Central Banks have plenty of options

The Bank of England has uniquely amongst the larger Central Banks of the world set its policy against promoting growth. The rest of the world’s leading Central Banks have been loosening policy this year to prevent the global slowdown becoming a  recession. How are they doing this? What are the Bank of England’s options?

Some have simply been cutting interest rates. Some have lowered reserve asset ratio requirements, which is a way of allowing commercial banks to lend more for the same amount  of capital they hold. Some have made available cheap facilities for commercial banks to borrow if they will lend more to the real economy they serve. Some have undertaken full Quantitative easing, creating money to buy bonds and ETFs to drive asset prices up and keep interest rates low. Some have injected more money in through the money markets.

I am not proposing a resumption of Quantitative easing in the UK. Nor  does the Bank have to cut interest rates, though taking 25 basis points off the 0.75% interest rate would send a signal. Better would be to relaunch Funding for lending, a scheme to provide more money for commercial banks to support investment and larger consumer purchases in the economy. The Bank should also cancel or defer its recently announced doubling of the counter cyclical capital buffer.

There will be those who object that the Bank is independent , so the rest of us should not discuss these matters. How wrong they are. In a democracy the Central Bank, owned by taxpayers, has to be answerable to Parliament and people. The government has just appointed a new Governor, so presumably they have discussed with their preferred candidate how they see the task ahead. The Labour government legislated to make big changes to the functioning of the Bank, taking away substantial powers it needed to regulate and guide commercial banks and money markets. The Coalition government legislated to put those powers back. Government and Parliament settle the aims of Bank policy and can change those if they wish. There has to be continuous dialogue between Central Bank and Treasury as they are both having influence over the same economy. It helps if they are both trying to achieve the same purpose.

The Governor is accountable to Parliament and comes to give evidence of progress. The Bank works closely with the Treasury, particularly at budget time. The two institutions do not usually diverge much in their forecasts. The new Governor has to understand there has been a  big change of economic policy with the change of government. The target of reducing state debt as the main aim of policy has gone. The promotion of growth now lies at the heart of the new fiscal framework. It must also inform the Bank’s work. The Bank of course has to keep to the inflation remit but needs to understand the shift of its parallel aim of helping promote growth and good levels of employment. Currently there is no inflation threat in the advanced world and no inflation problem in the UK.

Let’s hoper others join in the call for a change of approach at the Bank of England. They have fought inflation successfully. They now need to join the mainstream of world Central Banks and fight against slowdown.

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  1. Peter Wood
    Posted December 21, 2019 at 5:58 am | Permalink

    Good Morning,

    Sir John, from your writing today, it seems you are trying to encourage growth, as measured by GDP? Perhaps that is not the best parameter to use as an indicator of economic health. What we, as a nation, should try to achieve is not ‘growth’ but ‘profit’. I would be delighted to have lower sales if I could maintain profitability, or even better, higher profitability with lower sales and or invested capital.
    UK plc should strive to obtain a greater return on its invested capital, people and assets, rather than simply increase turnover.

    • Sir Joe Soap
      Posted December 21, 2019 at 11:04 am | Permalink

      Well most of that is self adjusting as unprofitable businesses generally don’t attract more investment.

      The FLS scheme idea is good, but beware of low interest cash going to fuel residential house prices rather than higher risk SME lending. Probably a plan to funnel lending
      as co-lending through VC and other investment houses to the low mid-end of the business market where risks can be assessed.

      • Hope
        Posted December 21, 2019 at 6:07 pm | Permalink

        JR, your govt has stuffed the savers, strivers and workers for ten years while helping the feckless, wasters and throwing away our taxes like there is no tomorrow.

        I think you need to explain to ordinary souls why savers, pensioners have been hit for six while other forms of investment curtailed like buy to let by your respective chancellors. All these taxes for your mass immigration policy which is the route to all overwhelmed public services and house problems.

    • Narrow Shoulders
      Posted December 21, 2019 at 11:56 am | Permalink

      GDP per capita is a much better measure of how WE THE PEOPLE are doing than debt and population growth fuelled GDP increases.

      House prices and therefore the cost of living are too high as a result of QE and low interest rates over the last 10 years.

      Bring back the correct cost of money so that investment is better considered. Would we be spending £100 billion on HS2 if bonds attracted 7% coupon?

  2. agricola
    Posted December 21, 2019 at 6:14 am | Permalink

    To what extent does our banking system have to play ball with rules laid down by the EU. Our governance certainly does in many respects. One hopes that Brexit and its recognition by the new govenor of the BoE will reajust financial thinking to everyones benefit.

