The Fed rethinks – what about the Bank of England

The Fed realised late last year it was raising rates too much and tightening the money supply too severely. It backed off and announced a re think. It is currently working its way through how it can change its approach and make it friendlier to economic growth.

The Bank of England needs to do the same., It has been tightening too much for the last two years. Like the Fed, it relies on out of date theory based around the concept of national capacity. It thinks it knows what national capacity is, and argues that there will be inflation when we reach close to that capacity. For an open economy like the UK it is an odd way of thinking about it. We import goods and services and we import labour so our capacity is not constrained by UK resources, whilst world products, services and labour keep prices and wages down as a result of  global competitive pressures.

The Bank seems to want to prove a point about its errant pessimistic forecasts over Brexit. It should listen to what the Fed is saying, and back off from its current over tightening. The UK economy needs a bit more Bank flexibility at a time of slowing world growth and little inflationary pressure. They need to revise their views on how to settle interest rates, in line with the Governor’s lecture explaining  h0w the Phillips curve was now flat . Given this there is little need to raise rates as unemployment falls unless there are other signs of overheating or too much credit.

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92 Comments

  1. Pominoz
    Posted June 18, 2019 at 5:06 am | Permalink

    Sir John,

    Another ‘pass’ in your qualifying test to assess your suitability for Chancellor.

    Need to get the new PM in as soon as possible as I read reports the Theresa May has supported Rory Stewart in the ballot for new PM and that she is determined to join with other Remainer MPs to try to prevent Boris (or another Brexiteer PM) from achieving a WTO exit by 31st October.

    Sounds very much like a ‘dog in the manger’ attitude in an attempt to mitigate the loathing and contempt much of the Nation has for her total lack of achievement whilst in office. It is absolutely vital that, during her temporary tenure as ‘interim’ PM, she is prevented from doing anything, and appointing anybody to any post, which might be construed as detrimental to the incoming Prime Minister. She had her chance – and she blew it !!

    • Lifelogic
      Posted June 18, 2019 at 6:06 am | Permalink

      May’s support for the daft, socialist dope Rory Stewart would surely be negative to his prospects, The misguided David Liddington has come out for him. Rory would make a good leader of the Labour Party. He does not have a Conservative bone in his body just like May.

      I suppose running the army commanders tends to think a top down command structure is the way to go. In running an economy it is a disaster, it probably is in running an army too in the main.

      • Woody
        Posted June 18, 2019 at 7:29 am | Permalink

        Stewart was an administrator / civil servant for one year in Iraq .. he has no army discipline training in him. He walks a lot.

      • Hope
        Posted June 18, 2019 at 7:57 am | Permalink

        Rory Stewart admitted on BBC radio two weeks ago that he was a liar. Lying is dishonest especially in public office. It fails the Nolan standards in public life. He lied about May’s servitude plan. This week he stated he was the one who is honest and could be trusted. I accept his first statement. He is a self confessed liar when it comes to Brexit by his own admission. He has used class A drugs etc ed.

        The charting of Thatchers term in office was chronicled and ended last night on TV.

        Those traitors that brought her downfall are still present in the Tory party and haven doubt, continued to infiltrate with their own kind over the last 30 years. hence why the horrible spectacle the other night on Channel 4 that I deliberately missed but was widely reported on. Only one leaver Raab and he was drowned out. The fanatic remainers are tactically voting to get more than one retainer for the final vote off.

        Clarke stated he would vote against the idiot PM who left without a deal. I suggest he look in the mirror at the idiot who helped bring down Thatcher, is turning people in their droves away from his party and would remain in the EU under any subordinate terms.

        If your party wants any chance of remaining in office suggest you listen to Prii Patel about her root branch reforms to change your party back to conservatism. Because a the moment it is any but conservative and the public, supporters and activists have realised it!

        If the candidates had any back bone they would boycott the extreme left wing BBC: Firstly, for its extreme bias and, secondly, for the TV license for over 75s fiasco.

        Boris made the right choice with Channel Four. They made up, literally made up a story about him so the two women who were attacked thought he had somehow encouraged it. Jon Snow chanting vulgar remarks about your party. Blaming their poor viewing figures on Brexit. Quite disgusting. Who in their right mind would participate in one of their shows!

      • A.Sedgwick
        Posted June 18, 2019 at 8:21 am | Permalink

        Rory is as near a political clone of Tony B as you can get.

        • Hope
          Posted June 18, 2019 at 10:07 am | Permalink

          A fake Conservative like May, Rudd, Clarke, Liddington, Grieve, Greening etc. He also looks like the elf in Harry Potter and has as much charisma as a boring Jermey Corbyn.

          Nevertheless, a good choice of leader if you want the Brexit party in Govt.

        • oldtimer
          Posted June 18, 2019 at 11:17 am | Permalink

          According to Guido Fawkes his name is Roderick not Rory. “Rod Stewart” does not have quite the same ring to it as “Rory Stewart”. Clearly he is May in a kilt. It seems to me there is an element of smoke and mirrors about him and his campaign.

