Friday, Mar 23, 2007
BOE helped UK avoid a recession
Firstrung: BOE created consumer boom to boost house prices and personal debt so that "UK Plc" could avoid recession
This article was missed off the list this week - thought I might add it now. Confirms everything we already knew - but good to read.
Posted by nearly30 @ 10:08 AM (160 views) Add Comment
33 Comments
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1. harold said...
They didn't avoid anything - they just delayed it and have made the impending recession much worse. These guys should go to jail - they're crooks.
2. sovietuk said...
Well there you have it. One big gigantic scam.
3. royston said...
History will record Blair's legacy as the Iraq war and Brown's legacy as the catastrophic boom-bust-depression of the early 21st century.
That may not do us much immediate good, but I find a certain comfort in it, given that these egomaniacs are primarily driven their place in history.
4. paul said...
Absolutely - I was talking to some younger folks about this exact topic yesterday and they were a) shocked that the Bank of England admitted to this and b) shocked that the mainstream media didn't report it.
Just to emphasize this changes everything - if the Bank of England engineered the house price boom, they are unlikely to follow policies to reverse it unless they are utterly forced to. That's not likely to happen too.
Yes, it's bordering on the criminal and yes there should be a public inquiry into how the Bak of England has compromised it's own independence.
We have good reason to be livid that the MPC has lied to the British public about it's vested interests and that it has - always - been targeting asset prices.
5. converted lurker said...
you're so right Paul, It was 'drop the bacon butty' moment for me. TBH over the last few days it's angered me as the further realisation dawns that we are (en-masse) simple debt slaves to foster the ambitions of the elite. Further, I'm struggling with the so called remit of the MPC/BOE in regards to inflation, how low was it in 2001? Is their remit to cause inflation then suffocate it?
6. tyrellcorporation said...
No, their remit is to cause inflation and then hide it!
7. nearly30 said...
Ah the legacy of a Labour Govt! Basically all lies, corruption, bad-management, spin and war. Not a good record at all.
In another 5 to 10 years time - we (the nation included) will be analysing how we got into this mess - forget property porn - the new fixation will be 'where did it all go wrong' - cue the documentaries, faux-courtroom-esque attack of labour policies - basically a collective weeping of a nation's stupidity. The nation will want answers and ministers in the public 'dock'!!
Anyone see Question Time last night, the Blair documentary on BBC4, Blair docu-drama on 4, et al - seems it has started already!
It is so so so unfortunate that many people - mostly the young IMHO, will feel 'destroyed' by all of this.
This is going to take YEARS (with tears) to sort out.
8. sovietuk said...
Take heart from the fact that printing money has never anywhere in history been sustainable long term. The doom mongers WILL have their day
9. dohousescrashinthewoods said...
There was a fair bit of gloom on here yesterday (myself included) over this, which seems to say that the government will continue deliberately engineering an unsustainable situation and artificially fiddling figures to support it. (how US is that?)
However, I perked up a little last night when I thought to myself that we probably attribute them too much power.
Putting psychology aside for the moment, fiddled figures only hide the elephant, they can't alter reality. Furthermore, given that financial markets are global and governments are national, crooks or not, they are outgunned and outclassed by the market. They are influencers, not controlers (even in collusion).
What am I saying? That they can keep fiddling and distorting to ther hearts' content (by statistics, propaganda or criminality) but they can't change fundamentals.
Given the technical indicators that the US is hitting recession, I think the US and UK have run out of rope. As others have said, there is little room for manoeuvre between the credit bubble (HPI), inflation and currency destruction.
They have been sh**ting in the bed and now it's bobo-time for all of us. What goes around comes around.
10. japanese uncle said...
Question Time has become another BBC rubbish. The audience must have been handpicked so none of them could embarass that lowly scum, none other than John Bolton, a Neocon central fielder.
Reminding me of Geroge Galloway that did a stunning job in the Congress to floore another Neocon retard/crook Coleman a couple of years ago.
11. denzil said...
It seems as far as I am aware the the papers did not pick this story up.
12. Tracey said...
Revolution anyone??? It's about time we had one.....
