My life so far has been punctuated by recessions and economic crises. These have usually been caused by a mixture of wrong government policy and poor Central banking. After all, between them government and the Central Bank wield enormous power to boost output and jobs, or to control inflation and excessive credit. The problem is, they often do the reverse of what is wanted. They have in the past been often unable to read the cycle.
The first bust I witnessed when young was the so called oil crisis recession of 1974, followed by the UK’s ignominious trip to the IMF in 1976 to borrow money. The country was ordered to cut public spending, to reduce its need to borrow. I accepted the conventional explanations at the time, that the first bust was caused by the hike of the oil price, and the second was caused by bad policy in the UK. The first bust also had something to do with excessive credit leading to the need to curb inflationary pressures.
The third recession I lived through was the late 1970s early 1980s one. This was brought on by the UK lurching from money growth and credit expansion that was too easy, to a tough money policy to purge the country of high inflation.
In the 1980s we experienced a longer period of expansion with moderate inflation. This was brought to an abrupt and damaging  end by the ill fated policy experiment of attaching the pound to the DM. This policy first took us into rapid inflation. The pound wanted to go up. To keep it down the Bank created and sold pounds across the exchanges, which came back and helped fuel over rapid money and credit expansion. In the second phase of this whip saw ride the pound wanted to go down. The Bank bought up pounds, which tightened credit and money too much and drove interest rates sky high.
From our exit from the ERM we enjoyed a good expansion with moderate inflation up to around 2004. Then the government decided on a major expansion of public spending, which went along with money growth and credit expansion. Total UKÂ borrowing rose rapidly. Â Despite many warnings to the authorities in the middle 2000s that credit and money growth was excessive, the Bank and the government decided it was just fine and persevered with their reckless expansion. Late in the day they compounded their error by switching too rapidly and too drastically to restrictions on credit and banking liquidity, with the obvious results we saw.
Since 2009 credit and money growth has been modest, compatible with some growth and low inflation. This has been arrived at by tough restrictions on banks making more advances, coupled with extraordinary money creation and bond buying.
Today the Bank needs to be careful. Money and credit growth looked about right before their latest expansionary package of QE and lower rates. They need to remember that they have a twin duty – to keep inflation down as well as to promote activity.
August 15, 2016
Indeed a good summary of the last 40 odd years. From D Healey’s bonkers 83% + 15%, total 98% income tax rates and ERM fiasco onward. Government and politicians are nearly always the problem and not the solution. They are still now, with endless government expenditure on complete lunacy like HS2, CAP, Hinkley C and green crap grants. Worse still the endless over taxation and inconveniencing of the productive with reams of damaging red tape.
The current tough restrictions on banks making more advances are very the poorly designed, over restrictive and very damaging to the real economy. The government owned RBS/Natwest in particular is still behaving in a hugely damaging way to its customers even now.
August 15, 2016
We still have the hugely damaging “national minimum wage” and the very badly designed and hard to administer workplace pension, and the absurdly expensive/unreliable greencrap energy agenda. All forced on to us by government. All are hugely damaging to the economy and to job creation.
Start undoing this lunacy of the Osborne/Cameron years now.
August 15, 2016
On pensions: the average worker now pays ÂŁ2846 to cover the cost of paying state pensions (source: IF). Linked to a triple lock guarantee ensuring above inflation pay rises for the foreseeable future is lunacy. It’s a policy written by people who do not understand compound growth.
August 15, 2016
Lifelogic. On the subject of greencrap energy, I have just been informed that Section 36 application (those that go straight to government for approval) are not affected by any of the reduced subsidies and will still go ahead in Scotland. Madness!! Scotland has the largest constraint payments to pay when wind farms are not working and the highest percentage of on shore wind farms in the whole of the UK. All these payments come from people’s energy bills but what will happen if Scotland goes independent? How will they pay it then? The whole energy system needs to be changed back to a sensible policy and we need to frack gas.
August 15, 2016
Indeed what is driving this lunacy? Is it a case of follow the money or do the politicians really believe in this daft greencrap religion?
August 16, 2016
Exactly total madness, all driven by politics, vested interests and green religions rather than engineers and reality.
August 16, 2016
As I see it all problems started with the devaluation of Sterling and the Floating of the Pound, once our currency was open to revaluation we were then hostage to wage and currency differentials in an increasingly global market. It didn’t help that interest rates were used as the sole weapon against inflation in the early 1980s. The instability that created is there for all too research. Predictability is key to stability in markets. We haven’t had that for almost 50 years.
August 15, 2016
“My life so far has been punctuated by recessions and economic crises”
Yes, but unlike those in the private sector those in the public sector who cause all the problems seem insulated. Job, pay and pensions, all protected.
Less from government is more from the private sector.
August 15, 2016
Indeed average pay with pensions included in the state sector is about 50% more than the private sector. This for fewer hours, earlier retirement, more sick days, more sociable hours and better working conditions.
August 15, 2016
Lifelogic – The private sector wages used to be better (much better) and that is why public sector pensions existed in the first place and were used to compensate. Private sector pensions also used to be good.
What has happened is that the public sector has managed to hold its ground on pay and conditions while the private sector has fallen in real terms. But let’s get this the right way around. We have witnessed (with the exception of very senior public sector management) falls in the private sector rather than gains in the public.