          • Fed up with the bull
            Posted June 18, 2019 at 5:19 pm | Permalink

            Please, how many Scotsmen do we have to put up with in government? Blair, Cameron, Brown and now the lovely Rory. They’ve all been rubbish.

      • JoolsB
        Posted June 18, 2019 at 9:57 am | Permalink

        Totally agree Lifelogic except I’d go one further. Most of the current Tory parliamentary party don’t have a Conservative bone in their body.

    • J Bush
      Posted June 18, 2019 at 6:08 am | Permalink

      I fully agree. It was because her continual lies about her supporting leaving the EU versus her actions, that forced her to resign.

      By backing a remainer, she has publicly nailed her colours to the mast and vindicated everyone who didn’t believe her and those who had their doubts.

      • Hope
        Posted June 18, 2019 at 8:01 am | Permalink

        Myayhab has a legacy the worse and most dishonest PM in history. Worse Tory PM than Balfour or Chamberlian, Heath, Major or Cameron. She had a lot of competition but won.

        • Hope
          Posted June 18, 2019 at 8:05 am | Permalink

          The party was prepared to bring down thatcher and remain in opposition for years rather than leave the EU. After all with the EU in charge it matters not which party is in govt.

          Do not think for a moment the traitors would not be prepared to do it again especially if they could convince Watson he could be PM and acceptable face for Labour and the country.

          Stewart and Gove were committed to working with Labour and Corbyn- why as no one taking them to task on this?

      • Lifelogic
        Posted June 18, 2019 at 8:40 am | Permalink

        A socialist, a remainer and PPE chap too. He would be a total disaster at any election just like May.

    • Roy Grainger
      Posted June 18, 2019 at 6:10 am | Permalink

      I’m not that bothered by the strange Rory Stewart being installed with May’s help as PM with his stupid people’s assembly unicorn – a nice boost for TBP. However, what I am concerned about is May spraying billions of pounds a week at her own vanity projects without any coherent strategy or plan or (I assume) cabinet approval. Her “carbon-free” pledge will cost us £ 1 trillion just for a start.

      Amusing to hear the broadsheet commentators (like poor Matthew Parris) trashing Boris saying he (like Cameron) has the Old Etonian skill of talking with supreme confidence to give the impression of competence on matters that in fact he knows next to nothing about. Meanwhile they fall over themselves to praise Rory Stewart who is a perfect example of that.

      • Posted June 18, 2019 at 8:15 am | Permalink

        I haven’t read anywhere what R Stewart’s constituents think of him. I believe they voted ”leave” quite conclusively.

      • Lifelogic
        Posted June 18, 2019 at 8:44 am | Permalink

        Exactly right, why on earth did Mathew Parris ever think he was a Conservative? More chance of a seat than as a Libdim I suppose?

    • Alan Jutson
      Posted June 18, 2019 at 6:43 am | Permalink

      What should not be allowed is for a lame duck, outgoing Prime Minister, to bring in spending plans or policies that will hobble the next person in position.

      Appreciate we cannot have a complete vacuum, but May already has left a legacy of chaos, we do not want Billions of previously unplanned spending as well.

      • A.Sedgwick
        Posted June 18, 2019 at 8:23 am | Permalink

        We have a rogue parliament.

    • Woody
      Posted June 18, 2019 at 6:54 am | Permalink

      I agree with every thing you say in your comment, except that it may be an ambition of any future uk PM to achieve a WTO exit. That choice is one for the EU, as it seems obvious to me that any UK PM would try for a free trade agreement of some form as a priority. If the eu is blindly arrogant and bigoted, as sadly it seems to be, then so be it, they will chose a WTO trade arrangement and their businesses will suffer more than the UKs’ as they export more to us than we do to them.

  2. Mark B
    Posted June 18, 2019 at 5:25 am | Permalink

    Good morning

    Rates are already at am historic low. If you want to see long-term sustainable growth we need to deliver BREXIT so that industry can start planning ahead. We can then reduce red tape and corporation tax. I believe this will attract even more onward investment and growth.

    • Andy
      Posted June 18, 2019 at 7:54 am | Permalink

      You call it red tape.

      I call it regulation which protects workers, consumers and the planet from unscrupulous business.

      Which ‘red tape’ do you want to remove?

      • Robert mcdonald
        Posted June 18, 2019 at 11:27 am | Permalink

        The UK has, and always has had, more considerate employee rights than EU rules demand. The UK has been a leader in environmental matters before the eu was a twinkle in the eurocrats eyes. E.g Spanish greenhouse farms in almeria were exposed in a documentary showing they exploit migrant labour and dispose of waste plastic casually and dangerously.

      • Edward2
        Posted June 18, 2019 at 1:11 pm | Permalink

        Andy you have has countless replies to this challenge of yours.
        Are you forgetful or do you not read what people reply to you ?

