Monday, Apr 30, 2007
What rubbish!
Times: Should letter-writing be thing of the past?
This is a vile attack of The Times (what a weapon of mass distraction!) to the only tiny tiny element of accountability of an otherwise usless body like the MPC. please flood The Times and the author with comments!
Posted by confused76 @ 12:58 PM (165 views) Add Comment
6 Comments
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1. Ides Of March said...
The last two paragraphs (below) are quite realistic. They are probably the most important part of the article and, to me, the most important part of the MPCs failure.
"This would be wholly consistent with the existing remit. It is important to recognise that some of the major monetary policy errors over the past century — such as Japan’s “lost decade” in the 1990s and the Great Depression — have occurred when central banks have taken their eye off the asset price misalignment ball.
Looking ahead, in any case, it is likely that the next ten years will be more volatile then the unusually benign period we have just experienced. While the anchoring of expectations provided by the MPC should help, allowing house prices to have become overvalued could, under certain circumstances, make it a rather tricky ride."
2. Elpapasito said...
Sounds like a very reasonable article to me, saying that if the BOE has a problem it is asset price misalignment and that it could have done more in recent years to have signalled that housing over-pricing would lead to higher interest rates in the long-tern. Also, ominously, it warns that asset price misalignment was the cause of the last century's two most serious economic crises; Japan's lost decade and the great depression.
Good article.
3. Timm said...
" Network Error (tcp_error)
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The Web Server may be down, too busy, or experiencing other problems preventing it from responding to requests. You may wish to try again at a later time. "
I wonder why?
4. Rickyb said...
Apparently inflation has no relationship with M4 money supply. That's good then. I propose that we take the Douglas Adams approach to monetary policy, and adopt the leaf as the new UK unit of currency.
"They argue that hitherto the MPC has placed insufficient emphasis on money supply growth in formulating policy. I regard this criticism as unfair. The chart here shows M4 money supply growth versus inflation (RPIX) over the 1992-2007 period. Casual inspection fails to suggest any reliable, stable relationship — an impression confirmed by most careful empirical studies. I do not intend to imply that one should ignore the growth of money supply — but to set much higher interest rates just because money supply is growing at double-digit rates seems rather difficult to justify."
5. confused76 said...
"Many inflation-targeting countries do without the letter-writing feature of the arrangements and therefore even rather larger deviations from the centre of the inflation target band than we have experienced do not seem to have elicited any significant concern in the media about inflation rising out of control."
IMHO, the attemp to waterdown such a pathetic performance by the MPC (inflation target of 2% has been consistently missed for the past 12 months by as much as 55%!!) is clear.
What the author wrote about asset prices is not just incorrect but dangerous. The MPC should stay away from house prices and asset prices in general. Do we have such a short memory to forget they lowered rates in 2004 to boost house prices? Did we forget Lord George's words?
Today we are pleased because the author of the week says IR should go up because HPI inflation is high.
Tomorrow they will say IR should go down because house prices are falling!
MPC, hands off from markets! MPC is to control inflation through the single lever of money supply! Long live to Monetarism!
(If it wasn t clear, I disagree with Ides and Elpapasito, IMHO the article was rubbish)
6. paul said...
The current laissez-faire "hands off" approach when asset prices are rising and interventionist "hands on" approach is misguided and bound to end in tears.
I think Japanese Uncle or Uncle Tom mentioned that the fallout from this approach will eventually be legislation to prevent asset prices ever rising too high again (be it by enforced lending multiples or punitive taxation on property speculation).
The next phase is going to really hurt and however much this shill paints over the cracks, the walls are still going to fall.