A substantive police constable (the epitomy of the generously pensioned state worker) is on 60% of the average starting salary in the City.
He might be able to afford a part share in a small house in an outer suburb of London – and run a five-year-old car, maybe start a family, if he can qualify for top-ups.
The reality of the private sector has been decline for most people. Drag others back if you will but let’s admit what it is first.
As I said to Mark a little earlier: it is ridiculous not to include the City in the blame for economic crises – not least because of their sell offs of revenue producing industry, let alone their fiddling of markets and involvement in the credit crunch.
Most public sector jobs are worthwile and the key reason for them continuing is not unionism but that the public complain when services are cut.
August 15, 2016
and in many cases, no useful purpose.
August 15, 2016
Unless you’re a teacher
August 15, 2016
Mark – So bankers had nothing to do with it ?
August 15, 2016
Of course they did. The bankers gambled with the banks/shareholder/depositors/bondholder’s/government money largely for personal gain. On a heads I win tails the bank loses basis.
But the blame for this lies largely with the regulators & the bank directors who allowed this system to pertain. The lack of controls by shareholders and the legal accounting rules that allow them to get away with publishing obscure and often largely fictitious accounts.
The Blame also lies with Brown who rescued the banks in the most absurd way. While allowing them to continue ripping off solid, sound, real & productive businesses and they still are. Paying depositors perhaps 0.1% yet lending at up to 30% or even more often. 60 times they going rate and often to borrowers who are a far better credit risk than the bank and demanding solid security and fees too.
August 15, 2016
If you allow the hen house to be left open you cannot blame the fox when it gets in and runs riot. It is just carrying out its natural instinct. That is in no way a defence of the bankers or their behavior but, part of governments job is to make sure that markets are free, fair, open and properly regulated to prevent bad practices. The last Labour government under, Chancellor Brown allowed what was called, ‘soft touch’ regulation by the FSA. If the FSA and the government did their jobs (see above) then there would have been fewer problems.
August 15, 2016
It was just very badly though through regulation. The government was underwriting the deposits just like an insurance company, yet it did not even understand the risks that banks (and thus the state as insurer) were taking.
They then rescued the banks, who just went on to rip off their customers to fill the holes they had made.
August 15, 2016
Agree completely Mark, but unfortunately governments and Civil Service type mentalities are generally unable to keep up with modern banking innovations, although they do have a good record for responding to emergencies, but not necessarily with the best policies.
Basically what is needed are top quality poachers turned gamekeepers – extremely rare animals.
August 15, 2016
Indeed release the 50% of the state sector that do almost nothing of use (or worse still do positive harm) to get some real and productive jobs for a change. I am sure they will be happier that way. Simplify (& lower) the tax and legal system to reduce they numbers of lawyers, accountants and HR “experts” and the likes needed to guide people & businesses through this damaging artificial maze.
Win, win, win for all, but is T May really a Conservative who can see this. I suspect not. Her “go home” mobile adverts to illegal migrants, her workers on company boards and “we have control of our border through Schengen” claims tend to make me think she is either a lefty dope or just dishonest, we shall see very soon.
We need the cancellation of HS2, Hinkley C & greencrap grants then some cheap energy, new runways, lower simpler taxes, the undoing of Osborne’s lunacy, the de ratting on IHT, the scrapping of the work place pension & national minimum wage, the landlord/tenant & pension muggings, the absurd stamp duty levels ……….. All this needs to happen yesterday.
August 15, 2016
Economic crises are always generated by authorities. Either by sheer incompetence or deliberate design. A free market does not have enormous bubbles, it is not distorted by government policy. What we would have had in 2008 in a free market would have been some banks going bust, some merging, then a brief downturn with a recovery within a year. What we actually got was a gigantic theft of public money to shore up bankrupt banks for the benefit of the .001%, a finance industry that is teetering on collapse across the world and a reduction in ordinary people’s standard of living, again.
This is the pattern of crises. Each is designed to enrich the reckless few at the expense of the many.
August 15, 2016
Indeed.
August 15, 2016
‘A free market does not have enormous bubbles’ – what like the South Sea Bubble in the UK or the Roaring Twenties Bubble in the US and around the world that gave rise to the Great Depression of the 1930’s?
Come on, greed is the real culprit. Until we try and replace ‘greed’ (Boris Johnson ‘greed is good’) by WORK ETHIC (or HARD WORK WITH SENSE OF RESPONSIBILITY TOWARDS OTHERS), then bubbles will continue (although, of course, governments and others also play a role, but greed is the main cause, with sense-of-entitlement handouts fed by left-wing/liberal politics helping to crash our economy – and so being just as bad as greed, overall).
I’m a right winger (centre right), but until we on the right accept that greed is a problem and that it feeds selfish, narcissistic individualism (and I’m guilty of this as well, including greed, but not trying to defend or promote or in denial of it), then we’re helping no-one, and only perpetuating the myth that ‘greed is good.’
And everyone can start by saying, ‘No Boris, you’re wrong, greed is not good – for one, it destabilises our economy, and as a Conservative, instead of greed, you should be promoting work ethic).
August 15, 2016
Ed Mahony
Fair enough but first define “greed” then explain the difference between building profit to grow, reward for the work and success and for large numbers of us business people the years of sacrifice to build something long term and sustainable. As to your other take on it the sense of entitlement , this isn’t greed per se its laziness and wanting something for nothing.