        I don’t wish to repeat myself with my old responses but one new one the EU are trying to bring in soon, will ban vegetarian and vegan food producers from using many descriptive words on their packaging.
        Like burger or sausage or bacon.

        • graham1946
          Posted June 18, 2019 at 4:35 pm | Permalink

          I can never understand why a vegetarian or a vegan especially, should want foods to resemble bacon, sausages, burgers or steaks. I thought they eschewed all that in their superior way. Surely they should be pleased if something looks and tastes like grass and which shows they are so much better than us meat eaters.

          • Edward2
            Posted June 18, 2019 at 10:40 pm | Permalink

            I agree Graham
            It is perhaps marketing departments trying to entice new customers.

          • Pominoz
            Posted June 18, 2019 at 10:46 pm | Permalink

            I eat grass.

            But it has been eaten by a cow first.

      • libertarian
        Posted June 18, 2019 at 6:18 pm | Permalink

        Andy

        Are you really THAT dim?

        Repeatedly we have shown lists of meaningless red tape, regulations and directives that should be rescinded

        If the EU protects workers you need to explain why in 10 of the 27 that minimum wage is less than 2 euros per hour and unemployment is massively high in the southern states.

        Of course there won’t be an answer , just another post targeting vitriol and abuse at pensioners .

  3. Lifelogic
    Posted June 18, 2019 at 5:29 am | Permalink

    Exactly right. The banks are over regulated with endless slotting and capital rules and restrictive regulations. I have not bothered to do perfectly sensible propert developments due to the hassle and excessive costs of financing them.

    Bank margins are absurdly high 0 to 0.2% if you lent to them but base plus 3% to 68% if you borrow. Where is some real competition in banking?

    Made even worse by Hammond’s idiotic taxes, many of which are in effect at over 100% and so totally unsustainable and hugely damaging. The prospect of Corbyn thanks to May’s gross incompetence is hugely damaging to confidence too.

    • Andy
      Posted June 18, 2019 at 7:56 am | Permalink

      2008 – worst banking crisis in a century, leading to almost a decade of stagnation.

      2019 – Lifelogic thinks banks are over-regulated.

      Oh look. A unicorn.

      • Richard1
        Posted June 18, 2019 at 12:15 pm | Permalink

        It was not lack of regulation which caused the banking crisis. Then as now Banking was the most regulated of all industries maybe except for pharmaceuticals. But they regulated everything except the only thing that really mattered – leverage.

      • Lifelogic
        Posted June 18, 2019 at 1:19 pm | Permalink

        They are over regulated in very many ways and generally very incompetently too.

        In other ways they were very poorly regulated in terms of solvency, gearing levels, liquidity and accounting standards.

        We need good sensible regulation of the right things not incompetent, inept regulation of the wrong things – that damages profitability, sound businesses and the economy.

      • formula57
        Posted June 18, 2019 at 1:42 pm | Permalink

        @ Lifelogic & @ Andy re bank regulation

        There is disquiet about present bank regulations (per Basel III) so the issue remains the quality of regulation rather than the amount. The USA has considerably less enthusiasm for being guided by Basel III is sufficient than does the EU.

        Deregulation was course not the cause of the GFC, although some like to promote that idea now usually to advance a particular political view.

        Gordon Brown however ignored warnings from the Conservatives that the regulatory regime he was creating would lead to problems. It would therefore be an error, again usually promoted to advance a particular political view, to suppose the Conservatives would have done the same.

        Brown was told in clear terms of the likely (and actual, as it turned out) consequences of his folly, thanks to Peter Lilley who records (@ http://www.peterlilley.co.uk/questions/1806/oral-question-money-creation-and-society ): –

        Quote:
        ” …..I was shadow Chancellor when the Bill that became the Bank of England Act 1998 was introduced. He pointed out that I then warned the House that: –

        [i]“With the removal of banking control to the Financial Services Authority…it is difficult to see how…the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”[/i]

        And so it turned out. I added:

        [i]“setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”-[Official Report, 11 November 1997; Vol. 300, c. 731-32.][/i]

        So that turned out, too. I could foresee that, because the problem was not deregulation, but the regulatory confusion and the proliferation of regulation introduced by the former Chancellor, which resulted from a failure to focus on the banking system’s inherent instability, and to provide for its stability.”

      • libertarian
        Posted June 18, 2019 at 6:22 pm | Permalink

        Andy

        Massive banking regulations were put in place BEFORE the 2008 crash

        That worked well didn’t it ?

        MifiD2 regulations have created mayhem for European banks and IDD has done damage to the insurance business .

  4. Stred
    Posted June 18, 2019 at 5:41 am | Permalink

    The Treasury and the vastly overpaid head of the Bank of England have been carrying out a campaign for remaining in the EU since the referendum, using false economics and lies. They have caused deliberate damage to the economy in order to do so. The new prime minister needs to sack the lot and install next civil servants loyal to the UK. The same goes for the Cabinet Office and the Foreign Office. There should be an enquiry into the conduct of the civil service and ministers to ascertain whether there was collaboration with the Commission in drawing up the colonialism WA with May. The evidence of the documentary and the cabinet Office records should be obtained before it is shredded.

