Thursday 16 June 2022

Tepid Bank of England hamstrung by past leadership and groupthink

Does anyone remember Mark Carney. back in the days when we thought only hiring foreign experts would do, we had this Canadian lead the Bank of England.

In his whole tenure he promised much but did less. There were few changes in interest rates and post the 2008 recession we actually dropped rates throughout the recovery by 0.25%.

And we poured in yet more Quantitative Easing to create the easy money. This has come back to bite us quite nastily now. 

And yet today's Bank of England has chosen to raise interest rates by 0.25%. Whereas the Federal Reserve went for 0.75% - inflation is worse in the UK too. 

Whilst the £ has recovered a little today on the back of the rise, it is at a very low $1.23, exacerbating our energy crisis through the exchange rate fiasco. 

Moreover, the Bank is frit from cancelling QE  and reducing money supply. thereby baking in a long road to reduce inflation. in the 1980's we would be talking about Interest rates at 12% -15% by now. 

But so sleepy is the Bank and so slothful in its actions that we will be lucky to have 2% interest rates in 2022 whilst experiencing 10%+ inflation. 

Frankly, it is unbelievable. Mind-numbing. A wilful destruction of the Pound and people's real net worth and assets to bail-out the Government of its debt and to the hope that something will turn up. 

All the Bank of England Monetary Policy members should be sacked forthwith due to showing an insufficient understanding of their remit which is to manage economic stability! Not promote instability. 


Swiss Bob said...

Tend to agree. But with the economy looking so very weak, hard to make muscular interest rate rises like the Fed or SNB, BoE will be more gradual.

Easy money shorting the Pound of late.

djm said...

Had decimation been re-introduced in 2008 amongst the Bankster/Politico classes,
(AKA as "real lessons to be learned") we would have by now been in the broad sunlit uplands of the world post Covid.


Anonymous said...

Any investment suggestions for those with some spare cash that's being inflated away, so as to minimise our loses?

Charlie said...

They've painted themselves into a corner - they can't meaningfully raise rates. This situation has been 15 years in the making. The BoE can't really do anything about it now, and the politicians don't want to.

formertory said...

Like painkillers and antidepressants, we got hooked on the cheap money prescribed for our economic ills; that risk - that it would prove difficult for the economy to raise interest rates again - was being actively discussed around and immediately after 2008, not that anyone really seemed to take it seriously. Since then, discussion of that sort just got lost in the clutter of gorbal worming, manic stock markets (US), Trump, social media, sensationalist politics and exploding house prices. I suspect the politicians knew it, but were quietly grateful while hoping the bomb would explode on someone else's watch. At the risk of mixing metaphors too much, the waiter's arrived with the bill and the BoE seems to have left both its wallet and intellect at home.

Anon at 0940: Just an idle and mildly humorous thought, before some underworked and over-promoted copper somewhere decides I may have committed a hate crime or an incitement to violence: Hire a hitman to create some job vacancies in high-level economic management and amongst the political classes. Start with anyone who thinks a PPE degree is some sort of foundation for running an economy. Evidence of that error is overwhelming. Oh, and invest in a spread of real assets. Inflated-away cash is gone forever!

E-K said...
This comment has been removed by the author.
E-K said...

I fail to see what the Bank can do. Raise interest rates in an economy modelled on borrowing against high property prices inflated by low interest rates ?

Make no mistake.

The Covid lockdowns were going to have consequences on health and the economy far worse than the disease itself and here they are. I now know sixteen who have died when they shouldn't have done since the lockdown (David's relapse into mental illness started in lockdown) - two in the departure lounge. None I know died of Covid.

Two years of economic ultra socialism from so-called Conservatives. Coinciding with ultra woke and ultra greenism.

Socialism always leads to lethal inflation in the end.

How can the BoE deal with that while socialists run the Government and just about every institution ?

Elby the Beserk said...

"How will borrowers cope with 3% interest rates?", twittered some eejit on R4 this morning.

Some of us recall interest rates FIVE times higher.

BofE is trapped. ZIRP for years is a disaster, and whichever way they move they make matters worse. At least they'll claim they have been consistent. In making matters worse.

E-K said...

Anonymous at 9.40

Fancied that Submariner or Seamaster ? A Harley or a Triumph ?

Spend on anything of good quality and enjoy it. ANYTHING but save.

dearieme said...

I've fancied a little submarine for years. I could dodge about among the Western Isles, or the Northern Isles, without being frustrated by its being too windy for a boat.

What would a little sub cost? How much would it cost to build a few practical harbours for it?

Sobers said...

The BoE isn't independent. Not really. Its obvious from the way it immediately printed all the money to allow the Government to lock down the economy. They showed not one jot of independence, or adherence to their legal mandate, they just did what they were told to, print money. The lockdowns were a political policy, not an economic necessity, there was no reason for the BoE to indulge them any more than it should if a Corbyn demanded they print enough money to nationalise the entire economy. The BoE is just the UK State's bitch, that much is obvious now.

dearieme said...

For some time I've fancied owning some Iron Age British coins i.e. gold coins stuck before the Legions came.

Two problems: (i) They'd be subject to CGT, unlike gold sovereigns. That's soluble. (ii) I know nothing about the field - it's just a whim.

What should I do? Go to an auction and bid from ignorance? Rob a museum? Buy a metal detector? Anyway, they'd be likely to cope pretty well with inflation, I reckon.

dustybloke said...

We’re all socialists now!

Do we all believe in MMT? It’s a socialist thing to believe in theories and discard experience. So the Honorable Rishard Murphy assures us that printing money DOES NOT cause inflation and what we need to do now is print more money.

Still, I’m told he also has a cure for cancer, so he can’t be all bad. It involves the patient standing to attention and telling the offending cells very firmly to STOP.