Also you need to think about the fact that earning large amounts of income is pointless unless you invest it or spend it and both of those activities actually pay dividends for the rest of society whether that was the intention or not. Thats the beauty of free markets , they benefit everyone in the long term.
August 15, 2016
‘Fair enough but first define âgreedâ’
– Good question! I think it’s complicated. My main qualm though was Boris Johnson’s ‘greed is good’ as a Conservative philosophy (as opposed to ‘work ethic is good’).
‘As to your other take on it the sense of entitlement , this isnât greed per se its laziness and wanting something for nothing.’ I didn’t mean ‘sense of entitlement’ is greed. You’re right, it’s laziness. ‘Laziness,’ however, is connected to ‘work ethic’ (in terms of lack of). So perhaps ‘greed’ and ‘laziness’ are either end of the spectrum which you get when you neglect ‘work ethic.’
‘Thats the beauty of free markets , they benefit everyone in the long term.’ I’m a Conservative and a capitalist. But I don’t think that means you try and promote ‘greed is good.’ Rather, you should try and promote honesty and hard work (or ‘work ethic’). It’s an aspiration. A goal. To try and be a bit more like the Quakers (Lloyds, Cadbury, Clarks shoes etc), than the Wall-Street ‘masters of the universes’ in business. Sometimes we hit it. Sometimes we don’t. But it’s better than being motivated by greed, as in Boris Johnson’s ‘greed is good’ (which could be something straight out of Tom Wolfe’s novel Bonfire of the Vanities or something).
Regards.
August 15, 2016
Risk vs Reward.
So long it is your money and not the States and so long as you were made aware of the risks and not deceived in some way, the South Sea Bubble / Darius Scheme was such, then I do not see a problem.
Never invest more than you can afford to lose.
August 16, 2016
Bubbles do occur in the free market but they’re almost always short duration and low amplitude. The reason being that privately generated bubbles very quickly run out of money. The truly great bubbles require the type of funds only govts can sequester. Eg. The south sea bubble only really took off when the British govt ironically passed the âBubble Actâ in 1720. The roaring twenties was the result of the federal reserve established by govt as a monopoly in 1913 and this one is as a result of those same govt ordained banking monopolies using the taxpayers to underwrite risk and to rig the price of money. Eg. The taxpayer guaranteed American housing underwriters Freddie Mac and fannie mae and the British taxpayer funded help to buy, all decrees by govt to use other people’s money to fuel speculative bubbles.
August 15, 2016
Of course Sub-Prime was actually caused by Government (US Government to be exact) just as the ‘bust’ we see in Greece was caused by the EU Commission (the ECB) basically abolishing the risk premium on Greek and other bonds. And we now see the next mess being created by Central Banks with their absurd policies of negative base rates and QE. All they are doing is making the recession much much worse.
August 15, 2016
“They have in the past been often unable to read the cycle.”
Welcome to central planning, no different from the politburo and no more effective. We really do live in scandalous times. We have a bunch of communists/fascists(pick your central planning label)masquarading as central bankers and Treasurers and we start hand wringing when we discover that they’re useless and maybe even malevolent.
What a bunch of patsies we are to swallow their nonsense. And we exit the EU only to have our own central planners. You cannot make it up.
August 15, 2016
You’re talking about the periodic flip flop behaviour of the UK governments and inevitable flop(s) caused by Labour. Remember them well till I left UK for 10 years..should have stayed away really looking at the overall flop caused by the EU.
As long as the people are the permanent cash cow it will continue. But there needs to be penalties applied to those who act wildly so that those following might reflect on their anticipated actions rather more seriously than think of votes…a priority thing!
Again, I wish Mrs May well.
August 15, 2016
I too wish her well and hope she has the real metal to do the job. We shall see, but rather little sign of it as yet, what is she waiting for the clock to the next election is ticking, economic policies take time to act? No point in doing the right thing only to leave a sound economy to Labour.
Her choice of music on Desert Island Discs was not too dire though rather classic FM, but I do rather distrust people who use those silly walking poles. Unless that is they need them for medical reasons.
August 15, 2016
For walking up mountains they are a great advantage if not essential, especially post-45 or so
August 15, 2016
Walking poles are extremely useful to the quadri-dextrous. They allow the arms to act in tandem with the legs rather than letting the legs do all the work; they help balance; they help avoid collapse. All good signs rather than bad in a new PM. The question is more will her stamina hold?
Sir Joe wouldn’t be without them as a stabiliser in hill walking.
August 15, 2016
Totally agree about the poles LL. Apparently it’s Nordic walking and looks even more ridiculous in real life.
August 15, 2016
I don’t really accept the central thesis of this article.
We have adversarial politics, which means that the opposition is almost duty bound to criticise whatever the incumbent government does even if they know very well that the origin of a problem is outside its control. If they cannot find a plausible criticism of the substance of the government’s policy response they will criticise some minor details and magnify their importance, or they will resort to criticising the timing, or the manner in which the policy was decided or authorised or announced, anything will do provided it supports the idea that the present administration is incompetent and the country would be better served if their alternative group took the reins of power.
We could have a different system whereby the notional opposition always agreed with the government, and we do sometimes come close to that in time of war or other major crises, but on the whole that is not what we want or what works in the long term.