    • Lifelogic
      Posted June 18, 2019 at 9:44 am | Permalink

      Carney is overpaid and deluded. But he has cost the country millions of times his salary through his appalling decisions and his project fear agenda. Oxford PPE yet again – plus he seems to be another deluded climate alarmist as is his wife I understand.

    • Mitchel
      Posted June 18, 2019 at 2:09 pm | Permalink

      There has been a twitter spat this morning between Andrew Neil and Danny Blanchflower over what constitutes a sovereign debt and a default in respect of us not paying what we are liable for under the WA!

  5. Dominic
    Posted June 18, 2019 at 5:43 am | Permalink

    Dig up Keynes and put him on trial for crimes against reality.

    Aggregate demand. Phillips Curve (yes, not Keynes but Phillips did have a thing about unemployment and inflation which was one of Keynes’s obsessions). The multiplier. Etc etc. Pure, unadulterated tosh and provided a foundation for politicians to spend our cash for political ends. Well done John Maynard, your musings led to the creation of a State that is now beyond reform

    ‘There is no more money left’ could have been written by Keynes himself

    Our material prosperity comes from physical effort not monetary expansion

    • Lifelogic
      Posted June 18, 2019 at 1:23 pm | Permalink

      Much truth in that.

      The Climate Alarmist “science” prophets are doing the same thing, in justifying more and more government and more excuses for ever more taxation and endless red tape and market interference.

    • acorn
      Posted June 18, 2019 at 4:48 pm | Permalink

      Utter nonsense. There is no evidence in economic history that the Phillips curve; Okun’s Law; the Taylor Rule; Say’s Law or the Laffer Curve have ever been able to explain or predict the future course of any FIAT CURRENCY ECONOMY.

      • Edward2
        Posted June 18, 2019 at 10:44 pm | Permalink

        The Laffer curve theory correctly predicted the increase in tax revenues from reducing top rates of income tax and the reduction in capital gains tax revenues from increading the rates.

        • acorn
          Posted June 19, 2019 at 5:43 am | Permalink

          Look up the term “forestalling”. Those tax changes were flagged months before they took effect. Taxable events were arranged to minimise tax.

          • Edward2
            Posted June 19, 2019 at 10:41 am | Permalink

            You talk of the short term effect.
            The effects of those two tax changes are still happening.years later.

  6. /IKH
    Posted June 18, 2019 at 5:44 am | Permalink

    We need a proper market in money and interest rates and we can not have that when the base rate is far below the interest rate that the Govt has to pay for Gilts. Current borrrowing rates for the Govt are around 2.5 percent so the base rate should be somewhat North of that. That does not mean a tightening of the money supply. We need the banks to loosen the supply of money. Currently, we have been running with negative base rate for the last 11 years ( in real terms ). Is it not about time we got back to a proper market driven economy.

    The current artificial base rate is distorting the situation with the Banks and disadvantaging savers unfairly. It is hiding further action that is needed to properly sort out the Banks which have been surviving on the Band-Aids put in place back in 2009.

    The U.K. Banks still have about 30 Trillion Dollars in outstanding Asset Backed Securities that are illiquid and yet booked on their balance sheets as Cash. Surely it is time to fix the Banks to fix the economy.

    /ikh

  7. HardyB
    Posted June 18, 2019 at 5:45 am | Permalink

    We are in such a state of flux about everything at the moment that I think the bank is wise to hold steady until we see the outcome of happenings post October. If Boris gets through and then goes to Brussels he will be seen first of all as the representative of the ERG and as far as I can guess there will be little or no talks, especially with the WA not ratified- then given his record of fu*k business etc they are not going to entertain him so I imagine we’ll enter a kind of WTO Rules limbo world. At this point the Phillips curve won’t count- we could have inflation or maybe even stagflation- nobody knows- so I can see a GE

  8. Lifelogic
    Posted June 18, 2019 at 5:46 am | Permalink

    Rory Stewart seems to be well to the left of Blair and Brown. The best that can be said of him is that he would make a better leader of the Labour Party than Corbyn.

    The dire David Lidington, who assisted May so well in her disastrous strategy of getting Conservative support down to 9% and trying to kill Brexit and the Conservative Party is backing him. Hopefully sensible MPs and party members will not do. He is yet another lefty, big government knows best, pusher of climate alarmism and a PPE dope too.

    • Dave Andrews
      Posted June 18, 2019 at 8:27 am | Permalink

      The MSM have a love in with Rory Stewart; they are promoting him continually.
      His refusal to entertain “no-deal” isn’t compromise, it’s capitulation. I don’t see the EU taking “no-deal” off the table.
      His approach will lead to delay and likely revocation of Article 50, which I believe is his real objective and why he’s receiving media praise. He may say he supports leaving the EU now, but that seems a deceit to me.

