Tuesday, Sep 28, 2010
Printy printy
Telegraph: Bank of England's Adam Posen urges more stimulus to avoid a Japan-style 'Lost Decade'
The Bank of England should be "aggressive about promoting recovery" and pump more money into the economy over the coming months to avoid a Japan-style "Lost Decade", said policymaker Adam Posen. Mr Posen said post-crisis developments have been broadly consistent with patterns as seen in 1990s Japan and in the US and Europe during the Depression years. "Policymakers should not settle for weak growth out of misplaced fear of inflation," he said in a speech to the Hull and Humber Chamber of Commerce, Industry and Shipping. He said in Japan the inflation threat of overheating was much exaggerated, and "as a result the Japanese people suffered a lost decade of employment and growth". "I think further easing should be undertaken," Mr Posen said.
Posted by drewster @ 10:01 PM (954 views) Add Comment
15 Comments
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1. general congreve said...
DO IT!!!
2. quiet guy said...
First Bean. Now this. If representatives of the Bank of England want to keep talking like this, then the Bank's terms of reference need to be revised. From http://www.bankofengland.co.uk/monetarypolicy/index.htm :
"One of the Bank of England's two core purposes is monetary stability. Monetary stability means stable prices - low inflation - and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions taken by the Monetary Policy Committee."
Posen said "proven analysis tells us ... sustained high inflation is not a threat." Perhaps if we can decide what the Bank of England's actual purpose is, then we will be better placed to implement good monetary policy.
3. techieman said...
Quiet Guy - see my post on mervs reply to the question posed by the journo
oh here is the transcript:
Laurence Norman, Dow Jones:
A couple of questions, if I may. Firstly, you said right at the end of your statement something along the lines of - in whichever
direction monetary policy moves in the coming months, you'll keep the focus on medium term inflation. Does that mean that
you think policy can't stay where it is for very long, and is there a significant chance that the Bank may need to do more
quantitative easing?
And secondly, for the CPI, you're saying now that inflation will remain above target throughout next year. Why wouldn't that
affect inflation expectations, and is there anything the Bank can do to ensure that it doesn't?
---------------------------------
Mervyn King:
On the first part, the comment was merely trying to make clear again that we look at monetary policy every month. And we are prepared to leave it unchanged or to loosen it or to tighten it as our judgement appears relevant at the time. So, you know, it's a decision that is made every month when we come to it and look at it afresh.
On the second, I think the reason for believing that this will not affect inflation expectations - and there's clearly a risk because the experience of higher inflation could change inflation expectations - is partly that in the past two years we do not see any evidence of the ups and downs of inflation having altered inflation expectations in the medium term - there's no evidence of that in financial markets, and the staff in the Bank did a very careful analysis of the surveys of inflation expectations for the medium term. The short run expectations have clearly risen, as indeed have ours. But in the medium term have remained close to the long run average levels. And I think it would be reasonable for someone looking at this to ask the question - what have been the short run price level shocks which have hit the economy?
Would it have been sensible to have tried to offset them? And what could we have done? We could have raised interest rates very significantly in order to try to prevent inflation going up first of all to 5.2% and then to 3.7%. Now we didn't do it in 2008 - many of you I think thought we should have been cutting interest rates a lot sooner than we did. But no one was suggesting that we should be raising
interest rates rapidly to prevent inflation going to 5.2%, because people could see through the price level shock and they would
expect that the underlying conditions would bring it back - as indeed it did.
And equally, if we had raised interest rates significantly above their current very low level to prevent inflation going to 3.7%, we would have had to turn the economy back into recession again.
Starting from the point when output is 10% below the level that it would have been on had the crisis not occurred, and with a million more unemployed people, far from increasing our credibility, I think we'd have undermined our credibility to have acted in that way, because the remit that we're given makes very clear that we're supposed to allow temporary deviations of inflation from target where they might otherwise lead to undesirable volatility in output.
What we're trying to do now is generate a steady recovery, but to keep inflation close to the target. I think our judgement is - and it can only be a judgement -
but I put it out to you. Do you think it's a reasonable judgement that with broad money growth very weak, less than 1% a year; with credit to businesses falling; with the labour market with spare capacity, more unemployed people, very low pay growth - if anything the numbers this morning show weaker pay growth than in recent months; with spare capacity in the economy in both the surveys, and given the shock to output that's occurred - all of these things add up to a picture where it seems to me reasonable to say that the medium term inflation
outlook is one where - once these immediate price level effects which are masking the downward impact of these longer term factors on inflation - when these price level effects have moved out of the picture - that inflation will come back towards our central projection which is actually below the target.