  3. Nig l
    Posted December 21, 2019 at 6:37 am | Permalink

    I see no evidence at a personal level of credit tightening. The Banks are awash with money from mortgages, to interest free transfers on credit cards to personal loans with payment holidays.

    What is true is that driven by the Regulator and a desire to keep bad debts down they make far greater efforts to ensure people do not take on ‘too much debt’ that they cannot afford.

    Personal debt levels are reputed to be very high yet you constantly want to drive that higher.

    Reply Not my aim. I want young people with jobs to be able to buy a home and I want more people to be able to buy more fuel efficient and cleaner new cars. I want business to gave access to more investment capital.We need to recycle all those savings.

    • Sir Joe Soap
      Posted December 21, 2019 at 11:07 am | Permalink

      Reply to reply – so you need to keep lending tight on property rather than letting a BTL mark 2 let rip by relaxing mortgage lending. Young people aren’t helped by low rates but by low prices. 1982 and 15% rates but prices at 3 x salary worked.

    • Narrow Shoulders
      Posted December 21, 2019 at 12:00 pm | Permalink

      Reply to reply

      The best way to allow young people (and others) to buy their own home is to restrict the money supply so that prices reduce, not to increase the money supply which just drives prices higher.

      That can’t be done as you need to protect bank’s balance sheets and the investments people have already made in their home. We could however restrict the increase for a few years to bring prices into proper alignment.

      Less money, more homes and fewer people would be a good approach.

      Business can be encouraged to invest through the tax system.

    • Fred H
      Posted December 21, 2019 at 5:51 pm | Permalink

      reply to reply…..I don’t think encouraging people to borrow to buy more fuel efficient and cleaner new cars helps much. Unnecessary increased debt to save a couple of pounds a week on fuel by spending £15k to £40k on a car made outside the UK sounds mad financial advice. Here’s another (daft?) idea – why not significantly reduce road tax on ‘efficient’ non-new cars, and raise tax on fuel by a couple of pence per litre? The consumer pays!
      That might avoid raised debt levels for little purpose, and avoid massive import costs that does nothing to assist our GDP.
      Another (daft?) idea – stop revising car licence plates twice a year – a keeping up with the jones’ measure to increase sales of foreign made cars. Fix the plate numbering to indicate 2 successive years – not twice yearly. It is this that drives stupid debt of foreign goods. SMMT might get uptight – but what the hell!

  4. agricola
    Posted December 21, 2019 at 6:45 am | Permalink

    Hints have recently dropped from government lips of creating a Singaporean economy with free ports and enterprise zones to help rejuvenate areas of the neglected north. Nissan have proved how effective the northern workforce can be with enlightened management.

    Government need to create a coherent blueprint for this that can be presented to the Treasury and BoE so that they can play their part. It should be made clear that direction from the EU is at an end and from now on we are playing competetive international commerce.

    • jerry
      Posted December 21, 2019 at 8:46 am | Permalink

      @agricola; Indeed, but I hope the Govt will not get to obsessed with Headline grabbing “Free Ports” whilst ignoring other needs, such as extending a helping hand to those needing the relaxing of local planning rules, national employment taxes and UBR regs. There must be tens of thousands of small or sole traders who would like to expand but can not find suitable premises or find it unprofitable to do so due to the above regs and taxes. Often these people do not actually need the services of a bank loan to expand!

      • dixie
        Posted December 22, 2019 at 6:37 am | Permalink

        Premises are too expensive and getting rarer as light industrial estates get replaced by dormitories.

    • Andy
      Posted December 21, 2019 at 11:07 am | Permalink

      I doubt Nissan will be proving much in the north for much longer. The car manufacturers will pretty much all abandon Brexit Britain before long. They will probably keep going for the lifetime of their current models but not many new ones will be built here.

      • jerry
        Posted December 21, 2019 at 4:10 pm | Permalink

        @Andy; That very much depends on what market they are targeting and in which part of the world, even with Brexit the UK plant might still make sense as their European base, considering the Sunderland Nissan factory is one of the most efficient manufacturing car plants in Europe – on top of that, Nissan appears to be on a slow devoice from Renault too, so that will also be of consideration too.

      • Edward2
        Posted December 21, 2019 at 4:11 pm | Permalink

        Factless Project Fear yet again from you andy.
        You are just guessing the future with your usual “I hope doomsday is ahead” attitude.
        Billions have been invested and are being invested in the UK automotive industries.