As far as the recent change of monetary policy is concerned, personally I don’t think there was any real need for it and nor do I think it will necessarily be beneficial overall. But the country has been hit by one of those events which is beyond the government’s control, in this case the people deciding to vote against the government’s policy in a referendum – even though the referendum had been instigated by the government for party political reasons – and according to those opposed to the outcome that has struck a severe blow to our economy which now needs to be rescued, so something had to be done.
August 15, 2016
“From our exit from the ERM we enjoyed a good expansion with moderate inflation up to around 2004. ”
As someone who was unfortunate to be buying a home in 2001 I can assure for me that the inflation was not moderate. I paid 50% more than 3 years earlier but my salary was at best 15% more than the equivalent person would have earned 3 years earlier (sadly I was at uni in 98).
August 15, 2016
The case made for taking responsibility away from government and their so called expert agencies for interest rates and money supply. So much government does that should be left to markets. All added together cause booms and bust and the damaging recessions that we all have to suffer.
Government pandering to vested interests lobby groups, investing in pet projects and buying votes causes all sorts of unwanted regulations and interventions. Markets are the perfect place for decision making where the real experts reside us and the most democratic. Government’s job is to keep us honest and safe and only rarely to dictate what actions should be taken. Doing all three optimally is of course extremely difficult even without the pressure from vested interests.
How we do it given our propensity for incoherent thinking and self interest is a problem of gigantic proportions. However if we agree that less is best, not listen to vested interests, resist illiberalism and steer away from government controlled planned economies we can do it. It comes down to rejecting socialism and progressiveism and embracing free market capitalism. After all the first two are ideologies that have already been proven they are failures as they harm our wealth, health and liberty the other is just human behaviour that evolved because it works.
August 15, 2016
I have no Higher Education degree, I have never started or run a business, I have no talent for comprehending complex financial matters, but:
I’ve run a home and a family on a small income, lived through some economically very tough personal times and by careful management, restraint and forward planning have ended up as a pensioner with a small financial cushion that with hopefully see me through my final years.
I still think there is something to be said for “handbag economics”.
August 15, 2016
You are right. I teach economics, but I’m always careful to warn students that the ability of the government to print money, borrow money, devalue currency and compensate for consumer expenditure are short term, Keynesian expedients. In the end, the sums have to add up.
August 15, 2016
Indeed, you have many of the right skills to run a business. Managing people and money efficiently.
August 15, 2016
Get ready for the 100% “small financial cushion ” tax.
August 15, 2016
I’m relying on that ludicrous anomaly of the ÂŁ10 annual Xmas gift to pensioners to see me through should your dreadful forecast come true!
August 15, 2016
Basically JR your life, and ours out here, some not on the government payroll, except for a State Pension; has been continuously mired by neo-liberal economics full stop. Badly by right wing governments; half as bad under left wing governments.
Politicians still promote “The Noble Lie”. Still pretend that the government’s financial accounts are the same as a private Household. Still pretend the government has to borrow its own “Units of Account” before it can spend any of its own “Units of Account”. Still don’t understand that a sovereign fiat Unit of Account (currency) ISSUING government, never runs out of those units. Just the same as we may run out of Land, but we will never run out of Acres to measure it with. Acres are a “Unit of Account”, just like the Pound Sterling is the government’s spending “Unit of Account”.
The UK could have another financial crash, the same as 2008, and the government’s Treasury, still would never run out of Units of Account to inject into the economy, to bail out the banks again. The Banksters are well aware of this fact.
So if you want to reduce the government’s “national debt”, then stop saving its Units of Account.
August 16, 2016
I’m losing hope that JR will lead any positive change in the post-Brexit Britain. Again and again, he is repeating outright falsehoods. Whether he genuinely believes them, I do not know.
But he refers to QE as “money creation”, for example, when QE is just swapping bonds for reserves, and no new “net financial assets” are created. Likewise, lower interest rates actually cause lower inflation, ceteris paribus, and in a floating exchange rate system the natural rate of interest is zero. In previous comments on this site I have attempted to explain monetary operations at the central bank, but not many other commenters seem to take any notice.
So here we are. The only thing between us and massive prosperity which we cannot even imagine â I’m talking double-digit real GDP growth â is ignorance, wilful or not, towards how our monetary system really works.
JR is stuck in fixed exchange rate thinking, I hope he, along with the commenters here, at least begin to contemplate the massive changes that occurred when we switched to a free floating exchange rate. The old thinking (i.e. about national “debt”) is irrelevant.
Reply This phase of monetary easing has cut the value of the pound which will lead to some uptick in inflation from imported goods prices. The Bank does create money to buy the bonds.
August 16, 2016
Reply to reply
GBP has lost value, but that was a totally psychological reaction by the markets. Conventional thinking is that lower interest rates cause a weaker currency, and so it becomes a herd-mentality, even though the hard facts show that lower interest rates are actually deflationary. Look at Japan, over 20 years of massive QE and zero rates, yet their currency remains very strong and inflation is non-existent.
On the QE point, you have to understand monetary operations at the BoE. When the government spends, it instructs the BoE to credit the necessary accounts. Those initial credits are termed “reserves”. Subsequently the government will issue bonds in order to “borrow”, and those reserves are swapped for bonds.