    • Andy
      Posted June 18, 2019 at 8:41 am | Permalink

      The fundamental difference between Rory Stewart and Boris Johnson is that Stewart is a decent and honest man.

      You might disagree with Stewart on policy – and in many areas I do. But I recognise a throughly decent human being when I see one.

      And nobody could accuse Boris Johnson of being decent.

      Reply Have you ever met or spoken to either of them?

      • Roy Grainger
        Posted June 18, 2019 at 10:18 am | Permalink

        Sincerity is important, once you can fake that you’ve got it made. Both Blair and Cameron presented initially as decent and honest and were darlings of the media, just like Rory.

        • Lifelogic
          Posted June 18, 2019 at 1:26 pm | Permalink

          Cameron claimed he was a cast iron Eurosceptic and a low tax a heart Conservative! He was the complete opposite alas. Had he been what he claimed he would have been a great PM and still be in office.

          He had an open goal indeed two open goals.

      • Andy
        Posted June 18, 2019 at 2:07 pm | Permalink

        I briefly met Rory Stewart on one of his recent walks. As much as you can tell in 2 minutes he seemed personable.

        As a Hillingdonian I should I have seen Boris Johnson in his constituency – but I haven’t. He does not appear to visit very often.

        What I do know is that Boris Johnson is (questionable ed) in his personal life, he was incompetent in government and that he has been fired twice for lying.

        If he is the Tories idea of a good candidate your party is really stuffed.

      • margaret howard
        Posted June 18, 2019 at 2:59 pm | Permalink

        Reply to reply:

        “Reply Have you ever met or spoken to either of them?”

        In the case of Boris one doesn’t need to. What is known about his personal life is enough for any decent person not to want to touch him with a barge-pole.

        Reply We are not judging people’s private lives but their capacity to do an important job

        • margaret howard
          Posted June 18, 2019 at 5:15 pm | Permalink

          Yes we should. Ones conduct in ones private life is a reflection on ones character. Nobody’s business in a private individual but everybody’s in a future prime minister. Even politicians should expect high moral standards from their leaders.

          • Edward2
            Posted June 18, 2019 at 10:46 pm | Permalink

            So margaret you still like Corbyn with his public record of support for groups like Hamas and IRA?

        • Richard1
          Posted June 18, 2019 at 6:01 pm | Permalink

          Many of the people whipping up hatred of Boris eg on the BBC regularly fawn over Bill Clinton.

        • libertarian
          Posted June 18, 2019 at 6:25 pm | Permalink

          MH

          If you are going to judge politicians on their private lives and sexual morals I’m afraid you aren’t going to have anyone left to vote for in any party

        • Jiminyjim
          Posted June 18, 2019 at 8:39 pm | Permalink

          Margaret and Andy, I really hope you watched this evening’s debate! Rory Stewart, who has been lauded by the MSM because he says he will ‘listen to people’ was incapable of even listening to his own colleagues in government. He shouted over absolutely everyone for most of the programme. Emily Maitlis shouted at BJ every time he tried to answer a question. I can only assume that you are both very easily led by the nose by the most disgracefully biased MSM in my lifetime. Please, Sir John, this has become a really serious issue now and it needs addressing by whoever is the next PM

      • libertarian
        Posted June 18, 2019 at 6:24 pm | Permalink

        Andy

        That would be the honest Rory Stewart who live on air said 80% of people wanted a second referendum and when challenged said he made it up.

        You are so gullible Andy

  9. margaret
    Posted June 18, 2019 at 5:53 am | Permalink

    It depends upon what context you are applying national capacity to. The bank cannot assess what is happening in this much more fluid society. However we desire to portray cameos of our social situation , the changes impact on all aspects of our nation.It is like trying to find a mathematical solution to an old problem which essentially has mutated to an entirely different set of factors.

    • Fed up with the bull
      Posted June 18, 2019 at 5:26 pm | Permalink

      MH. Boris could be a saint and you wouldn’t support him even then because he is more likely to get us out without a deal and you will only support someone who is essentially a remainer. We can see right through you Margaret. One day you will say something positive about your country and stop supporting the EU over every damn thing. That’s the day I’ll fall off my chair.

  10. Roy Grainger
    Posted June 18, 2019 at 6:02 am | Permalink

    Carney has been like Bercow, hanging on past the date they promised to go in the hopes of cancelling Brexit. Hopefully when Brexit is sorted in January (some hope !) Carney will be replaced with someone more competent at making forecasts.

    • ukretired123
      Posted June 18, 2019 at 10:01 am | Permalink

      Exactly and we need someone believes in the country and someone who believes in Brexit.
      Carney has been a political puppet whose strings are pulled by Hammond and Treasury appointed by Osborne.
      He never believed in Brexit and was caught out big time in 2016/17 with doom mongering erroneous forecasts but never had to publicly apologise not fall on his sword and resign.
      He should have been given his marching orders in 2017 not carry on hoping for his doom to materialise!