        • bill brown
          Posted December 22, 2019 at 5:25 pm | Permalink

          Edward 2

          just move on, you are beginning to sound like a worn record

          • Edward2
            Posted December 22, 2019 at 8:45 pm | Permalink

            Come on then Bill guve us some proper original factual posts, instead of your usual poor contributions full of sarcasm and petty sneering.

      • NickC
        Posted December 21, 2019 at 5:37 pm | Permalink

        Andy, If we use the EU’s finished car duty of 10%, and have a low parts duty, I suspect car assemblers will flock here. You lost. Again. Get over it.

        • Andy
          Posted December 21, 2019 at 7:58 pm | Permalink

          They have made clear they won’t – because, as you still spectacularly fail to understand, it is about regulation and not tariffs.

          I didn’t lose. My country did.

          • Edward2
            Posted December 22, 2019 at 8:36 am | Permalink

            Vehicles are manufactured to meet all applicable regulations in the country they are being sold into.
            And will continue to do so.
            You don’t know what you are talking about Andy.

          • jerry
            Posted December 22, 2019 at 9:10 am | Permalink

            @Andy; Stop talking total bilge-water.

            Cars, vans and trucks are built to differing regulations all the time within the same manufacturing plants, and have been for decades. Look at any factory parts manual for a vehicle and you will see it littered with bracketed notes listing different part numbers for different countries -and not just for the blindly obvious differences either…

            Both the UK and Japan drive on the same side of the road, logic would suggest a car made for the Japanese market would would use the same parts at those for the UK market, they do not. Both German and the USA drive on the same side of the road, logic would suggest that a BMW for the Germany (and EU26) market would use the same parts as one to be for the USA market, they don’t…

          • NickC
            Posted December 22, 2019 at 11:47 am | Permalink

            Andy, And you believe them? Well I suppose it does fit your paradigm. But that’s all.

    • Mitchel
      Posted December 21, 2019 at 2:42 pm | Permalink

      Direction from the EU “may” be coming to an end but direction from those who control the financial system on which we,being effectively insolvent,depend will not.

      On thing Mr Carney was right about was his remark that we depend on the “kindness of strangers” which I have always taken to be a reference to a line uttered by Blanche Dubois,the faded,metally disintegrating Southern Belle in the Tennessee Williams play A Streetcar named Desire.

  5. Nig l
    Posted December 21, 2019 at 6:54 am | Permalink

    Ps. Forbes have recently highlighted how our largest communications provider has boosted its productivity by 45%. I see no evidence that HMG even thinks this would be a good idea let alone how to do it.

    If you want to drive the economy this should be your focus lowering our taxes but politicians are obsessed with spending money rather than saving it.

  6. Kevin
    Posted December 21, 2019 at 7:22 am | Permalink

    Speaking of change, yesterday, Parliament voted overwhelmingly to change the national motto from, “Keep calm and carry on”, to, “Cheer up! It may never happen!”. To some extent, they are right:
    1) the EU may never act under Art. 127 to our detriment (legislative power over UK);
    2) the ECJ may never act under Art. 174 to our detriment (judicial authority over UK);
    3) the EU may never act under Art. 129(6) to our disadvantage (UK obliged not to impede EU foreign policy); and,
    4) the European Investment Bank may never need to call on, I believe, €42.5 billion of capital guaranteed to it by the UK under Art. 150.
    Unfortunately, it seems that, based on OBR estimates, British children born on “independence day”, 31st January, will be contributing to EU pensions into their forties. Furthermore, the DUP do not appear to have been placated by the new Government with regard to the position of Northern Ireland. Still, after we Withdraw with this “deal” next month, the Conservative Party will be delighted if we can talk about anything other than the above.

    • jerry
      Posted December 21, 2019 at 8:53 am | Permalink

      @Kevin; Of course the UK parliament might, at committee stage, amend the said WA to the extent that the EU/EP can not ratify, in which case will the UK not leave on 31st Jan 2020 without agreement and thus default to WTO rules etc?

      Does Boris have enough of a majority to do the right thing…

      • Simeon
        Posted December 21, 2019 at 3:43 pm | Permalink

        I have yet to come across any credible explanation as to why BJ would do what you suggest. I think this is because there simply isn’t one, and that BJ is genuinely delighted with his deal and with his job.