13. Shipbuilder said...
Nearly30
Without paticularly wanting to start a political debate - i'm no fan of either party, but if you think that Brown or Blair's policies reflect traditional Labour, or even left wing view, you're living in a dream world. While so many Tories would love to blame all this on Labour, rather than B & B individually, the reality is that no chancellor of any colour would have acted differently (or forced the MPC to act differently). UK is run by (foreign) big business and finance for their own benefit. Brown and Blair's policies are in fact more radically right wing than anything Maggie attempted. By the way, I am in no way saying that a socialist Labour government would have handled things any better.
14. Sara said...
Some of the papers did but it was buried within another article. I wonder if they are digging a bit deeper first before going with the story - perhaps it's something for the weekend papers.
15. iguana said...
Take a look at Millards blog on Tuesday 20th, the story was also reported in muted tones by the Standard on the following day. I get the impression that it was a classic case of 'burying' news.
I also recall that at the time of fast Eddies leaving the old lady job he warned that asset prices were overheating. mmmmmm?
16. converted lurker said...
Question for dohousesscrash and others, on the basis that govts would and can do everything to prevent a recession, what can they do hypothetically speaking - from the point of view that psycopaths may or may not make the decisions? Not leading you on here, just genuinely value opinions on what fingers on what triggers to find the 'hyper space' button (available on arcade asteroid games in the 80`s)
17. Inflation Is Eating My Savings said...
We are all VIs- the question is- does this approach by the BoE have merit?
For the greater good, perhaps it was necessary. HPCers are just a casualty of this process.
In terms of delaying the inevitable, perhaps this is true, but perhaps it is not. Money has been printed before (during most wars). Government debt has been high before (Keynes). Personal debt is not new either. Servitude is not a new concept.
I think we have missed the boat, that is all.
18. sovietuk said...
The apparent return of the feel good factor of recent days is more political rather than economic. With Labour now struggling badly in the Polls, they are trying everything (e.g. this week's con - budget targeted specifically at key swing voters) to keep the plates spinning long enough to get into office again. Expect even a rate cut if Sterling stays high as well. It would be the icing on the cake for Stalin Brown.
19. monty said...
Yawn. The reason that no-one has picked this up is because it is a non-event.
So, in 2001 the BoE conspired with the Treasury by lowering interest rates to stimulate borrowing and spending and keep the country out of recession. Isn't that what they are supposed to do?
As Lord Eddie has been quick to point out this is unsustainable in the medium and long term - you cannot go on borrowing and spending for ever - and the current BoE has to deal with this. No suprises there then. A regrettable side effect of this was to further accelerate the housing boom (which was well underway by 2001 anyway) and increase consumer debt (of those stupid enough to max out the plastic on iPods and Nikes.)
I remember 2001 quite clearly. We all took a 10% pay cut that December which was the alternative to being shown the door. Hard times means hard choices. Stop wailing, dry your eyes and get over it.
20. dohousescrashinthewoods said...
Converted lurker - Defender had it too. Classic stuff.
I'm not sure I follow your question though?
I think governments should do all they can to avoid a recession, preferably by stabilising the economy.
Doing it in a way that is likely to be detrimental to those they are elected to serve, particularly keeping it hidden so people can't make informed decisions, is plain rude and leads easily to accusations that they are in fact self-serving and cynical.
I can't speak for others, but I would rather have the facts, good or bad, because you can work with that. Spin consumes energy both in generating it and in unpicking it. We would all work a heck of a lot better and expend a lot less unproductive energy, which would enable us to move on rather than chasing our tails inside a lie. Besides, spin is about psychology and we can probably all agree that psychology causes market bubbles, or "boom-and-bust".
I for one have a lot more respect for any authority that has the character to hold its hands up and be honest. After all, politicians are there to support and steer a nation in growing sustainably. Is there anything even the least bit helpful in yanking the plank of your own ego that it should be considered a key trait for national leaders?
21. The Capitalist said...
When the currency is destoyed by the markets (Govt can do nothing about that - ask Norman Lamont and George Soros) the only course of action by the govt will be to expropriate all reserves of gold. FDR did this in 1934 during the last depression - he MADE IT ILLEGAL TO OWN GOLD.
Buy gold and keep it in Switzerland...
22. Tick Tock said...
I can't speak for others, but I would rather have the facts, good or bad, because you can work with that.
Trouble is, if the real 'facts' were widely known, there would probably be a run on the banks and everything would collapse. Its all an illusion.
Oh what a tangled web we weave.....
23. harold said...