Now that can only be a judgement, and all kinds of unexpected things will happen over the next couple of years. No one can pretend they won't; they will. And we'll have to respond to them. That's what policy should do is to respond to the things that you can't predict. But I think the way to anchor inflation expectations is to present a plausible story and analysis about why inflation has moved in the way that it has, what is happening in the economy now, and why we think it is a reasonable judgement that, looking ahead, inflation will come back to below the target.
-----------------------------------------
its better when you hear him speak.
Now people may disagree with that judgement, of course, but
then we can have a debate about it. But I would say that these
Page 11
Quarterly Inflation Report - 11th August 2010
factors driving inflation in the medium term are all pointing very
much in the same direction
4. Slartibartfast said...
Posen is 1/2 correct, we need stimulus, but QE is being abused by the banks.
Job creation fiscal stimulus is required.
Austerity Britain is just a mask to hide Tory social reforms. Whatever they are... gassing gypsies, putting Chav's in straightjackets. Things they dream up in young Tory late night bars.
Word up, they don't give a toss about well being of the productive workforce. They care only about their assets.
5. hpwatcher said...
Quite the little conformist aren't we techie?
6. quiet guy said...
@techieman
Thanks. When you boil down King's speech, it seems to say little other than that the BoE is happy to keep things as they are and hopefully we can keep rates at 0.5%. They dream of inflation to float their troubles away slowly.
@hpwatcher
Am I also a conformist for studying King's utterings? There is a part of me that would like to see rates return to normal to burn out all the malinvestment, whatever the cost, but it seems that won't be permitted. To some extent, I have to plan for that reality (paying for others mistakes.) King, Bean and Posen have recently been telling us things and it's probably best to listen.
7. hpwatcher said...
King, Bean and Posen have recently been telling us things and it's probably best to listen.
King's record is actually very poor - although there will always be people who will listen to him, rather than look at what is happening around them. You listen if you want to.
8. Crunchy said...
6. hpwatcher
If I wasn't such non conformist I would agree with you.
To Kings followers, please take what these shills say with a pinch of salt and judge a tree by the fruit that it bears.
9. techieman said...
"Quite the little conformist aren't we techie?" oh dear!
And to think i was responding sensibly to your comments on the main posting on this subject.
The point about listening to them doesnt mean you have to agree with what they are doing, far from it, you have to just comprehend the factors that they are reviewing to support their decision, to give you a clue as to what they are likely to do and why, and then perhaps use that as a factor in what you want to do.
Ignoring what they say does seem a bit odd to me but still people can do what they want with the information provided. I'm not sure burying your head in the sand ever did anyone that much good.
Oh and i do apologise for the section
"Now people may disagree with that judgement, of course, but then we can have a debate about it. But I would say that these Page 11 Quarterly Inflation Report - 11th August 2010 factors driving inflation in the medium term are all pointing very much in the same direction"
Thats actually from the transcript, which i meant to delete - i.e. its mervs comments not mine - my only comment is that it is better (in terms of intonation and clarification) when you hear him speak.
Of course if hpw you want to support your point thats "King's record is actually very poor..." [and i am not his greatest fan] rather than just a throw away line, then it would be nice for you to provide support.
10. a saver said...
Rather than listen to what these clowns are saying I would look at what they have done recently-put the BOE pension fund to 70% inflation-linked gilts while yanking NSI inflation-linked bonds off the market for the populace. Says it all really.
11. techieman said...
a saver - you can buy these gilts too if you want. http://www.dmo.gov.uk/index.aspx?page=Gilts/Buysell
12. mr g said...
@TC "you can buy these gilts too if you want. http://www.dmo.gov.uk/index.aspx?page=Gilts/Buysell"
From the DMO Gilt Purchase and Sale Service Information on the above website:
"The DMO offers an “execution only” service for private investors who are members of the DMO's Approved Group of Investors to buy and sell gilts by post.
But will we mere mortals be allowed to become "members of the DMO's Approved Group of Investors" or is that reserved for the magic, sorry, inner circle of the financial services sector?
13. techieman said...
mr g - you can buy them from a stockbroker too but i do take yr point, you used to be able to buy from the post office in small denominations, but
"It is no longer possible to purchase gilts from the Bank of England, National Savings & Investments or through the Post Office."
i believe its quite easy to become a member of the approved group, its just so as to comply with money laundering laws.
14. a saver said...
Thanks for the info techie and mr g!
15. mr g said...
Thanks Techie.