        • jerry
          Posted December 22, 2019 at 11:42 am | Permalink

          @Simeon; I take your point, upon reflection given the PM’s apparent gilding of the Climate Change lilly, perhaps I should have said allow the correct thing to pass by way of Eurosceptic backbench amendments.

          • Simeon
            Posted December 22, 2019 at 6:16 pm | Permalink

            jerry, I see no reason to believe that BJ would encourage amendments to his deal, nor any reason why the kind of ammendments we are talking about would secure majorities in the Commons. These are in effect one and the same thing, because, again, I see no reason to believe that BJ is anything other than in total control of the vast majority, if not the totality, of his party.

            The Tories, put simply, are a pro-EU party, in my opinion. Whether this is in fact the case will be borne out soon enough, though as far as I’m concerned, any doubts were put to bed a while ago. However, I will not criticise anyone for hoping for the best now, as it no longer makes a difference with the democratic event behind us.

          • jerry
            Posted December 22, 2019 at 10:45 pm | Permalink

            @Simeon; Your can’t see because you do not want to see, nor give the benefit of doubt, even for a week or two.

            Your comment would have had more weight had you not posted your second paragraph…

    • NickC
      Posted December 21, 2019 at 10:50 am | Permalink

      Kevin, And pigs may fly! I am baffled by the Tory party claiming that the WAB is Brexit, when your list of WA Articles shows it isn’t. As in fact most of us on here know.

      Perhaps JR can ask Boris what on earth he means by claiming that we will leave the EU on 31 Jan 2020?

      • Simeon
        Posted December 21, 2019 at 3:47 pm | Permalink

        Bafflement disappears when one bears in mind that the Tory party are interested only in power. The WAB is Brexit is a line that has secured them power for another five years. It’s sadly that simple.

  7. Alan Jutson
    Posted December 21, 2019 at 8:47 am | Permalink

    Government and the Bank should communicate and work together, but do they ?

    We seem to have had Chancellors and Prime Ministers of late who just seem to take instructions, perhaps because they do not have the financial knowledge to do anything else, or because they have some sort of other hidden agenda, saying one thing in public whilst really doing and supporting something else.

    Looks like we have a possibility of continuity Carney !

    I am all for a certain degree of caution, but if money does not circulate, then Business suffers, and the Government loses tax revenue.

  8. formula57
    Posted December 21, 2019 at 8:48 am | Permalink

    “They have fought inflation successfully” – a battle that has not required a shot being fired, although do not mention asset bubbles.

    We now learn of ring fence problems as large banks with trapped funds undercut smaller banks in the mortgage markets. The new Governor has much to address and should aim to minimize costs borne by taxpayers.

  9. Sydney Ashurst
    Posted December 21, 2019 at 8:58 am | Permalink

    Have we forgotten what is written in the Withdrawal Agreement, the one
    you previously voted against.
    It becomes an International Treaty in January.

    • agricola
      Posted December 21, 2019 at 3:48 pm | Permalink

      Yes it would be of benefit to all who take part in this diary to read what Boris has removed from WA2 and what is left. Apparently parliamentarians have signed souvenire copies. Can we have an analysis of what has been left in.

  10. Andy
    Posted December 21, 2019 at 9:22 am | Permalink

    Obviously it was a sad day yesterday with MPs passing the capitulation agreement – the first step to undoing 40 years of cooperation and progress.

    But the circumstances are now very different from 2016. It is now all but inevitable that Brexit will ultimately be undone. Nobody can fail to have noticed the embarrassing fiasco the Brexiteers have inflicted on our country over the last three years as they have lunged from self-inflicted crisis to self-inflicted crisis. Where they have repeatedly failed to understand even the basics. It really is a national embarrassment.

    The Brexiteers project is dead on arrival. Already rejected by most voters – as we saw again at the general election – but being imposed on the majority by a government elected by a minority. This will not last. And as younger people see their rights and opportunities eroded – something we know Brexit will do – with no discernible benefits they will take their own metaphorical narwhal tusk and put Brexit our of its misery.

    We can then truly start the task of bringing the country together by establishing the truth at a public inquiry – followed by prosecutions of the leading Brexiteers including Johnson, Cummings and Corbyn.

    We are coming to kill your pathetic project. And sooner or later we will succeed.

    • agricola
      Posted December 21, 2019 at 3:40 pm | Permalink

      Where has this bizarre thought process been hiding itself during the last fortnight.

