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

'abelard' wrote thus:

!= (not equal to) maybe?

If not, then it's a Goggle problem.

'M Holmes' wrote thus:

Would controlling the money supply not simply be an alternative method of managing inflation instead of using IRs?

Yes, I guess dumping fiat currency status and reverting to (say) gold would arrest inflation but IIUC would also severely limit economic growth prospects, depending on what bank lending rules were.

'abelard' wrote thus:

But if the markets were left to set their own rates, surely it would simply come down to normal rules of competition, and control of (consumer) inflation wouldn't come into it? Banks would be vying to lend lend lend...

I think you posted that quote a few days ago and it sends shudders down my spine! Politicians actually quite LIKE inflation!

the lenders (market) will put up their interest to compensate for expected inflation

further, while money is a government cartel, competition is highly limited by the rate charged by the monopoly supplier... the government also sets the reserve ratio....further limiting competition....

it's not a matter of 'like'.....it desperate enthusiastic addiction!

regards

'James Hammerton' wrote thus:

heh! You don't actually expect me to list them all. The causes of inflation are not rocket science.

Here's a few: exchange rates, money supply, import prices, wage increases, raw materials prices, govt borrowing/spending, foreign money input, bank lending ...etc etc

Each input would need to have a weighting.

'Mel Rowing' wrote thus:

It probably isn't that easy due to agreement on the weighting each input would need to have and also that pols would not accept that they handed over control of IRs to a PC running a spreadsheet!

I don't think they are unknowns, only misjudged. Anyway, you are referring to something other than IRs and inflation.

i would hope you're not an anysortofthingsian, but that you think independently...that has also been my impression which is why i asked for your comments

i have no great problem with your response....however, i see no sign you have answered the basic point raised by the great keynes....

that in a conflict between the poor and the rentiers, it is better that the pain is born disproportionately by the rentiers

i continue to solicit your response on that issue....

but then you have 'the too big to fail' problem with its associated systemic risk...so, now i have a further yearning for clarification from your station!

regards

'abelard' wrote thus:

ok. If such a system was introduced, IYO would that produce a better control of (consumer) inflation? I guess that an essential component would be for govt itself to control its own monetary inflation?

That worries me greatly given the temptations lying ahead to deal with govt debt...

which system exactly? there is only one way to control inflation....to control the money supply

friedman :- "inflation is always and everywhere a monetary phenomenon"

he is completely correct....anyone who tells you otherwise is either ignorant or venal....

they've dug you a hole...now you have to struggle out of it...

friedman again :- "Inflation is the one form of taxation that can be imposed without legislation."

regards

a basic formula is very simple....eg gdp + 2.75%

but keeping human control via able central bankers is vital....

however, atm we are in deep trouble....to try to correct this immediately would cause chaos....

i repeat the keynes quote... 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."

as usual keynes is the very core of wisdom....

you now have a mass of relatively ignorant people in deep doodoo which they haven't a hope of understanding or of extracting themselves... you have a government way in over their head with 'promises' they can't possibly honour....

repeating friedman again :- "Inflation is the one form of taxation that can be imposed without legislation."

that is precisely what inflation is....and inflation is now around 20% ie, the government are meeting ~20% of their 'borrowings' from this secret taxation....

can you imagine the chaos if that were stopped ded in its tracks? it took thatcher years to get anywhere near cleaning up the last socialist mess.... socialism always lives on false 'promises' and false accounting.... and that *always* ends in chaos....

do you realise how unpopular thatcher was at times? the tory party always has to operate in a context of socialist lies and 'promises'....'promises' fools want to believe....

there is always and over-supply of fools...and venal parasites willing to exploit them.....if there were not, there would be no left wing parties....

regards from the campaign for franchise by examination....

'James Hammerton' wrote thus:

Because inflation is under political control?

abelard can tell you that money supply growth at the moment is running at > Here's a few: exchange rates, money supply, import prices,

I doubt if its precise, but the same input factors used in manual control can be fed into a model. No?

I guess in a similar way to the current manual way. Merv said yesterday that consumer inflation is not expected to catch fire in the foreseeable future. He must have applied weightings to each input factor to arrive at his judgement.

I was mainly referring to the process of creating a model. That is easy. I have created a few models in my time.

What is more difficult (and you are beating me with) is to replace human judgement with modelling judgement, especially where some of that judgement is of a political nature.