Under a floating FX monetary system, the government spends money first and then borrows what it does not tax back. This is because deficit spending, if not offset by “borrowing” would cause the overnight interest rate to fall to zero. This is why I say the natural rate of interest is zero. If the government didn’t issue bonds, then the base interest rate would fall to zero and stay there forever.
Now, Quantitative Easing is simply swapping the bonds back for reserves, as if the government never “borrowed” in the first place. The “net money” in the economy stays exactly the same. In fact, reserves only pay 0.25% interest, whereas the bonds paid higher interest, which is why QE is actually slightly deflationary, if anything. It starves the private sector of interest income, just like a tax or a interest rate cut.
Reply the yen has had long periods of weakness with QE
August 15, 2016
The next crisis being engineered by Carney is because he continues to work from the Osborne playbook.
The serfs having the temerity to vote for Brexit after all his dire warnings must be made to come true.
Why hasn’t Carney been sacked yet.
He’s obviously doing all he can to undermine Britain.
August 15, 2016
What a ridiculous comment. Sane commentary from Brexiteers would be appreciated.
August 15, 2016
Bank governors should not be using the phrase “economic PTSD” one day after the referendum. That alone should be enough to get him out. He seems to want to be the centre of attention.
And so much for his “interest rates will rise when unemployment drops below 7%” lol
August 15, 2016
Brian
OK heres a sane comment the BoE recently reduced interested rates claiming that they were protecting against the potential loss of 150,000 jobs.
They are talking complete total and utter cobblers. The job market is bouyant , we have a skills crisis and as Brexit takes shape we will lose quite a substantial number of workers from the workforce. The BoE has continually ignored the real data on jobs and continued to be wrong. When Carney took up the post he told us interest rates would only rise once unemployment fell below 7% a matter of weeks later it was 6.8% and now its down to 4.9% yet he did the opposite of what he said. Explain please
August 15, 2016
Ian Wragg
The BoE has independence for setting interest rates, but the QE must surely be approved by Chancellor Hammond?
Is a Œ% p.a. reduction in interest rates more destabilising than printing money?
Is Remainer Hammond working from the Osborne playbook?
August 15, 2016
And he probably still is with is we must have access to the single market. The whole world has without being part of it. Is he being deliberately obtuse or does he think we are all stupid.
August 15, 2016
Indeed the many is dire and nearly always wrong, misguided and hugely overpaid too. He should go and take his fake green wife with him. He interference in the referendum was profoundly wrong.
August 15, 2016
Ian
Took out a regular saver account with a English Building Society last week which advertised a 4% interest rate (Branch visit)
This morning get a letter to say it is being reduced by 0.75% to 3.25% on 1st September 2016 as it is a flexible rate account.
Thought the rate only went down by 0.25%,
Mr Carney says he will take seriously any organisation which does not pass on the reduction in full.
Given this Building Society has reduced rates by 300% of the reduction amount, should I write to him, point this out, and insist action should be taken against them.
Once again a financial institution taking advantage of lower interest rates to increase their margins. at the customers expense.
I wonder if they have reduced mortgage rates by the same 0.75% ?
August 15, 2016
Number 10 says Ministersâ diaries are jam-packed with meetings–Thank Heavens for that–For a while there I was beginning to think we were in trouble
August 15, 2016
I wonder how often we have policy determined by the “I want to leave a legacy” type thoughts by those who hold power over such decisions.
The old saying “If it ain’t broke don’t fix it” is so often proven true over time, when sometimes doing nothing is really the best option and solution.
August 15, 2016
Alan, tell me about it! Every new minister, regardless of which of the four levels he / she is appointed to, has to have an “initiative” to impress the boss.
As our amateur ministers change jobs at frequent and random intervals, this means that a major organisations like Health and Education, have to suffer another “initiative” re-organisation, before they has recovered from the the previous re-organisation of the last minister’s “initiative”.
August 15, 2016
Of course government and Central bank play an important role in boom and bust. But it’s ultimately down to greed. ‘Greed is good’ – Boris Johnson. We’re all human but you don’t openly promote ‘greed is good’ as a Conservative philosophy. If you’re going to promote anything, it should be work ethic or hard with work with a sense of responsibility (look at the Quakers and Barclays, Clarks, Lloyds, Rowntrees, Cadbury etc). I hope Conservative Party members and MPs talk about, and promote this, more.
August 15, 2016
I don’t think it has anything to do with ‘greed is good’. It has everything to do with the basic incompetence of Central Bankers and the stupidity of Governments. The central point throughout my life has been how Governments have debased the coinage. To put that in perspective on the day War was declared in 1914 Sterling had exactly the same value as the day Napoleon surrendered his sword after Waterloo. For a century the Bank of England (a private bank) had maintained the value of the currency. That 1815/1914 Pound is now worth just 1p. Much of that decline has occurred since 1945 when the bank was actually nationalised.
August 15, 2016
Andy,
‘I donât think it has anything to do with âgreed is good’ – what?
‘the basic incompetence of Central Bankers and the stupidity of Governments’ – yes, plays a role, of course. But I think you’re excusing those such as Boris Johnson who promote greed as something good (‘Greed is good’ he said). It isn’t. Just look at the South Sea Bubble and the Roaring Twenties Bubbles for extreme examples of greed playing a role in boom/bust.