    • Edward2
      Posted December 21, 2019 at 4:18 pm | Permalink

      Another ridiculous rant from you Andy.
      The next election is five years away and it is unlikely the Conservatives would lose their huge majority at that election.
      So that is ten years of pro leave majority government.
      Even after ten years I reckon the Labour party will still be in the hands of marxists and will still be unelectable.

      • bill brown
        Posted December 22, 2019 at 5:22 pm | Permalink

        Edward 2

        Take your time and wait and see, a week in politics is very long and five years is even longer. We need to get away from the two party system ,so we have more to choose from

        • Edward2
          Posted December 22, 2019 at 8:48 pm | Permalink

          Well you can vote for whoever you like bill.
          Sadly for you the voters have given the Conservatives a massive majority for the next five years.
          Previous political history shows that level of majority is rarely overturned at the next election.
          So that is ten years.

          • bill brown
            Posted December 23, 2019 at 10:39 am | Permalink

            Edward 2
            I never predict ten years ahead as I do not believe that is realistic

          • Edward2
            Posted December 23, 2019 at 1:10 pm | Permalink

            Well you accepted the 15 year Treasury report on the effect of leaving the EU.

    • Fred H
      Posted December 21, 2019 at 5:35 pm | Permalink

      calm down Andy – they will be along presently with your meds.

    • NickC
      Posted December 21, 2019 at 5:44 pm | Permalink

      Andy, In the meantime we have killed your pathetic project. We just voted to install a government based on the mantra: “Get Brexit done”. You obviously missed it. You capitulaters lost. Again.

      • Andy
        Posted December 21, 2019 at 7:52 pm | Permalink

        A minority voted for the party which promised to get Brexit done. Which means there is not popular mandate from the majority for whatever deal Johnson does next. It will have been imposed on the public without their express say so.

        And this is why we had a referendum in the first place. Despite your 1975 loss and NINE subsequent general elections returning massive pro-Europe majorities in Parliament, Eurosceptics argued that the public had never had a direct say about what our relationship with Europe had become. And here we are just four years on and the public will again not have a say about what that relationship has become.

        We will get that say in the end and when we do we will kill off Brexit and lock up the charlatans who have sold it to you.

        • Edward2
          Posted December 22, 2019 at 8:44 am | Permalink

          Hilarious but predictable that you would refuse to accept there was a huge majority for the government.
          We refuse to accept that we vote for MPs in constituencies.
          That is how it works.
          If you had different election rules people would vote differently.
          I’m looking forward to the next ten years or maybe fifteen years of Conservatives in power.

          • Edward2
            Posted December 22, 2019 at 8:45 am | Permalink

            You refuse

        • NickC
          Posted December 22, 2019 at 11:58 am | Permalink

          Andy, The voting public did say so! In the Referendum of 2016 a majority of voters decided the UK should Leave the EU. Perhaps you missed it? That result has yet to be implemented, so the 2016 result still stands – and will do for another 41 years, by your stated precedent. Hopefully by then your EU empire will have disappeared into the history books.

          • bill brown
            Posted December 22, 2019 at 5:20 pm | Permalink


            It is not an empire and , no it will not disappear

      • bill brown
        Posted December 22, 2019 at 5:23 pm | Permalink

        Nick C

        Capitulation is used in war-terms, but you have obviously missed that like your empire

        • NickC
          Posted December 22, 2019 at 8:45 pm | Permalink

          Bill B, It is a war – not a military war, but an ideological war like the cold war – UK liberal democracy vs the corrupt EU empire.

          • bill brown
            Posted December 23, 2019 at 10:38 am | Permalink


            Your view of the world is totally distorted.

            Merry Christmas

  11. Mark B
    Posted December 21, 2019 at 9:28 am | Permalink

    Good morning

    I think we need to take a step back a bit and ask ourselves why there are calls for continued extraordinary means to be taken by various central banks ? Is it because the alternative is for governments to raise taxes and cut spending? Something that no governments wants to do. Is it because governments have maxed out on the state credit card and run up huge deficits ?

    We need to ask what government can do to stimulate growth without the need to pass the buck on to the BoE.

  12. Derek Henry
    Posted December 21, 2019 at 9:34 am | Permalink

    Monetary policy has to work hand-in-glove with fiscal policy to be effective

    The point to note is that the inflation risk lies in the spending not the monetary operations (debt-issuance etc) that might or might not accompany the spending.

    All spending (private or public) is inflationary if it drives nominal aggregate demand faster than the real capacity of the economy to absorb it.

    Increased government spending is not inflationary if there are idle real resources that can be brought back into productive use (for example, unemployment).

