Saturday, Oct 17, 2009
Global trap
FTAlphaville: Zero interest rate policy: Treatment may be as expensive as the crisis
Suggests that given the dramatic additional funding from the government to the finance sector, the G20 are now locked into zero interest rates, as any country attempting to raise rates loses out from capital inflows. Accordingly the way out of such policy is in tandem. However, Australia have recently raised rates quite out of step with other countries. This article seems to suggest (but doesn't actually talk about Australia) that this move cannot be sustainable due to the consequences of a flood of carry trade impacting adversely on the value of the AU. dollar. Chinese central governor calls this the "Triffin dilemma". Summary could be that globalisation has removed monetary control from domestic authorities.
Posted by stillthinking @ 12:43 PM (629 views) Add Comment
7 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. stillthinking said...
I wonder if Australia has got some problems waiting to pop up. They are still in a housing bubble, still maintaining the delusion of sustainable high housing costs (shortage etc), very much an export led country based on selling stuff they dig up, but they raise rates which presumably impacts on the external price of their exports and also the internal price of servicing property debt.
We will see I suppose.
2. shipbuilder said...
"Globalisation has removed monetary control from domestic authorities".
I would say any economic control - the size of multi-national corporations and their ability to move at will means that any government's key function now is to 'sell' their country via lower wages, lower taxes, but increased government spending on health, infrastructure etc. that the corporations do not wish to pay for, if they cannot profit from such services themselves.
So, rather than the mutually beneficial "Wealth of Nations"- style internationalisation of the economy where nations and corporations within nations trade with each other, that globalists try to convince us we have, instead nations compete with each other for the business of the multi-nationals. In this scenario, it is obvious where the benefits ultimately lie.
3. paul said...
The penny is slowly starting to drop that the result of kicking these policy problems into the long grass is that you get to meet them further down the road after they've been allowed to fester unattended.
Central bankers have gotten too used to this mode of engagement - delay, postpone, prevaricate. And then act surprised when the problem resurfaces.
For a start, QE is inflation paid forward.
The truth is that the Bank of England is NEVER going to sell those bond purchases back into the market. It wasn't that difficult to work out that in the absence of any repayment criteria or schedule, that particular issue could always be kicked into the long grass while stealing the difference from GBP savers and making vague pronouncements about the timing not being right to sell bonds back into the market.
QE is CREATING the lost generation. Instead of solving the matter quickly with repossessions and much needed deflation, it has been protracted and willfully drawn out with ZIRP and QE. Just like in Japan.
To think, there was a time when the Bank of England's own advisors were telling the Bank of Japan that they should let banks go bankrupt and raise their interest rates. Idiots, the lot of 'em.
4. fallingbuzzard said...
Perhaps people should never listen to the press. The BOE never,said that they were going to sell back to the market as the intention has always been to hold assets until maturity. What they always said that they will raise interest rates as a first course of action when inflation comes and sell back assets only if raising interest rates doesn't work. The forward path is crystal clear and always has been but is grossly misinterpreted, not least by economists that dither around with the fantasy of low interest rates being here to stay.
5. Paul said...
@fallingbuzzard
The problem is that the BoE hardly has an impressive and convincing track record of suppressing inflationary pressures with rate rises. In fact if anything, raising rates is exactly what they would not do so the effect is the same. They are trying to lock in inflationary pressure with QE.
6. paul said...
fallingbuzzard,
The Bank of England's recent track record in combating inflation with interest rate rises has not been good. In fact it has been appalling, which brought us the credit boom and credit bust.
So basically it works like this - the Bank of England creates inflation artificially with QE and 'promises' that when credit conditions improve, the assets that have been bought with printed money will be sold back. But now, that promise has been 'put aside' in favour of a promise to savers (or those holding devalued sterling) to combat the inflationary effects of QE with interest rate rises.
Tell me, if I come to your house and take your television and tell you that I'll give it back when my situation improves or possibly I won't but then I might compensate for your lack of TV by perhaps giving you a radio at some point in the future (bearing in mind that I have a recent history of serial non-payment of debts), would you be happy? Oh, and by the way you don't have any choice in the matter. Okay?
Or isn't that just ... old-fashioned robbery?
7. cynicalsoothsayer said...
You're all assuming the DoE etc actually control things. Ha!