Greed (instead of work ethic) and living beyond our means (instead of living within) are the two biggest plagues to our economy. Until more people admit this (‘greed’ from the right, and ‘living beyond our means’ from the left/liberals), we’ll go on experiencing the same boom/bust again and again and again.
August 15, 2016
Off-topic:
https://euobserver.com/uk-referendum/134634
“In Northern Ireland private campaigner Raymond McCord last week (4 August) launched the first legal challenge in Northern Ireland to the UK leaving the European Union.
His lawyers claim it would be unlawful to trigger article 50 without parliament voting on the move.”
Clearly he didn’t get his copy of the official government booklet saying:
https://www.gov.uk/government/publications/why-the-government-believes-that-voting-to-remain-in-the-european-union-is-the-best-decision-for-the-uk/why-the-government-believes-that-voting-to-remain-in-the-european-union-is-the-best-decision-for-the-uk
“The referendum on Thursday, 23 June is your chance to decide if we should remain in or leave the European Union.”
“This is your decision. The government will implement what you decide.”
August 15, 2016
I think you should know that Team GB are winning lots of medals at Rio “despite Brexit”.
August 15, 2016
But I expect we’ll be told that the EU is winning far more and would come top if only we could all agree to unite in a sovereign federation like the USA.
August 15, 2016
@Antisthenes
Team GB are winning lots of medals at Rio âdue to Brexitâ.
Fixed that.
August 15, 2016
Economic crises are always generated by authorities. Either by sheer incompetence or deliberate design.
>
There are certain things the banks do as well as military intelligence that are beyond the wit of most politicians to even perceive, let alone understand.
August 15, 2016
Total Spending is the thing that we all need to keep our eye on. It needs to be just right – Goldilocks style – to keep the economy running at its optimum level. If things get too hot we can have too much inflation. If things get too cold we have too much deflation and recession.TS has to be just enough so that the entire output of the economy gets sold -providing manufacturers produce useful products at sensible prices.
TS = Government Spending + Everyone Else’s Spending
Everyone else includes our trading partners who may not wish to spend all the pounds they earn by selling us goods and services.
The government should adjust its spending to compensate for what everyone else is doing. The Government can have some influence on everyone else’s spending by adjusting taxation levels but the process can be uncertain in the short term.
If Government’s want some growth they need to ensure that TS is enough to encourage that growth but not too much as to induce inflation. In practice that can be a tricky balance to get right.
Govt can control TS is a two main ways. The Government can vary interest rates which encourages more or less borrowing, and hence spending, by the private sector. To boost spending Government can itself spend more (or tax less) itself directly into the economy.
Neither one is potentially less inflationary than the other.
August 15, 2016
The last hundred years’ history of World/UK/ politics/economics would make a jot of sense from the perspective of the proverbial disinterested Martian observer if:-
1. Britain and her allies had NOT “Won the War” which encompassed all oil and mineral producing countries on Earth.
2. Free, compulsory and available education was NON-existent from 5 -15 years old, INsufficient numbers of places in higher education were available in the northern hemisphere at least, from Vladivostok moving westwards to Washington.
3. S. American countries, China, India, populations had NOT had any education at all and were living in the Stone Age.
Yeah, only a politician can explain what went wrong.
In this regard,the Labour Party’s dissident Opposition to Corbyn is this morning I hear saying or more like chanting: “The Tories have a secret plan to privatise the NHS” . Labour’s Andy Burnham of course was instrumental in implementing PFI and merely gave his notorious cheeky grin when one journalist indicated he had done more to privatise the NHS than any politician in the UK.
Education/Economics/Politics-proper should be part of the school curriculum. The Labour Party careerists would not use their silly traditional NHS mantra if it did not work…if they were not absolutely confident they had sabotaged and perverted the education and training of British schoolchildren.
August 15, 2016
In this connection, when a gas central heating operative services your CH at least once every two years to comply with the law and, to minimise the possibility of injurious gas leaks and death by carbon monoxide poisoning, you are confident due to the operatives’ education and training you will be absolutely safe.
You are right. Even though CH operatives are not university educated, they have attended formal schooling from 5 to 16 and more. Also attended an authorised and checked CH course . Also had one-one on-the-job-training by a person of great experience. They pass practical and, theoretical written exams.
Yet our people on the whole, irrespective of their education, training and potential, fall foul of every silly linguistic manipulation and logically inconsistent argument and chant of the Labour Party.
Our schools, colleges, universities and in-service job training should incorporate “Logical Argument” and real-political education as a must, along with Maths and English.
It is pointless and should make the best and most mentally stable of us cry, for example, when we as a nation educate people say to the level where they can begin training and further education to become doctors and nurses, then…we see those self-same people actually chanting …chanting like a soccer hooligan after a bevy of lagers carrying cardboard squares with daftnesses scrawled in fiber tip pen outside hospitals or “dancing” and chanting down the High Street.
Education in the UK is lacking in a vital respect.
We are likely to see more recessions with such at the helm of the economy….at the helm of everything except: Gas Central Heating maintenance.
August 15, 2016
In the past few days various comments and criticisms have been made of economists and the Bank of England – all of which I agree with . The public rely heavily on the views expressed from these sources , so there ought to be some form of overview constraining their utterings .
In the past the link between the Government and the Bank of England was a formal discipline and when the decision was made to “free” one from the other , most thought it was a step in the right direction . Brexit showed the links were still there . Question now is ” Has progress been made ?”.