    Related propositions include the claims that issuing bonds to the central bank, the so-called ‘printing money’ option, devalues the currency whereas issuing bonds to the private sector reduces the inflation risk of deficits. Neither claim is true.

    First, there is no difference in the inflation risk attached to a particular level of net public spending when the government matches its deficit with bond issuance relative to a situation where it issues no debt, that is, invests directly.

    Bond purchases reflect portfolio decisions regarding how private wealth is held. If the funds that we used for bond purchases were spent on goods and services as an alternative, then the budget deficit would be lower as a result.

    Second, the provision of credit by the central bank (in return for treasury bonds) will only be inflationary if there is no fiscal space.

    Fiscal space is not defined in terms of some given financial ratios (such as a public debt ratio).

    Rather, it refers to the extent of the available real resources that the government is able to utilise in pursuit of its socio-economic program.

    Further, hyperinflation examples such as 1920s Germany and modern-day Zimbabwe do not support the claim that deficits cause inflation. In both cases, there were major reductions in the supply capacity of the economy prior to the inflation episode.

    Which leads to the urgency to bring fiscal and monetary policy together to achieve functional outcomes – our theme at the outset

    Central bank independence has been a sham from start to finish.

    It is the core point that MMT economists have been making for more than 2 decades. Voices take a long time to be heard. they consider the central bank to be a department of government – as it should be. A subsidiary.

    Posted December 21, 2019 at 9:35 am | Permalink

    I’m sorry John but your new found love for Keynesian pump-priming stokes my curiousity especially when one considers that you yourself have always argued that the route to real economic growth is through the forces of the commerce rather than spending decisions taken by government officials and politicians

    Can we please bury the idiotic idea that monetary conditions (created by State officials) has any affect on wealth creation capacity of a peoples. Growth is a consequence of human effort and productivity. Government messing around tweaking interest rates and money flows is mere tinkering. If governments could influence wealth creation by policy they’d do so. They can’t.

    It comes from people, their culture, their attitudes to risk, ingenuity, desire to do well, to create, to achieve independence, to push forward. These human instincts have come under attack since 1990 by a vicious left determined to create a culture of dependency and collectivist ignorance where the individual (moral and apolitical) is replaced by the narrative of the social group (political agenda at work)

    I’m rambling as I always do but what cannot be denied is that politicians and bankers do not create wealth. You impede the process but are convinced you don’t. You just cannot leave alone simply because you feel the need to be seen to be doing something, anything

    John, you never call for REFORM, ever. And the reason is simple. Reform means conflict with vested interests. Your new found love of anti-reform politics is an admission that confronting vested interests is pointless. Therefore the taxpayer is once again hammered into the dirt on the altar of political ignorance and a careless use of and contempt for scarce resources

    Reply Your permanent anger clouds your vision. I am pressing for many reforms. Most of the ones I currently seek stem from our exit from the EU which is a major reform. There is little point in opening up other major arguments for reform before we have landed this crucial one. It leads directly to more UK market based answers in fishing and farming, to a freer trade stance worldwide, to less public spending as we lose the newt contributions and to tax reductions when we take control of VAT

    • Simeon
      Posted December 21, 2019 at 3:40 pm | Permalink

      Reply to reply

      Sir John, the WA bill is to be ratified in a month or so’s time. This is an agreement that the EU are delighted with. They would not be delighted if the UK were either willing or able to implement the reforms you desire, reforms that would no doubt improve the competitivity of the UK economy, to the detriment of the Eurozone.

      You are an intelligent man, and so your advancing fantastical scenarios leads me to believe that, rather than being interested in sovereignty or principled economics, you are instead interested first and foremost in securing Tory governance. I can understand the thinking that Tory governance is always superior to other governance, and so, being pragmatic, securing Tory governance is the priority, and after that one hopes for the best. But I am appalled by the dearth of ambition, and even more the absence of honesty and integrity, which will inevitably be corrosive, and likely in ways unforseen. Perhaps the people of this country really do not deserve better.

      • Mark B
        Posted December 23, 2019 at 4:04 pm | Permalink

        Hear hear.

    • Hope
      Posted December 21, 2019 at 6:03 pm | Permalink

      JR, did you vote for the servitude plan mark 2? If so, what is so different from the criticisms you made of it previously?

    • Mark B
      Posted December 23, 2019 at 4:03 pm | Permalink

      Reply to reply.