So should we print more money or is Murphy a #£&@)(*?

Don Cox said...

My understanding of Modern Monetary Theory is that if you have an independent currency (as Britain does) you can safely print money until the level of inflation becomes unpopular.

If your economy is just a hanger-on of some strong currency such as the dollar, you can't do this as your local currency falls rapidly in value. In Zimbabwe, people want dollars.

What makes this theory "modern" is that we used to think the National Debt mattered and would have to be repaid one day. Now it is seen as just the historical accumulation of government spending.

Kings used to keep their money in locked chests and pay their armies in cash. Times change. ;-)


Anonymous said...

As always buy land.
They ain’t making any more of that

andrew said...

Don C
Accumulated govt spending is fine as long as it is matched by govt assets.
Some assets are clearly a good thing.
Like most roads.
Some are a bit more complicated.
Like the NHS where it is assumed that a living citizen pays more tax than a dead one.
Some really are not an asset.
Like most of the many millions on the planning of Johnsons various ideas.
(He stole most of his good ideas)

Diogenes said...

The government (actually Boris) is committed to spending and spending big.

At the other end of the economy, money is being handed out on the pretext of helping the "hard-pressed". Local Authorities now have a cash fund where you go along for carpets and beds or furniture. There is a similar amount available from local charities - and there is no matching so see if there is double bubble. You can also get food vouchers and fuel vouchers.

This is in addition to Sunak cash for electricity bills with can be up to £650.

I'm involved with handing this out to people who in the main need it but there is no control, or auditing of the cash. People think it is "free" money and won't readily accept it's just the government giving some of the VAT, income tax or capital gains tax back. They are thinking positively about the government amongst "red wall" voters. This is your standard 'pork barrel' politics.

The other side effect of handing out the cash is that it gets spent. Most of those receiving it have genuine needs to replace goods or gets goods they've never had. Some do admit to going on benders but it will be spent.

The spending is calculated to add 0.3% to GDP and 0.1% to inflation with the idea that a technical recession can be avoided.

So here is the question. Is Boris a spaffer or is he determined to make more of the population clients of the state in the same way his MP's have become tied to his premiership.

The media doesn't really tell you what is really going on in the economy front line. Just recycling the hot button issues to avoid some of the hard questions that need to be asked about our politics.

Diogenes said...

Just picking up on E-K's comment about borrowing and high property prices. Up until 2018 if you were unemployed/receiving benefits you got cash to pay towards your mortgage. So taxpayers were paying out and homeowners were making capital gains as this capital was seen as not being readily accessible. You got a loan instead (very much the Swiss style of help).

They have quietly reversed this for first time buyers with the suspicion that mortgage providers weren't actually doing the affordability checks.

Most of you will only see what's being taken out of your account by the government. You've really got to dig deep to see where it's been spread and why. The waste of money on PPE was only scratching the surface.

Agree with Sobers that if the BoE was independent, it is not now. It's just a cash machine for this government.

formertory said...

Dearieme: tongue-in-cheek as your ambition may be, having spent a very significant chunk of my life in the Northern Isles I can only offer the advice that a small submarine would not be quite the thing! Grab an Admiralty chart or several covering the Isles and marvel, if you will, at the intra-island currents of 10 knots plus in places; and in the Pentland Firth, worse again around some of the hard and knobbly bits.

But opening the hatch on a sunny, calm day miles from anyone would be an experience to savour.

Nick Drew said...

Yes: I was gonna to say ...

- little submarine
- Western Isles, Northern Isles
- build a few practical harbours for it
- Iron Age British coins stuck before the Legions came
- Rob a museum

... we'll all have some of what you're drinking, Dearieme - that's one helluva daydream

Don Cox said...

"Accumulated govt spending is fine as long as it is matched by govt assets"

How do you define "assets" ?

Perhaps the biggest asset a country can have is an educated, skilled and enterprising population. Equipping schools to teach woodwork, metalwork, 3D printing, drawing, cookery, etc as well as maths, history and literature costs a fair amount of money. The lucky children have grandparents to teach them useful stuff, but many don't.


E-K said...


Or a Dad who does the same. For all his faults he put power tools in my hands aged 9.

My first project was to build a wooden roof ladder, go three stories up on top of the loft extension and seal the roof with bitumen paint.

My brother and I also helped him to repair motorcars (his side job, he was an indentured mechanic) and up until the advent of electronic ignitions I was a whizz at getting broken down cars started.

dearieme said...

Oh look. Propane's suddenly become "green". Buy, buy, buy.

Elby the Beserk said...

Don Cox said...
"Accumulated govt spending is fine as long as it is matched by govt assets"

How do you define "assets" ?

Perhaps the biggest asset a country can have is an educated, skilled and enterprising population. Equipping schools to teach woodwork, metalwork, 3D printing, drawing, cookery, etc as well as maths, history and literature costs a fair amount of money. The lucky children have grandparents to teach them useful stuff, but many don't.


9:57 am

Teaching them how to spell. do basic maths and form a grammatically comprehensible sentence when speaking or writing would be a start.

It seems these are no longer essential to get a University education.

lilith said...

Dearieme, if you get your submarine, watch out for the Corryvrechan whirlpool won't you!

lilith said...

Mark Carney was the spitting image of the character Paul (Desperate Housewives} who murdered his wife so gave me the heebeegeebees even before I knew he was a Goldman Sachs man.

Anonymous said...

Mark Carney was not a proper Canadian. He was of Irish Catholic origin, and indeed when he arrived here to take up his BOE position he had a passport from the Irish Republic. Hence his pronouncements on Brexit, among many other misjudgements.

As for the current BOE MPC, it will have to raise interest rates calmly and steadily , and continue to do so. Otherwise inflation will destroy the economy altogether.