I believe there is now a case for an intermediary body to read sense into the messages in order to let the public read between the lines . I hate the thought of “yet another” , but , where does one go ?.
August 15, 2016
Theresa May seems to understand that politicians cannot create prosperity and perhaps that fiddling with numbers on a screen is ultimately not the unique skill that will save us as a country.
Manufacturing which starts with a pile of raw materials and ends up with something useful like a car obviously does create wealth, if done properly. I hope her industrial strategy will consist of helping British R & D and manufacturing investment and not become just blundering interference by ignoramuses, which was once the speciality of Labour ideologues.
August 15, 2016
It almost seems that it would be better if the economy was left to look after itself!
Why does the state have to set interest rates? Surely this should be a function of supply and demand as with everything else in a free market.
August 15, 2016
At a tangent to the Topic:
Bloomberg had a tiny piece on TV this morning: a conversation as they call it, between an expert on economics/business and a journalist. They talked of Japan. How even their 0.02% increase in growth of the economy is good as their population has decreased even noticeably in the last quarter.
The expert remarked the Japanese will go on buying DVDs and music. Ermmm. Suchi. ..Ermmm. And whatever other things they buy.”
Japan population is, this quarter, 50% higher than our own.
Something struck me. Japan is a well-advanced country in all respects. It seems only 50,000 of them are living here. Odd, given numbers of other people living here. Why do we know, too, so little about Japanese and struggle to name more than three items they like to buy? It seems losing the War, big style, literally puts you in no-man’s land, in the land that people forgot.
Even some intellectuals have heard of Mrs Merkel, the ruler of a country that heresay has it lost the War. But how many can name the PM of Japan? Well, whoever he is, he can’t be causing much trouble nowadays or he would be as popular and liked in the UK as much as Mrs Merkel.
August 15, 2016
âMy life so far has been punctuated by recessions and economic crisesâ
Yes, and for many others in ordinary jobs it was a disaster. I had a small child of 2 years when mortgage rates went up to disastrous levels of around 14%. We lost our home and my husband lost his job. Life was never the same after that. All the years we had worked to better ourselves and our life was ruined. The marriage didn’t last long after that either. Recessions put lives under great strain if you don’t have rich parents or large nest eggs or legacies to fall back on.
Reply Indeed. Both my parents lost their jobs in the 78-81 disaster. I was warned I would lose my first job if the crunch had continued in 1975
August 15, 2016
Actually the BoE’s job is not to “keep inflation down”. It is to keep inflation at 2% for some unaccountable reason. Why not 1% or 3% ? So at the moment their job is to increase it, though one assumes the devalued pound will do the job for them. I bet if inflation does go up to 2% the Remainiacs will be horrified.
August 15, 2016
They do it with manifesto to buy votes which are total rubbish with things in them like full employment with white elephant project that are not affordable but the money goes in like hinkley point over 2 billion spend and nothing has happened, that just the planning stage on a project that is not affordable and take to long, it just newspaper headliners, of cos these ideas come from big business and banks who they go out to dinner with, it got to the stage now that the parliament can not afford much because everything is to expensive so they keep to the planing stage only.
Then we have the case that deflation is a evil thing, meaning price can never go down, that what central banks are for which is good if you own a lot of assets but it not a lot of good to you if you don”t, on this point, it stops people from climbing up the ladder and no change in the people at the top because their assets can never go down and are always bail out by the central bank.
The whole idea of seeing deflation is that it is tell you something in the economy is not right and needs to slow down but as soon as that is heard round the dinner table the vote is taken and the central bank told to double down to make sure prices go up, its great for them but for average citizen with food prices and service going up with no wage increase.
Deflation is needed part of the business cycle and warn you of dangers ahead and should be fully taken on board when it is seen and not just turn a blind eye to it because it not in your manifesto and a vote round the dinner table did not want it.
You can still have growth with deflation, in fact in the old days you had more growth under deflation than what you would get with inflation, of cos it no good for people who own all the assets but it good for the average citizen with low prices and more jobs.
They have just QE 420 billion pounds in last two months, do you think you will be seeing any of it, this is to keep assets prices up at the dinner table and inflation in your food and goods that you buy, do you really want food prices, service and goods going up with no wage increase and no increase in your benefits.
That why the people need more control over parliament to get what they want and the money spent where they want and better ideas that do not cost the world.
August 15, 2016
Your so called gods hold nothing but misery for the average person.
August 15, 2016
‘Economic crises are often generated by the authorities’
– Does that include Liam Fox who announced recently on his dept’s site that Britain might leave the EU without having done a new trade deal with it first? (Then quickly pulling this down from the site).
(And then David Davis claiming on his Twitter few weeks ago that the UK could sign a bilateral trade agreement with Germany?? Unbelievable lack of basic understanding how trade deals work with the EU).
And then I think of Boris Johnson.
HELP
August 15, 2016
At the end of the day any trade agreement will be what Germany decides and I would stake my life on it not being too onerous.
They have a big market and I think it’s probably true to say that 3 million German jobs are threatened if the UK stops buying German goods.
August 16, 2016
‘At the end of the day any trade agreement will be what Germany decides and I would stake my life on it not being too onerous.’