      I do not consider his arguments to be in the slightest bit negative but informative with perhaps an element of truth. Leaving the EU with Johnson’s WA will not return all the powers we seek, so there is no way we can implement any reforms we would wish. You yourself Sir John have pointed out that both France and Germany seek to keep the UK as non competitive as possible. Johnson’s WA achieves that for them.

  14. Gareth Warren
    Posted December 21, 2019 at 9:39 am | Permalink

    I agree setting aside more money for loans would be a good idea and thinking on it, it could be justified beyond just trying to encourage growth with the new demands of brexit.

    Some companies may have to shift their markets, others will have the opportunity to rapidly invest in new ones, while more foreign companies will need to invest in Britain. Making that easier can only be a good thing in a time of a slowing world economy.

  15. Derek Henry
    Posted December 21, 2019 at 9:42 am | Permalink

    There is another important point to be made in regard to those who think that strict capital ratio rules will solve the problem.

    Lehman is a case-in-point.

    On September 10, 2008, Lehman reported 11% “tier one” capital and very conservative “net leverage“. Less than ONE WEEK, later, on September 15, 2008, Lehman declared bankruptcy.

    The capital positions reported by large complex financial institutions are virtually impossible to calculate with any degree of accuracy, which goes back to another important MMT point. Optimal regulation is achieved via regulation of the ASSET side of the bank’s balance sheet, not the liability side.

    The objective should not be to create reactive buffers (or “insurance policies”) when the banks’ complex derivatives products begin to go bad. Rather, the activities which fail to promote public purpose should be banned outright.

    The whole point of regulatory capital is to ensure buffers in case of a really bad downturn. When the really bad downturn happens the buffers will be (naturally) used.

    So the question remains…

    Why not ban (or heavily tax) the activities that caused the really bad downturn in the first place?

    • eeyore
      Posted December 21, 2019 at 5:57 pm | Permalink

      Isn’t the taxpayer the buffer? Why don’t governments charge banks a premium for making the taxpayer insurer of last resort? Why don’t taxpayers insist on it?

      And why are bank directors allowed limited liability? Depend on it, a bank director exposed to his last cufflink will run his bank with exemplary prudence.

      Indeed, one bank operates exactly like that. Hoare’s have no limited liability and were unharmed by the crash.

    • NickC
      Posted December 21, 2019 at 6:28 pm | Permalink

      Gordon Brown already tried to ban “boom and bust”. So he got there before MMTers. And failed.

  16. Lifelogic
    Posted December 21, 2019 at 10:01 am | Permalink

    I see that the new BoE gov comes from the FCA who seem to be responsible for encouraging the one size fits all overdraft rates of 40% and even nearly 80% from major bank in the UK – which are clearly totally anti-competitive.

    Did he not know this lunacy was happening in his organisation or is he another damn fool I wonder? Perhaps he can explain?

  17. Polly
    Posted December 21, 2019 at 10:34 am | Permalink

    No discussion today about the massive success of Prime Minister Johnson yesterday in getting his superb and daring ”Withdrawal Agreement” passed by parliament ?

    ”What could this mean, Holmes ?”

    ”Probably that the ”Withdrawal Agreement” is not superb and not daring, Watson, but is the biggest dud ever, and so we are looking at yet another Cover Up by discussing the boring old BoE !”


    Posted December 21, 2019 at 11:18 am | Permalink

    ‘not good enough’

  19. Tit for tat
    Posted December 21, 2019 at 11:52 am | Permalink

    Can an official calculation be made of the number of pounds which Remainer MPs have cost our country by their Project Delay?
    To be fair, they have probably cost EU nations a load of money too. It must have led to uncertainty in regard to trading with us from investors in their companies. Perhaps their investors went elsewhere.

    • Lifelogic
      Posted December 22, 2019 at 3:55 am | Permalink

      Difficult to accurately calculate, just the damage to confidence and the uncertainly caused by them, the dire dithering disingenuous May and the appalling Corbyn agenda has been huge.

  20. Narrow Shoulders
    Posted December 21, 2019 at 12:09 pm | Permalink

    Sir John

    You appear to have given up on productivity improvements for the UK and are now relying on increasing the money supply to grow.

    That is a shame – we do not need more personal debt nor government debt.

    Reply On the contrary, I still pursue many productivity and investment ideas.

    • Lifelogic
      Posted December 22, 2019 at 3:20 am | Permalink

      Productivity will increase hugely if you get the government out of the way, cut red tape, cut taxes, cut the green crap and go for easy hire and fire and cheap energy.

