Wednesday, Aug 20, 2008
Good ol Danny voted for a cut again
Telegraph: Bank of Enlgand split 3 ways over interest rate decision
Minutes of the MPC meeting this month reveal another three way split over the decision to keep rates on hold at 5%.
Timothy Besley voted for a rise by 0.25%, while David Blanchflower voted for a cut of 0.25%
Posted by little professor @ 10:19 AM (1103 views) Add Comment
23 Comments
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1. little professor said...
Timothy Besley explains his reasoning in the Sun:
http://www.thesun.co.uk/sol/homepage/news/money/article1575828.ece
2. jack c said...
If UK rates were zero Danny Boy would advocate a cut
3. str 2007 said...
Yes Little Professor
One of the Suns posters suggests we just leave 'inflation' of hold at 2% ! Now why didn't the bank think of that. LOL
4. Whostolemyendowment said...
Why should monetary policy hindge on the wimp of these select few - with so obvious differing views on the best action to take. They are un-elected and un-accountable.....I'm confused?
5. The Baldman said...
Why do we waste money on Blanchflower. He is determined to trash the currency and set off hyper inflation
6. icarus said...
Blanchflower's vote is quite costly. In addition to his pay I believe he's flown in first class from the US each month and stays in a 5-star hotel while he's here. It would be a lot cheaper for him simply to send the same e-mail each month, "cut by 0.25%".
7. Astonished Observer said...
Besley is wrong of course. How does raising rates tackle rising food and energy prices?
8. Paul said...
Indeed icarus.
In fact, he could just say right now "Quarter percent cut for the next six months. I'm off on extended holiday. Tataaa!"
9. renting2 said...
Have I missed something, is Blanchflower's remit different from the others on the committee? I think he needs to re-read it.
10. a saver said...
icarus @ 4.
If only that was all Blanchflower and his cohorts had cost/are costing the country .....
We're not the only ones who have commented on the damage done by his 2005 IR cut to "save" the housing market when it slowed down slightly. So why keep the same inept people?
11. hpwatcher said...
Blanchflower's vote is quite costly. In addition to his pay I believe he's flown in first class from the US each month and stays in a 5-star hotel while he's here. It would be a lot cheaper for him simply to send the same e-mail each month, "cut by 0.25%".
that guy should be thrown out.....he doesn't even live here.
12. last_days_of_disco said...
I am starting to wonder actually. I am wondering if increasing the interest rate is the right thing.
I don't think it would prevent a housing crash anyway and once deflation starts to really bite... (deflation has already happened remember)
I am not sure about this, any ideas?
We always get caught out by the dynamics and the political pressure is almost every single time, to go in the wrong direction. So as people start screaming about inflation is when we should actually be lowering rates because we can see the looming deflation.
13. inbreda said...
7. hpwatcher said...
that guy should be thrown out.....he doesn't even live here.
I am hoping you mean mid-atlantic.
14. landofconfusion said...
@ 12:06PM last_days_of_disco said...
> (deflation has already happened remember)
Has it? Excluding house prices, things seem to be getting more expensive from where I'm standing.
> So as people start screaming about inflation is when we should actually be lowering rates because we can see the looming deflation.
Removing excess credit isn't (IMHO) a bad thing. Remember we got into this mess because people got used to cheap credit and businesses mistook the increase in the money supply for economic growth. Increasing the availability of credit yet again won't make things better only worse.
Let's hope the MPC understands that.
15. wiltshire said...
When you consider how vitally important to the livelihoods of millions of people in this country these decisions are I think someone should be questioning Blanchflower and his motives. If he's consistently voting for a cut and often completely against the majority of the rest of the MPC I feel it's appropriate that the people who are impacted by his decisions have some understanding of how he's coming to these decisions.
16. shipbuilder said...
12. last_days_of_disco said...
"I am starting to wonder actually. I am wondering if increasing the interest rate is the right thing.
I don't think it would prevent a housing crash anyway and once deflation starts to really bite... (deflation has already happened remember)
I am not sure about this, any ideas?
We always get caught out by the dynamics and the political pressure is almost every single time, to go in the wrong direction. So as people start screaming about inflation is when we should actually be lowering rates because we can see the looming deflation."
I'm wondering myself - I agree that deflation is on the way. It's easy to say this, of course, but surely the right thing to do is to keep interest rates high no matter what, as landofconfusion says.
The reality is that we all really need to be taught a lesson about living within our means - more cheap credit send the wrong signals, if nothing else. The bonus, of course, being that the prudent are also rewarded.
17. Sensiblebear said...
@4,12 etc.
Economics 101
Make credit more expensive by raising rates then companies and families have less money in their pockets to spend.
Less to spend = lower demand.
Demand falls => prices fall (or don't go up as much)
"Inflation" is just the increase in prices so raising rates *should* fight inflation ALL OTHER THINGS BEING EQUAL (the economists cop out clause ;) ).
The complicating factor is all the inflation we are importing from China and via oil prices. Plenty of other factors to worry about as well. But these basics are accepted by all economists (and that is saying something).
18. richc said...
Astonished Observer said...
Besley is wrong of course. How does raising rates tackle rising food and energy prices?
Raising rates controls food and energy prices by protecting the value of the pound. Food and petrol prices (mostly denominated in dollars) are now 10% more expensive than they would have been if the pound hadn't declined against the dollar over the past month, which is a direct result of the Bank of England's lack of resolve in fighting inflation.
According to the BoE's best case scenario, CPI will fall below the 2% target 2 years from now. That means inflation will be above target for 5 whole years (and this assumes that inflation will follow the BoE's forecasts which have been consistently too optimistic in the past). Argue what you want about the Bank focusing on medium-term targets rather than short-term targets, but the Bank's policy has consistently been and continues to be all wrong. How can anyone argue with this in the face of at least 5 years of above target inflation? Why does the Bank of England even pretend to be following it's mandate any more?
19. beartil2010 said...
I am concerned that neither the key players nor the pundits ever break out cost-based and monetary inflation/deflation.
It is quite possible for the US to be in monetary deflation (which it is) and still be being pummelled by cost inflation (which it is). Lack of available money - primarily retrenchment of capital on the commercial side and people starting to have to save and pay down debt on the consumer side - means less internal inflationary pressure, but that doesn't stop your supply chain defeating you.
I can't see either natural resources (energy ie. oil and gas) or goods supplied by countries such as China that have high single digit or even double digit inflation becoming cheaper by any significant degree.
This means we continue to have inflation, while we suffer deflation, no? Am I wrong here?
20. beartil2010 said...
and PS. this is why we have a 3-way split in the monetary policy group, they can't agree on what the actual drivers of 'inflation' are; presumably Blanchflower is all too aware of deflation issues as Real Money Supply is dwindling, and wants economic boosting with cheap money, and others are pushing for anti-cost-inflation measures that keep our currency strong while goods become more expensive?
21. landofconfusion said...
@ 03:11PM beartil2010 said...
> It is quite possible for the US to be in monetary deflation (which it is) and still be being pummelled by cost inflation (which it is).
I think the above scenario is what Merv wants to happen here. Increasing cost of goods + stagnant wage inflation (i.e. stagflation) will over time produce a deflationary effect.
Of course this assumes that the central bank (BoE) doesn't keep on inflating the money supply by making loans to bail out banks.
Oh dear.
22. hpwatcher said...
If he's consistently voting for a cut and often completely against the majority of the rest of the MPC I feel it's appropriate that the people who are impacted by his decisions have some understanding of how he's coming to these decisions.
I'm all ears? The explanation, is beyond me......
23. nooneo said...
Perhaps Danny boy sells his vote to the highest bidder on eBay.