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Britain 'further Ahead' In Race For Recovery

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http://business.timesonline.co.uk/tol/busi...icle6706979.ece

Britain has moved ahead of other leading economies in the race to restore the stability of its banking system and pave the way for economic recovery, the newest member of the Bank of England’s rate-setting committee said today.

Professor Adam Posen said that more decisive and “forthright†action by the Government had left Britain further forward in putting the banking system on a more normal footing than some of its leading competitors.

“The UK seems to be well ahead of the US and most euro area governments in this area of providing banks capital and disclosing their real situation,†Professor Posen, who joined the Bank’s Monetary Policy Committee as an external member in September, told MPs.

He said that the West’s leading economies faced a race to “beat the clock†so that banks’ operations returned to relative normality before extraordinary stimulus measures to shore-up growth ran out.

“If you do not fix the banking system by the time your stimulus runs out, then private demand will not pick up when the stimulus runs out,†he told the Commons Treasury Committee. "That's what we saw in Japan in 1997, and that is what we saw in Japan in 1999-2000. So we have a clock ticking here in the UK as in the US and the euro area.â€

But the professor said Britain was now among the best placed of leading economies, contrasting this with the situation in his native United States where he feared further problems from the banking sector.

“I think in all honesty the UK is closer to beating the clock than the US or Germany,†he said.

“I am more concerned about the bank issues coming back to the fore in the US than in the UK. I think there's still a lot of unfinished business.â€

Professor Posen, one of America’s most respected academic economists, backed other members of the MPC, including Mervyn King, the Bank’s Governor in expressing optimism that the recession is set to end this year, but echoed their warnings over an uncertain and slow recovery.

“Looking ahead to the UK I think… we're looking at a firming of conditions and I would be surprised if we did not get back to growth by early 2010, possibly earlier,†he said.

But he cautioned that the recovery was likely to follow a “sawtooth†pattern, with a revival coupled with intermittent setbacks.

He warned that renewed growth was likely to be relatively weak, with any return to a pace of growth above the economy’s long-term speed limit or trend rate “unlikelyâ€.

“There is a possibility of above-trend growth, one has to hope for that. But I don't foresee the UK or any other major economy getting a smooth above-trend path for the next couple of years,†he said.

In comments likely to fuel City expectations that Professor Posen will prove doveish over interest rates, and over any early winding up of the Bank’s controversial quantitative easing scheme to pump newly-printed money into the economy, he told MPs that he saw deflation as a greater danger than inflation at present. He added that he regarded an undershooting of the Bank’s 2 per cent inflation target as potentially a bigger problem than an overshoot.

“The risks right now certainly are more about deflation than inflation in the short-term,†he said. “What Japan has demonstrated is that once you fall into a really deflationary situation, it’s very hard to get out. It’s very sticky,†he said.

He added: “There remains reason to think that undershooting a 2 per cent inflation target has somewhat greater costs and risks to real economic output and employment than overshooting it by the same amount.â€

After the pound’s sharp plunge over the past year, the professor predicted that it would recover some ground over the coming months.

"I see stronger sterling against the euro in the medium-term,†he said. “In the very immediate term, the potential that slower action on policy from the [European Central Bank] will lead to an interest rate gap that could temporarily push up the euro.â€

Excellent.

Good to hear Ponzi Brown has done everything right to fix the problem. No wonder this economic genius has been placed on the MPC.

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The banks were fecking nationalised because they were allowed/encouraged to load up to the gunnels in shit, it was policy, one of cheap interest rates and more pretend growth on the back of debt. We had major bank runs. They think of this as enhanced transparency.

The taxpayer has been passed the bill but the taxes haven;t been raised to pay it yet.

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They also talk of "Jobless Recovery"

Hmmm

Oh come on, Mike. What's a few million unemployed. The urgent thing is to give the banks money.

“The UK seems to be well ahead of the US and most euro area governments in this area of providing banks capital" Professor Posen told MPs.

He said that the West’s leading economies faced a race to “beat the clock†so that banks’ operations returned to relative normality.

Hurry while banks last!

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Amazing. I've only recently discovered that Debt2 - Savings = Wealth. So the more debt you accrue, and the less savings you have, the richer you are! Apparently, you capitalise the financial services sector first and the real economy follows. Hang on a minute while I chuck my Von Mises/Adam Smith literature collection in the bin.

Edited by RajD

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He said that the West’s leading economies faced a race to “beat the clock†so that banks’ operations returned to relative normality before extraordinary stimulus measures to shore-up growth ran out.

Now there's an interesting statement if ever there was one.

So we've got an MPC member saying that he thinks everything will be okay, everything must be okay before "extraordinary" measures run out or it won't be okay, and that everything will be okay by the end of the year. I wonder what this says about QE, and when it finishes?

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Let's analyse it a bit: this bit about fixing the system before the stimulus runs out, otherwise you can't fix it at all.

I'm guessing what he means is something like this: you have to restore confidence in the banks before the stimulus runs out (when rates have to go up to stop a currency crash). If you don't, there will be no banks because people will do a run even on the safe banks, and since none of them can cover their liabilities, they will all go bust.

The problem is, the stimulus is keeping half the banks on life support. They go bust directly the QE stops. So they have to be put into bankruptcy, their assets sold to the surviving banks, and confidence built up that the survivors are safe, all before the stimulus stops.

???

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Now there's an interesting statement if ever there was one.

So we've got an MPC member saying that he thinks everything will be okay, everything must be okay before "extraordinary" measures run out or it won't be okay, and that everything will be okay by the end of the year. I wonder what this says about QE, and when it finishes?

What is interesting is that the IMF said UK could not afford any more "extraordinary measures" and the BOE held back on QE just a couple of days ago presumably because it was afraid of the consequences rather than thinking no more was needed..

The way I see it we have already run out of options for "extraordinary measures"

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Now there's an interesting statement if ever there was one.

So we've got an MPC member saying that he thinks everything will be okay, everything must be okay before "extraordinary" measures run out or it won't be okay, and that everything will be okay by the end of the year. I wonder what this says about QE, and when it finishes?

I just took it (and him) to mean that the banks should first in line for any spare dosh.

There isn't much in that sentence that stands close inspection. We're not being extraordinarily stimulated, that's for sure.

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What is interesting is that the IMF said UK could not afford any more "extraordinary measures" and the BOE held back on QE just a couple of days ago presumably because it was afraid of the consequences rather than thinking no more was needed..

The way I see it we have already run out of options for "extraordinary measures"

That's how I see it.

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All these ridiculous feel good statements represent the bull trap phenomenon translated to politics, media and corporate delusion. How can a nation up to its eyeballs in debt claim that recovery is on the way? This palpable nonsense is sadly not just a deliberate and massaged lie issued with a regularity which suggests the masses are yet again being spoon fed deceit of the highest order, but it indicates that no lessons have been learned by anyone with power and influence.

The assumption seems to be that since talking up the market in the boom period generally succeeded...for a limited time...the same method can now be used all over again.

The dangerous thing about these absurd statements is that, despite being duped already, I feel certain the majority of undiscerning, uncritical, unaware people (ie: 90% of the UK population) are going to be taken in yet again.

Naivity seems to have no boundaries anymore. Any old "expert" spouting rubbish that shafted everyone first time round seem to be as active now as they were when they were telling people that their property was "safe as houses". Why don't people EVER learn?

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