– My point wasn’t about actual trade deals with the EU but about David Davies lack of basic understanding about how trade negotiations work with the EU. His overconfidence betrays his real basic grasp of some crucial things.
And I agree with you to a point. The Germans have already said they want an amicable agreement. And I believe them. For the reason you give. Also, it’s in Germany’s geopolitical interest to have a strong UK near them (the Brexiteers seem to totally ignore geopolitics which is pretty concerning i think).
However, what I think Brexiteers get wrong is in how amicable that deal can be. Germany has clearly stated already it believes the UK leaving the EU is bad for Germany and the EU and not just the UK. It’s being honest with us, the EU and itself. We’re the ones in denial. And the main reason why Germany leading the EU won’t be able to make as an amicable deal with as we would hope is that it would undermine the EU. And if the EU floundered that would cost Germany far more than a less amicable EU trade agreement with the UK.
August 15, 2016
Your comment is altogether too modest. Unless reversed, the recent actions of the Bank of England will lead to rip-roaring inflation within two years.
Before the BoE reduced interest rates and introduced still more QE, the post EU referendum markets had performed roughly as expected after the initial panic. Sterling had dropped, the FTSE 100 was up, and the FTSE 250 had recovered.
Since the BoE’s action, the FTSE 100 is up another 300 points (4.5%) and sterling has fallen another 3%. This means that the markets are forecastibg inflation – and they have a better track record than the BoE.
Installing a pro-EU neo-Keynsian as Governor has proved to be a disaster. It’s high time that he went the same way as the former Chancellor.
While we are about it, let’s question some more of the ‘great and good’ institutions that rob of us of power and waste our money:
– Why are we not leaving the EU ASAP?
– Is the international Law of Treaties of any value?
– What use is the IMF to us?
– Does the NIESR do anything that the ONS doesn’t do better?
– Is the IFS truly independent?
– Does the OECD do anything useful?
– Does the UN manage to keep the peace?
August 15, 2016
I would not even try to read the cycles. I haven’t acquired enough understanding and would never spiel out what others have said (well perhaps to pass a degree using the canons’ official texts and quotes) as I am suspicious of financial transactions of any type having had a rough ride from the profiteers and villains of this world. The most stressful thing in life is money, whether you have it or whether you don’t.
The one thing I do understand is that life does revolve around cycles from the basic DNA helix , the movement of the spheres , the contraction and expansion of the universe, life cycles and so on and it make me wonder, as do mutations in genes ,whether any monetary cycle can be accurately read .After all it is not a physical thing in itself ,only representing the value we as people put on it and we change course like the wind.
August 15, 2016
The problem with parliament is that the money side of things go off alright, like banking and so on but the people side never seem to get into gear.
Case in point the housing shake up coming, selling housing association homes to the renter and council property, the selling side and the money side, that if the renter want to buy, will go off alright, more mortgages for the bank more credit cards and loans for goods all good for them and parliament happy because there is more growth on debt and the ownership of houses is going up but the people waiting for housing are still waiting for a home and listening to everything is great and then they start hearing that the housing plans have problems, no workers to build them, not got the money, this problem and that problem but on the media everybody is partying and slowly they are forgotten again till the media put out a story on housing, all the con party hopes are pinned on this plan for the bankers and the economy but not the people who need homes.
You can build homes any time you like, it just take materials workers and money but they have no money for homes.
August 15, 2016
John,
I’d go a step further and say that economic crises are ALWAYS generated by the authorities. It’s interesting that you have used the word “authorities” about government because “authority” is exactly what government is. The responsibility for crisis free economic activity is entirely down to the managerial abilities of those in charge. Many on the right of the political spectrum have a hard time accepting how the system really works.
We all seem to recognise the fact that the Westminster government is allowed to create laws. But when it comes to the economy, suddenly that is a taboo subject. It is a place where government has no right to intervene.
The common perception seems to be that Government is some great beast with fangs drooling at the thought of getting its hands on all our money. This is total nonsense. How can anyone possibly expect a monetary economy to exist without a strong and controlling currency issuing government?
The government is the sovereign to which the private sector is subject. It has the absolute authority to control economic activity, as much as it does to create laws that affect the speeds we can drive on the motorway, because of its unique ability to issue and spend the currency. It issues the ÂŁÂŁ that the private sector uses to buy goods and services and produce them. The government can and should create and spend those ÂŁÂŁ in exactly the right numbers, as well as setting interest rates and taxes etc, to ensure the efficient workings of the rest of the economy, which does produce most of the goods and services that we all rely on.
The Westminster government is the centrepiece of the economy. The City councils, the Scottish and Welsh National Assemblies and the private sector are not. They are all subservient.
August 15, 2016
What it all means, they do not let full economy cycle to complete which would be deflation which is a natural thing which is a time of low prices and business planning into next up lift where more jobs paying good money can be had and parliament has saved money which at this time in the cycle is spent but as you do not have saving because you give everything to the economy for growth to make prices go up you have broken economy cycle.
August 15, 2016
Olympics:
Is the prize a Gold, Silver or a Bronze medal for guessing the answer to the OTT Rorschach test on the TeamGB tee-shirt? It took me ages to figure it out as it is hardly minimalist and is darkish.
My best bet is it’s a giant funeral urn in the centre with a Minotaur on either side. Perhaps a baby Minotaur on top or just more ink spillage which, has nothing to do with the problem and really is an accident.