Reserve Lending and how explosive expansion of debt driven lending led to where we are today.

    Paul Krugman (as are many others) is also guilty of ignoring the role of Banks, Money and Debt from THEIR Economic Models that proved so disastrously inaccurate at predicting the Financial Mess in 2008.

    Paul Krugman is a talented speaker of Economics. By that I mean , he is able to appear to be highly knowledgable about a subject without explaining a crucial component of the Economic System; Banks, Credit and Money. It’s like trying to describe how a Duck flies without mentioning the Duck’s Wings and Aerodynamics.

    1. Conrad Jones (Cheam)
      December 13, 2012

      Mark Carney is also talking about more Regulation and more Control at Central Authorities like FSB, World Bank, IMF and BIS.

      More BASEL Agreements ?

      This would suggest that Mark Carney is pretending that the heart of the Problem is out of control Bankers – which is a popular view, but completely misguided.

      The heart of the Problem is the State controlled Central Bank (Partnership between Government and Central Banks). The bailouts look like the Central Banks and Government created laws had nothing to do with the crisis, but Peel’s Act of 1844 WAS an attempt to prevent the “Boom – Bust” Economy of the 1800s. Peel understood the source of the Problem but neglected to include Bank Deposits in his Act, so Banks stopped producing their own paper Bills of Receipt and covertly increased Bank Deposit creation leading back to Boom and Bust.

      Why is there no mention of the inbalance of Government Create Money to Private Bank Created Money ? 1960 it was 20% to 80%
      2012 it’s now 3% to 97%

      I would have thought that is relevant to the stability of a system that has just gone through the worst Debt Crisis in History, and yet this fact never gets a mention by mainstream media, Politicians, Central Bankers or Economists.

      Now why is that?

      It’s not the Private Banks that are the Problem it’s the system they operate in.
      That’s dictated to them by Central Banks and Parliamentary and International Law.

  31. Rob
    December 13, 2012

    There’s another way to look at this. Carney is effectively arguing that the Bank, not the Treasury, should take final responsibility for nominal growth in the economy. Let’s say we pin nominal growth at around 5% per annum and we know that the Bank will use the tools at its disposal to hit this target, or something close to it. A central bank with a clear target and the willingness to do what it takes to hit it generally succeeds in hitting the target.

    This kills stone dead any argument for fiscal stimulus. To the extent that fiscal stimulus raises RGDP or inflation, these effects will be offset by tighter policy from the Bank. It will never be possible to argue, as Gordon Brown was so fond of doing, that government spending was “putting money into the economy” or even “investing” in the economy. For every extra borrowed pound the Treasury puts in, the Bank takes one out. The business of government spending will revert to a discussion about value for money, cost-benefit analysis and so on. At various times Brown came close to arguing that it didn’t matter whether or not the government’s spending actually made sense, because the very act of spending was a good thing and if they happened to spend it on something worthwhile then this was effectively a bonus. Under NGDP targeting, this argument collapses (to be fair, it was never particularly strong to begin with).

    What is there for a conservative (or economic liberal) not to like in the above?

  32. Conrad Jones (Cheam)
    December 13, 2012


    Double Entry Bookkeeping using Assets and Liabilites (in conjunction with Fractional Reserve Banking, or just creating money when lending) was described by Jesús Huerta de Soto as the reason why Banks are so susceptible to insolvency.

    They lend money into existence by simultaneously creating an Asset (the amount the borrower will pay back in the future) with the Liability – the newly created Bank Deposit under the borrower’s Account. In a downturn, the Assets side of the balance sheet represents the property of their borrowers. If the value of those Assets decline or borrowers default, the Assets side shrinks, but they still have the Liabilities side of the Balance Sheet, which are made up of customers depoisit account money which they are still liable for. If a Bank records Assets on it’s ledger and those Assets drop in value by a few percentage points, the Bank is effectively Bankrupt – “is a legal status of a person or organization that cannot repay the
    debts it owes to creditors. In most jurisdictions”. Central Banks get to chose who goes Bankrupt and who get’s bailed out – not the market.

    1. Conrad Jones (Cheam)
      December 13, 2012

      Do we really want Mark Carney choosing which British Bank Fails and which one fails ? It was bad enough with Mervyn King deciding, but at least he had a British Passport. Mark Carney will be making these decisions holding a temporary foreign work visa. How reassuring is that?

      1. Mark
        December 15, 2012

        He has announced that he is planning to apply for UK citizenship. His wife is British, although she is the one who seems keener to return to Canada after his terms of office. They met at Oxford where she did PPE while he did a PhD in Economics.

  33. MichaelL
    December 13, 2012

    “Would higher inflation do too much damage to demand again if allowed?”