Hence my initial comment to Mel:

"The difficulty is the political weighting to be applied each time the handle is cranked"

but they don't...this is a myth.... governments *attempt* to control interest rates by changing the money supply...they *don't* set interest rates....

sub... you try to get the 1/2% the government is claiming as the current interest rates sub.... you must remember the banks are at least 1/2 under the thumb of governments...they are agents...not genuine independent businesses....

note especially the current control of banks here and in the usa.... as the governments 'buy in' to the banks...or whatever the present pretences are....

the banks are in part being bailed out by being given cheap money by the government.....and then lending that money to the public at considerable profit...

because understanding money is not simple...especially in a context of poor education and government lies...

again i quote the great keynes "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

quite obviously this remains not far from the truth.... clearly the clown is innumerate and venal....

the normal political cycle is.... inflate the money supply just before an election.... and then squeeze it after you're in power.... that is one of the ways governments fool fules....

keynes again in 1917 "I work for a Government I despise for ends I think criminal."

just so... and as the tories start to clear up this mess.... the socialist liars will immediately be out in force...

regards from the campaign for franchise by examination

'abelard' wrote thus:

One where banks were left to determine lending rates. As you wrote previously, if they were expecting inflation to rise, their rates would go up, thereby putting a damper on inflation. I also raised the issue of govt controlling the money supply.

Would these be effective in controlling (consumer) inflation?

Currently, the BoE sets interest rates for that purpose.

Indeed.

they are setting interest rates as you will find if you try to borrow money through a bank... they will set that interest rate by determining the greatest rate which they can take you for.....

the banks are not the only source of loans... private lenders will(if they have sense) look at their expectation of inflation and set their rates accordingly..... remember also that inflation takes time to feed through...so the time frame for demanding payment will be a relevant factor...

consider also that the socialist government is also bullying banks into lending in order to improve their popularity.... inflation normally takes at least a year or two to feed through...the *only* date that interests the clown is next may!! he doesn't give a twopenny damn about britain or the public...

meanwhile the banks are coining it what they are lending onward... doubtless your loan will include small print saying they can raise interest rates whenever they wish...at which point they'll call it 'negotiation'... the powerful and smart will be desperately trying to borrow on low *contractually enforceable* *long term* fixed rates....

the delay includes the reality that the great majority of people have no even simple understanding of the inflation tax... inflation is tax......the government attempt to be the monopoliser of force....they will attempt to steal it back...after the election with threats of main force....

never forget the banks are considerably government agencies just like lottery ticket vendors

do stop saying that!!! i'll tear my hair out :-)

the bank of england (the government) are presently purposefully and *deliberately* debauching the currency with the direct intention of *causing* more inflation...

regards

they feed money into the banks until the aimed rate is reached..... at present the target rates are so low the banks can't or won't take up all the cheap money on offer....because they can't find enuf mugs to borrow it...

i can't remember what they call the process...buying gilts or some such...i can never keep up with their upside down language... any good uni text will give you the details...i recommend mankiew....

that's approximately my view.......

yes... a problem with inflation is that like a drug....the more you do the more you want... getting off the drug is the hard part..... there are very serious withdrawal symptoms....

very crudely...if you borrow £5000 above your income this year...then you can live £5000 better than you otherwise would.... to get a similar effect next year you'd have to borrow £5000 plus your interest payments on the first lot.... of course it is very likely by next year your ambitions to live above your income will grow.... and remember.....this is just a very crude analogy...this is socialism we're talking about...not just your run of the mill feckless idiot....but your raving brainless psychopath way out of touch with the real world!

it is essential to realise the clown and socialism are both innumerate and highly irresponsible....

regards

i should have added... some more on markets and interest setting....

the banks know full well the inflation is going to feed through.... thus they will set loans to make profit as best they can over the *whole* period of the loan....

now, as people refuse to pay that much....the banks will tend not to loan to those who will not contract to make the banks an unhealthy profit....

thus the market is setting the rate by the potential borrowers not being prepared to pay....while the banks will not lend at the market 'demand' rates....

keep also in mind that the banks are currently getting money at 1/2% (or even nothing from many depositors) while if they are charging even as 'low' as 5% they are getting *10* times the rate of interest the central bank is *presently* charging them...

meanwhile a greater that average number of borrowers are defaulting...

regards

Open Bank Operations innit? They can also play with the requirement for reserves the commercial banks lodge at the central bank. That can loosen or restrict their lending.

FoFP

abelard wrote: [...]

It's worse than that; when your [gravy] train hits the buffers, you have to live *below* your income by more than the interest on your accumulated #5Ks until the situation is recovered.

OTOH, by living below your income for a number of years, you can accumulate enough to live above it for a while. AKA a pension.

'James Hammerton' wrote thus:

I believe he uses a swan's feather and holds it in the breeze ;-)

At least, his current output might just as well use one!

Indeed. I suspect that pols wouldn't!

Getting a computer to apply political judgement is not easy, especially when it's illogical, socialist political judgement ;-)