      • Mitchel
        Posted June 18, 2019 at 1:35 pm | Permalink

        Carney’s strings are pulled by a much higher power than provincial officials like Hammond or Osborne.He is one of the squid’s tentacles.

  11. Posted June 18, 2019 at 6:23 am | Permalink

    Europe:
    1. The Eurogroup are rethinking their monetary policy in this year’s June meeting. What will they come up with?
    https://www.consilium.europa.eu/en/meetings/euro-summit/2019/06/21/

    2. We have something just under £300 billion worth of trade with the EU and, in the event of a hard Brexit, this will be grossly impeded – the EU will see to that, as it has already said in the Advice to Stakeholders. Can we make this up with (new) American and World Trade? And how long will it take?

  12. agricola
    Posted June 18, 2019 at 6:34 am | Permalink

    Fiscal change hangs on getting Brexit done and dusted. Minds that wish to prove that Brexit is a locust swarm can then be retired and replaced by people who can see that the UKs cup is half full. Brexit has corrupted UK agencies and ministries, no doubt on private instruction from No 10.

    We would lose our diary, but I would like to see your financial thinking put into practice. Bare in mind though, like the weather, there are so many variables outside our control that you will need the flexibility and reaction time of an acrobat to play the economy to our full advantage. Good luck should it be offered.

  13. Posted June 18, 2019 at 6:42 am | Permalink

    Perhaps those statements should be addressed to the EU, after all, they tell us what to do on every front, including the economy…because this government allows them to do so.

    If we get Boris and a chancellor who can think for himself then things might change…

    I just hope Boris doesn’t half fill his cabinet with remainers for the sake of the party, and @FAIRNESS@

    • Everhopeful
      Posted June 18, 2019 at 7:22 am | Permalink

      Bryan Harris
      Agree!!
      Bloody FAIRNESS!!
      That word uttered by those who haven’t got the slightest scooby about what it means!!

  14. Alex
    Posted June 18, 2019 at 6:51 am | Permalink

    The UK does not have an open economy. It has a central bank which is the opposite of open. I accept that it is better than most European economies in that it is slightly less regulated but that’s like chosing which on of the old Warsaw Pact countries was less communist. What we need is less counter productive meddling by B of E and government. Stop distorting markets and changing taxes to suit whatever crackpot idea and passing vote winning whim is fashionable in the Westminster bubble. Have whatever ill informed arguments, debates and squabbles you like in the crumbling parliament but keep out of our lives.

  15. J Bush
    Posted June 18, 2019 at 7:19 am | Permalink

    Carney went well outside his remit when he got politically involved in the UK leaving the EU. Heck, he isn’t even a Brit!

    With Cameron and Osborne gone, May going and Hammond likely to be kicked out, I think realises he has blotted his copy book big style with the next government and is trying to make amends, because wants to stay in situ. Too late! Apparently the Canadians don’t want him back. Tough. Get rid of him and get a Brit like Mervyn King who believes in Britain, in charge of the Bank of England.

    • Mitchel
      Posted June 18, 2019 at 1:46 pm | Permalink

      You know,with all the interference from foreigners from Obama to Carney to Trump to Verhofstadt to Pompeo and suggested Russian involvement, what has been happening is so redolent of the last years of the Western Roman Empire where a succession of “Emperors”(nine in less than 20 years) were little more than appointees of the barbarian commanders that effectively controlled the empire(then reduced to little more than Italy)or clients of the Eastern Emperor in Constantinople.

      Anyone with a copy of Gibbons Decline And Fall to hand,have a read of chapters 35 and 36 from “Symptoms of Decay & Ruin” to “Extinction of the Western Empire”to “Decay of the Roman Spirit.”

  16. Everhopeful
    Posted June 18, 2019 at 7:25 am | Permalink

    I thought that we had historically low interest rates anyway?
    How much more should savers be squeezed?
    ‘ Til the pips squeak etc?
    And who caused 2008? Not us!!!

  17. George Brooks
    Posted June 18, 2019 at 7:25 am | Permalink

    Pominoz is absolutely right and we need to get Hammond and Carney out of the way.

    Stewart in the last debate said ”I am going to win”!!! All part of the remainers script and last night Lidington et al declared their support for him. Stewart went on to push the WA once more and said that when he asks Boris how he will get us out of the EU the wheels will fall off the Boris Bandwagon.

    What a naïve arrogant little man. No one worth their salt will forewarn the EU on their approach to getting us out of the EU, so he won’t get an answer. However I hope Boris puts him firmly back in his box.

    Stewart is Theresa May’s Trojan Horse in her attempt to ruin this country and get her own back after her complete and utter failure in both the Home Office and No 10

  18. davews
    Posted June 18, 2019 at 7:33 am | Permalink

    Some of us have been waiting for a rise in interest rates for longer than we can remember. Certainly don’t want to reduce zero to zero.

  19. jerry
    Posted June 18, 2019 at 7:45 am | Permalink

    Does anyone actually beleiv3e that the BoE is independent of Govt and its wider economic polices/goals?!