    The phrase ‘Is the bear a Catholic, Does the Pope — in the woods?” springs to mind.

    The country will be handing out a massive subsidy to certain interests that don’t deserve it, and in the same breath we’ll hear moaning about the welfare state (which may or may not be deserved of course, but will be insufferably hypocritical).

    When this ramps up, anyone that can emigrate, probably should…

  34. i.stafford
    December 13, 2012

    While the Heath government may have carried the policy to extreme, surely inflating the money supply (QE or otherwise) to encourage growth now potentially runs into the same price inflationary disaster of the 1980s? Surely we must accept lower growth rates in the interest price stability. It may be a value, but I prefer sound money to artificial growth.

  35. uanime5
    December 13, 2012

    Given how the Government is reducing people’s income by cutting benefits, using slave labour (workfare), and encouraging the apprentice wage instead of the minimum wage high inflation will just result in the domestic economy dying.

    In other news the Culture Secretary is being investigated regarding £90,000 in expenses she claimed for a house where her parents lived:

    Osborne is trying to downplay the importance of the triple A credit rating, so expect the UK to lose it next year:

    The Government has renewed it’s crusade against the unemployed by forcing them to register with the Universal Jobmatch website. Given that on this website you can’t search for useful things such as salary or work experience most people get emailed a lot of unsuitable jobs however because the website has decided that they’re suitable for these jobs they’ll lose their benefits for 3 years if they don’t apply for them.

    The Government has also required that the unemployed have to spend 30 hours per week using this useless website even though it only contains a fraction of the available jobs and the New Deal showed that forcing people to spend 30 hours per week looking for jobs doesn’t magically make them more employable. It seems high unemployment levels have caused the Conservatives to lose all sense of proportion.

    1. Bazman
      December 14, 2012

      How zealously the using of the Universal Jobmatch website is applied is down to the discretion of the local job centere. Who as I have been recently been dealing with are not to bad and quite reasonable. The site however is a difficult one to get registered on and being fairly OK with computers and websites did struggle a little to work it all out. Took a few days of looking going back to is what I’m saying. Many of population do not find computers easy to use and this will be a problem.

    2. sm
      December 14, 2012

      Other reported problems:
      No indications of how many applications have been made against the role – you can only guess the reason for that?
      Have the employers vacancies been vetted as being genuine and legal, not just data farming/advertisng.

      Mandatory 30 hours of using just one site? are you sure?
      Anyway how do you pay for all the internet access , seats & hardware etc? Is DWP now an ISP?

      1. uanime5
        December 14, 2012

        I’ve been told that the Government is going to require job seekers to search for jobs for 30 hours per week but no one knows how they’re going to monitor this; not even the DWP. Most likely the DWP will require the job seeker to log into a website so they can monitor how long they’re searching for jobs.

        1. Bazman
          December 15, 2012


  36. Jon
    December 13, 2012

    We have memories of high inflation, repossessions and that was when the populations mortgages and personal debts were not what they are now. This is early days and he has a lot to get his head round.

  37. oldtimer
    December 13, 2012

    The potential implications are alarming – und entirely believable. The governing political class seems incapable of exercising financial self discipline that applies to everyone else. This as true in the USA and the contnental EU as it is to the UK. Letting inflation rip would be very bad for savers and savings and for investmentfor the future.

  38. Winston Smith
    December 13, 2012

    “the Central Bank and the government may need to shift from an inflation target to a nominal GDP target”

    Is that total GDP or GDP per head. If its the former, then the political elite will continue with mass immigration.

  39. Lindsay McDougall
    December 13, 2012

    This beggars belief. A central bank can create money and inflation. It lacks both the means and the knowledge to target REAL GDP growth. Giving it a target for nominal GDP growth simply muddies the waters because the split between inflation and real GDP growth is important. The current Governor of the Bank of England has constantly forecast too high on real GDP growth and forecast too low on inflation, no doubt forecasting nominal GDP growth about right.

    We have had years of ultra low base rates and QE in the US, the UK and Europe, delivering low REAL GDP growth, zero growth or negative growth. It’s a quack remedy; it doesn’t work. Nor does it ever produce more than about one year’s real GDP growth followed by several years of stagflation. There is post WW2 data demonstrating that inflation does not produce real growth, not least in the UK in the mid-seventies and the late eighties / early nineties.

    A challenge to all neo-Keynsians: Name me ONE ADVANCED economy and time period where a loose monetary has led to SEVERAL years of above average REAL GDP growth. And don’t include debt fuelled binges.

  40. David John Wilson
    December 14, 2012

    While GDP includes government spending it cannot be regarded as a sensible basis for controlling the economy. If government spending were removed from the equation then the Carney proposal makes a lot more sense.

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