"So, in 2001 the BoE conspired with the Treasury by lowering interest rates to stimulate borrowing and spending and keep the country out of recession. Isn't that what they are supposed to do?" Monty
Err... no. Their remit is to control inflation, by controlling money supply - not create inflation with a lax monetary policy that makes people feel wealthier than they, leading them into debt. The story is being ignored because it is highly embarrassing to the government / establishment and the current 'independent' BoE MPC. If you can't see that, then there's really no helping you.
24. paul said...
Well said harold - that is most definitely not their remit.
It is completely unethical for them to "target" any asset group and calls into question whether they themselves had any vested interests.
For example, will we get to see if the MPC members bought shares or invested significantly in property in 2001 when this strategy was secretly pursued?
People have gone to jail for less ...
25. royston said...
Harold,
Point of information - there is no 'money supply' anymore in the sense of printed money overseen, monitored and doled out by the BoE. Rather banks create credit pretty much at will. They take in depositors savings. They lend these out. They sell these loan off, recover their money and loan it out again, .........and again, .......and again. - securitisation!
With so much money around, what affect is 1/4 point interest rate rises supposed to have - it might bankrupt a few chavs at the bottom of the chain or the very overstretched. Otherwise, it's just window dressing. This situation is like trying to steer a fast moving car with a riding crop.
26. inflation is eating my savings said...
Monty- I'm on your side- everyone knows that the MPC does not simply target inflation- it has to balance the inflation risks with the need to protect the economy as a whole. Anyone who disagrees should read their minutes and see how they have to integrate the inflation view with the wider picture.
27. denzil said...
Harold said in reply to Monty:
"Err... no. Their remit is to control inflation, by controlling money supply - not create inflation with a lax monetary policy that makes people feel wealthier than they, leading them into debt."
Bang on the money Harold!
28. paul said...
inflation is eating my savings,
Okay, I can offer to protect the economy by removing tax on alcohol, and mandating that whisky be sold for no more than £5 per bottle. Alcohol demand will jump of course, and there could be social consequences - people might even stockpile it, but hey when the price of alcohol starts rising, people will start investing in it and we'll all be better off!
I'll be off down the bank first to invest me in some brewery shares.
29. monty said...
No harold, Gordie's 2005 remit reads as follows;
"In relation to monetary policy, the objectives of the Bank of England shall be –
(a) to maintain price stability, and
(b) subject to that, to support the economic policy of Her Majesty’s Government,
including its objectives for growth and employment."
He goes on to say;
"I confirm that the operational target for monetary policy remains an underlying inflation rate ... of 2 per cent."
I would guess that the Government's "objectives for growth and employment" in 2001 did not include a recession. Nowhere does it say that the BoE should target inflation (or HPI) to the exclusion of all else or any particular asset class. I don't know where you and others came up with this idea but it is clearly a fabrication.
You're really going to hate to hear that the Government's objectives don't include an HPC either! Time will tell whether or not they get that one right.
30. paul said...
Oh monty monty, you've been tripped up by your own feet. There should be flashing lights and alarms ringing.
Read what you've just written:
a) maintain price stability
b) support he economic policy of Her Majesty’s Government, including its objectives for growth and employment subject to maintaining price stability
Is 200% price growth in less than 5 years price stability? I don't think so. It's no good - this secretly actioned policy has been completely against the Bank of Englands official remit, and they know it. This is why Eddie George has only just admitted it.
31. paul said...
and just to hammer the point home:
The Inflation Target 10 Years on - November 2002 - Mervyn King.
"While targeting asset prices directly is virtually impossible, "changes in asset prices can have a major impact on levels of spending and the MPC devotes considerable time to the question of how such changes should affect policy." Mr King says: "The immediate question is whether changes in asset prices have led to an imbalance within the economy that poses the risk of a large negative demand shock at some point in the future. I believe the answer is yes; but how big is that risk is extremely difficult to judge, and so the appropriate policy response is far from clear."
This entire statement is a lie.
Available here.
32. monty said...
Ah yes Paul but...
...to make sure it is not misinterpreted (deliberately or otherwise), the letter defines price stability as keeping to the inflation target which, in April 2001, was an RPIX of 2.5%. The good ol' days, eh?
The letter in all its glory is on page 24 of the MPC minutes. Read it and weep.
http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2001/mpc0105.pdf
33. paul said...
Quite true monty.
Therein lies the devil.