Was it a mistake to allow the BOE to set its own interest rates?

But unfortunatley would have left the ordinary, dare I say 'prudent', saver high and dry. The FSCS has no money but can, with all the stops out, scrounge together £4 billion per year by a levy on all financial institutions. Retail deposits with Northern Rock alone were £20+ billion and what's the betting most of their commercial loans were assured/secured with first call on the Northern Rock corpse. Same problem on an even larger scale as the other dominoes threatened to fall - and who would pay the FSCS compensation levy with the major contributors out of the equation. They didn't let the total inadequacy of the depost 'guarantee' system show up.

No disagreement: the fact that it is a trigger does not mean it can't also be cure, if of the purgative variety when things go beyond any reasonable option of gently nursing the patient back to health.

Toom

'M Holmes' wrote thus:

LOL. I watched Merv earlier and that is more or less what he said. After all the £billions spent on bank rescues, stimulus packages and quantitative easing he said "the economy will recover, but it's difficult to judge when". Duh!

Now we hear that the demand by Govt to fund its own borrowing might be crowding out commercial borrowing:

Own goal?

'Toom Tabard' wrote thus:

Exactly so :-) I believe warnings were given to the clown but he chose to ignore them ...presumably far too mesmerised by the rise in tax revenues.

Agreed, and also with MH in that the credit crunch is also the cure. But the dumb pols still don't get it!

this is not adequate... the cpi is *falsely* called 'inflation'.....it goes nowhere near representing real inflation...rpi is merely not quite as bad...

real inflation is presently approaching 20%.... it has been around 10% for the last 3 or 4 years... and ~5% since the clown came to destroy us.....

there are various esoteric qualifications to the above....but the above is the approximate reality

regards

but the so-called 'interest rate' is not directly set.... it is set by increasing or reducing the supply of money...

the same process could be applied to tractors..... but they're a mite harder to produce than ticket money....

and then the market tends to react by demanding more tickets!

i'll leave you to fill in the rest if you can be amused by that task :-)

regards

the market would set the rates...as it does over time anyways

the empiric 'natural' rate of interest is around 2-3%...prior to inflation... government fiddling with the money supply is the direct equivalent of newspeak....it puts people in a position that they don't know what meanings to attach to the natural language of the market.....money thus inflation undermines markets

as keynes put it 90 years ago! "Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." 1919

regards

Nope. Most would have been fully compensated under the insurance scheme which covers deposits up to a certain limit. This would have been a great deal cheaper for taxpayers than bailing out the entirety of the banks' operations.

True, but as we know, if they'd let it go down at the start of this, it actually had enough to cover deposits once all its assets had been sold.

Not ahead of depositors though. The bondholders would have taken a bath.

I suspect that taxpayers would indeed have taken a hit on this. It'd have been vastly cheaper than what we're doing now though.

Deflation is a cure for this problem. Prices, asset prices, and most likely wages, will restabilise at some level. The question is how much money are we going to lose by throwing it into the maw of this monster in the meantime?

Even if we were to use taxpayers' cash to help cure this, the best time to do this is as we hit bottom. The money will be worth more at that point and they'll thus be able to help more people.

Bailing out the bondholders of the banks and of the dodgy mortgages was unnecessary and was done in a complete panic.

FoFP

As you say falsely by those unfamiliar with the concept of index which tells you whether a measurable phenomenon in this case a set of prices) have increased or decreased in value over a period of time.

Clearly it is of less personal relevance to the individual who buys few or none of the priced items in the set. On the other hand it will have high relevance to anyone who buys many or all of them.

What it does do is provide a handy tool for indicating trends.

No index will assess your personal inflation experience for reasons stated.

The percentage change in any index does not general experience but only that the higher

By what index?

by money supply minus gdp growth...

regards

it's also not popular among idiots....and the clown is primarily interested in popularity...not the good of the country....

regards

Yes but the government set their target. A bit like letting someone else drive but telling them where to go.

And the target chosen was initially RPIX which excludes mortgages, then the CPI which excludes virtually all housing costs. So the silly rises in house prices were of no concern to the BoE, it didn't affect their target so they left rates lower than they should have been. Resulting in the biggest housing bubble in living memory.

but inflation ? money supply minus gdp growth

Inflation is a measure of changes in price or prices.

There are many factors that go into the make up of a price and not merely two.

The above does not take into account varying volumes of consumption, varying level of imports and exports, variations in exchange rates and variations in various international markets to name but some factors that come immediately to mind.

Indexing does not need to concern itself with any of these since it utilises just two or two sets of facts. One at the beginning of a given period and the second at the end.

i can't read this character string ≠ which occurs where the '?' above is shown....

why do you believe that is relevant?

i did say there were minor esoterica outside the frame i posted

they include money velocity (empirically generally stable), elements of reserve currency and miscalculation of gnp in elastic money.... but i'm content these are not major variables

exchange rates

1)follow relative money printing...(unpredictably lagged) 2)the very messing with money supply by governments

index requires a lot of data and choices of baskets which are currently very vulnerable to government meddling....

regards

The action was that of headless chickens, and it could have been handled much more cost effectively, but the market was not providing, and would not have provided, 'the answer'. It would have provided *an* answer which might have caused little problem to those with feckless levels of debt, but, as usual in these bubbles, ruined not only the big and irresponsible institutions, but those who with good faith in their security and regulation, had placed their lifetime assets there. That indeed may be 'the answer' for many but not for them nor for many others.

Toom

keynes...1923 "Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned. The individualistic capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient-perhaps cannot survive-without one."

your comments invited....particularly on :- "...because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier..."

regards

[...]

Essentially they are. The BOE makes use of a program to pedict bank rates etc. Apparently it takes as input 300 separate economic factors and spits out various useless? predictions. (the biggest input factors, i.e. greed and cowardice are -not- modelled :) Like weather forecasting it can never be particularly accurate but it's a handy confidence booster for the bankers, who are not au fait with technical stuff (like numbers :)

So long as you don't give it -1!

And if it were so easy then computer model or no computer model economic crises would never happen.

But they have and do because there are so many unknowns. In markets everyday you have punters betting against each other.

ok.....thanx... comment...i have of course no idea why he would claim that

regards

Am I my brother's keeper then?