  21. margaret
    Posted December 21, 2019 at 2:07 pm | Permalink

    So to relaunch money for spending would require a lowering of reserve asset ratio requirements?
    I can’t see the banks working off different spreadsheets ; their aim surely is simply to make money.I await the sarcy comments.

  22. Dunc.
    Posted December 21, 2019 at 2:10 pm | Permalink

    Lending money at tiny interest rates is no way to promote growth, it just stops the failing companies from folding.
    Unless capital is reset and reinvested in dynamic companies you get the crap growth of recent years.
    Being out of the protectionist EU will help.

  23. dennisambler
    Posted December 21, 2019 at 2:31 pm | Permalink

    What about savers?

  24. BillM
    Posted December 21, 2019 at 2:50 pm | Permalink

    So a drop of 0.25% does not necessarily promote action it is supposedly to merely send a signal. I presume that signal can be interpreted by the relevant parties in several ways depending on their personal thoughts.
    Even so, Interest rates cannot fall much lower than 0.75% unless Britain wants to put itself into a diabolical situation – an age of negative Interest Rates. Where the CB effectively rewards those borrowing from it with taxpayers money.
    Also, I can see how the High Street banks can profit from an obvious arbitrage.
    They can borrow at 0.75% and using the cash immediately purchase a 15 Year Gilt currently yielding 1.024% making a profit of 0.274% on the deal. A pittance when investing just £100 but when borrowing to invest £100 Million in Gilts, it will provide a healthy £274,000 for very little effort and with absolutely no risk.
    Looking at the falling yields I do wonder if indeed such a strategy is being practiced right now.

  25. Steve Reay
    Posted December 21, 2019 at 3:58 pm | Permalink

    The problem with funding for lending it that it punishes those who save. Banks borrow cheap money from the BOE at the expense of savers. It doesn’t go down well with the voters that banks reduce rates because they now borrow cheap money from the BOE at their expense
    Who’s going to borrow this money most firms will be cash rich.

  26. acorn
    Posted December 21, 2019 at 5:44 pm | Permalink

    JR, you are blaming the BoE for the economic damage done by nine years of Conservative fiscal austerity. Apparently, this new Conservative government has no connection whatsoever with the actions of the previous Conservative government. It’s having the same name is purely a coincidence. Identical to a debt laden private company going bust on Monday and the same directors starting a new debt free company on Tuesday.

    The Funding for Lending scheme (FLS), along with the Term Funding Scheme and the Special Liquidity Scheme; were all smoke and mirrors attempts to bail-out commercial banks from their own reckless stupidity; and, keeping the cost of it from appearing as a government “budget deficit”. That is off balance sheet as they call it in the trade. The following appears in the FLS operation appendix A.

    “The Treasury bills used in the FLS are issued by the Debt Management Office (DMO) specifically for the Scheme. They are liabilities of the National Loan Fund and held by the DMO as retained assets on the Debt Management Account. The Bank borrows the Treasury bills from the DMO under an uncollateralised stock lending agreement (Figure A1), and pays the DMO a fee to cover administrative costs.”

    The National Loan Fund is the “Magic Money Tree”.

  27. Lindsay McDougall
    Posted December 21, 2019 at 6:23 pm | Permalink

    However you boost monetary growth, the effect on real growth is only temporary, to be followed in short order by inflation, which must be dealt with sooner or later. So why bother?

  28. Time Lord
    Posted December 21, 2019 at 7:05 pm | Permalink

    Well drink bottled water! Build desalination plants like the Saudis. It’ll all work out in time. They’re all ready pumping sea water into oil wells to make them more productive though they had problems with Islamic law for a bit on that one.
    You doing nothing with the Bush anyway. It’s a wasteland. Admit it.
    You’re only helping the sea get back to where it was and it seems to be rising so it has plenty.
    No it won’t end up as another Dead Sea. Is it a dead sea now? It should be shouldn’t it on your perverse logic! You can make use of the salt anyway.Wake up!
    I’m not here again! That’s it!Stew!

    • L Jones
      Posted December 22, 2019 at 10:10 am | Permalink


      Did anyone else get that?

      • Mark B
        Posted December 23, 2019 at 4:10 pm | Permalink

        I think the clue is in the name ?


        And no, I did not get any of it either.

  29. hefner
    Posted December 22, 2019 at 12:46 pm | Permalink

    As Christmas tales go, Sir Ivan’s one delivered on 25 November 2019 in Glasgow might be worth a read if only to realise that things might not be as easy as advertised by Sir John here.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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