    If you want the BoE to change policy perhaps you first need to convince your own party to change their rather narrow economic policies first, such as the obsession with the cutting the deficit [1] (so quickly) and inflation, both of which tend to stifle policies and economic growth.

    [1] out debt was far larger after WW2 that it has ever been since the international banking crisis of 10+ years ago

    • Mitchel
      Posted June 18, 2019 at 1:54 pm | Permalink

      Look how the value of that debt(ie someone else’s savings) was destroyed by inflation over the intervening period.

      • jerry
        Posted June 18, 2019 at 4:29 pm | Permalink

        @Mitchel; Savings are not the only measure, nor the only consideration!

  20. Mike Wilson
    Posted June 18, 2019 at 7:52 am | Permalink

    You seem to be determined that everyone in the country should be up to their ears in debt. And that we should all buy a new car on finance every 2 years. Why is that?

    I prefer to have no debt and to buy a two year old car and keep it for eight years.

    Reply I want people to have choices. NO need to buy a new car if you don’t want one, but why stop someone who wants one who could afford the finance?

    • Mike Wilson
      Posted June 18, 2019 at 7:29 pm | Permalink

      It’s a matter of prudence. Buying on credit with historically low interest rates is very risky. Lots of credit is risky. Has 2008 been forgotten already?

      • Pominoz
        Posted June 18, 2019 at 11:01 pm | Permalink

        Mike,

        Quite true – but isn’t it remarkable that certain people continually make good decisions, whilst others continually make bad ones. It is always the same people on each side.

        Hardly coincidence.

  21. Richard1
    Posted June 18, 2019 at 8:12 am | Permalink

    Not sure about this. Although you’re probably right re the BoE’s odd pronouncements on ‘capacity’. Sterling remains very weak. We need to boost growth by boosting productivity and investment with such measures as tax reform, planning reform, hopefully more or less complete free trade etc. Need to grasp the bull by the horns. Danger that focusing on ultra loose monetary policy postpones confronting the real issues – and leads to further malinvestment, props up zombie enterprises and leads to further calls for bad public ‘investment’ projects. Etc

  22. oldwulf
    Posted June 18, 2019 at 8:33 am | Permalink

    Sir

    “The Bank seems to want to prove a point about its errant pessimistic forecasts over Brexit”.

    I believe you are right. The B of E has been working to a political agenda rather than an economic agenda.

  23. Chris
    Posted June 18, 2019 at 8:50 am | Permalink

    I understand that President Trump may well restructure the Fed, a move that will have very significant consequences for the global political elite. The Fed is privately owned and can apparently operate with impunity. P Trump is also interested in a return to the gold standard, apparently.
    A detailed thread(threadreaderapp) on P Trump, the Federal Reserve and the Gold Standard can be found by googling “Praying Medic Federal Reserve”.

  24. acorn
    Posted June 18, 2019 at 8:56 am | Permalink

    The effects of Central Bank (CB) base rate changes is somewhat indeterminate. Lower rates tend to be deflationary because a big spending (40% of GDP) Treasury, will spend less in interest rate based payments into the private sector, which reduces spending power in the economy.

    Remember that in a fiat currency economy the Treasury and its Central Bank are one and the same entity. The Central Bank is never “independent”. The CB has no tools to enable it to hit precise inflation targets. It has little capital of its own but its sponsor, the currency issuing Treasury, can always keep it afloat.

    Fix the CB Base Rate on reserves at a quarter percent and be the lender of last resort at half percent and just let the CB operate as the currency clearer for the Treasury and Banks.

  25. Lindsay McDougall
    Posted June 18, 2019 at 9:52 am | Permalink

    I’m sorry. Sir John, but ultra-low interest rates have two grossly anti-social side effects:

    The first is that it skews the housing market in favour of the ultra-rich and against the middle classes. When house prices are high and interest rates are low, banks and building societies ration lending by demanding high deposits, which the daddies of the ultra-rich can afford to pay. The other way to put downward pressure on house prices is a complete tourniquet on immigration (one in, one out, or for some sub-cultures one in, two out). In the mid-90s, the ratio of average house price to average income was about 3. In 2007, it was about 8, and now it is about 6, still too high.

    The other effect is that cheap money is counter-evolutionary in terms of business efficiency. Big, bloated, top-heavy low profit corporations find it far too easy to survive. The whole EU/Bank of England system already favours incumbents over new entrants. There is no need to make it worse.

    Since when did 2% to 2.5% inflation constitute low inflation? That idea came from MacMillan and Blair, those apostles of ‘the third way’ – hardly our most lucid economic thinkers. Give me stable money (zero inflation) and you can get rid of all of those pensioner perks (triple lock, concession fares, cheap haircuts, free prescriptions, winter fuel allowance, free TV licence).

    There are two markets where we need to be more specific. The housing market will be helped to work better by a slow and steady rise in base rate to half a percent above inflation. Simultaneously, stamp duty should be drastically reduced to a low flat rate and eventually eliminated. Taxes on transactions where no wealth is generated are in principle wrong. The car market would be helped by removing excess car tax and by ending the BoE’s discrimination against financing car purchases (let people spend their own money in their own way).

  26. forthurst
    Posted June 18, 2019 at 10:00 am | Permalink

    “…we import labour so our capacity is not constrained by UK resources…”

    Really? I haven’t noticed that housebuilding or the training or importation of doctors trained to Western standards or the building of more roads or the provision of more school places keeps up with the mass importation of minimum wage serfs. Furthermore, the policy of mass uncontrolled immigration is one reason why the Tories will be slaughtered at the next GE; with great fans of immigration like Boris and Javid running the show, it is unlikely that that policy which has social change as its main objective would change.

    • outsider
      Posted June 18, 2019 at 1:18 pm | Permalink

      Yes Forthurst but all the other parties (yet) in Parliament also favour continuing mass immigration. Yet is is “common ground” among most ordinary people that, while individual immigrants are most welcome, the numbers are far too high. This is one of the several areas where politicians and bankers have different interests from citizens but is not a popular concern favoured by Sir John.
      Politicians, like the old Continental mercantilists, want the economy to be run to maximise the revenues of the state and the resources at their disposal . Bankers want cheap labour to keep inflation and interest rates low so as to bolster asset prices and widen financial margins.
      People want their labour to earn rising living standards, of which the cost of housing is an important element.

      • forthurst
        Posted June 19, 2019 at 10:20 am | Permalink

        These putative arguments of politicians are all specious as they, the politicians, are also constantly fretting about the failure of productivity to increase; perhaps if they didn’t import the scrapings of the third world… Apart from building floating target drones, they purport to spend most of our money on ‘services’ for an ever increasing population. Is China’s productivity increasing? What is their secret?

  27. bigneil
    Posted June 18, 2019 at 10:36 am | Permalink

    TM is doing exactly what Blair does. No longer in the job, but still think they know best. Both, along with other previous PMs, deluded with power.

  28. ian
    Posted June 18, 2019 at 12:05 pm | Permalink

    I don’t see US rates being cut this month while the s&p is trying to move up if s&p fail then rates will be cut.
    The fed, as usual, follows the share market and not the bond market until the fed is forced to.
    The fed does not control interest rates the market does as you can see now that the fed is behind the curve, it should have cut three months ago when rates move through 2.5 per cent.

    The problem is that more money going to bonds than stocks but at the same time stocks are near a record top, countries, institutions and funds are buying a lot of US bonds which means they think stocks are going down and the main street is in bad shape, another problem is people have been trained to buy the dip in the stock market over time with the fed put, we got your back, of cos the fed, got nothing, it the market that dictates to the fed.

    I have been buying bonds since last year US 10-year bonds and a few weeks ago had to phone the platform because had taken it away because no one was buying and had to have it put back on the platform so I could buy more, up over 20% so far.

  29. lojolondon
    Posted June 18, 2019 at 12:13 pm | Permalink

    As soon as Theresa May leaves, followed by her Chancellor, this will all change. I also expect changes to stamp duty, IR35 and Landlord taxation.

  30. ian
    Posted June 18, 2019 at 12:19 pm | Permalink

    By the way, UK bonds 10 years from 1.55 per cent back 0.5 per cent soon because of the economy in the UK is broken.

  31. outsider
    Posted June 18, 2019 at 2:42 pm | Permalink

    Dear Sir John,
    Your analysis of monetary policy make be correct in its own terms but reminded me eerily of Gordon Brown claiming that he had “abolished boom and bust”.
    The job of monetary policy is not to promote GDP growth but to provide a stable background for business and to compensate for cyclical fluctuations round the trend.
    At present, CPI inflation is spot on target at 2 per cent and GDP rising at 1.8 per cent a year, which is at or marginally above the medium-term trend. Employment is healthy. This is about as near to normalcy as you can get. Under the Taylor Rule, a common-sense guideline, the cost of money should be target inflation plus trend growth, which would put Bank Rate at about 3.5 per cent. It is actually 0.75 per cent.
    Result: continuing massive distortion. The country is spending 4 per cent more than it produces with inevitable consequences of decline. Negative real interest rates of 2.25 per cent (on RPI) make it penally and artificially hard for young people to save up a house deposit (another cause of populist rebellion).
    Your recommendations are not, I respectively suggest, any kind of answer to our problems.

  32. ian
    Posted June 18, 2019 at 5:35 pm | Permalink

    In Sweden, the banks pay you interest each month to take out a mortgage not you pay them, the last throw of the dice for the con party on property prices coming in the next few years with neg interest rates, but i don’t think the market will stand for it, like the US markets, they will snap and demand more money to hold their debt, that when interest rates go up because nobody wants to buy their debt, the risk is too great, you don’t buy bond for the interest they pay, you buy them for percentage gains when the interest rates go down.

    All countries economy are mostly in broken state, it just question of time, that all.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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