Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Mervyn King's 'old Iron Fist' Missed The Recession

Recommended Posts

http://business.timesonline.co.uk/tol/busi...icle6828265.ece

David Blanchflower, the former member of the Bank of England Monetary Policy Committee (MPC), sharply criticised Mervyn King, the Bank's Governor, for ignoring his early warnings about looming recession last year.

Professor Blanchflower stepped down in May and his comments in an article for Thursday’s New Statesman magazine emerged as the MPC holds its September interest rate meeting.

Professor Blanchflower said the risk of “a long-lasting economic depression†had not gone away, despite more positive recent economic data, and criticised the MPC for failing to cut rates before October last year.

“It was hobbled by ‘group think’ - or the ‘tyranny of the consensus’. Governor Mervyn King, the old iron fist of the Bank of England, with his hawkish views on rates, dominated the MPC. Short shrift was given to alternative, dovish views such as mine,†Professor Blanchflower wrote.

He added that he came close to quitting in August last year after Mr King took him to task for publicly criticising the Bank’s growth forecasts in a Reuters interview, although he said the disagreement was polite and did not involve raised voices.

Now he reserves his criticism for the six MPC members who had not voted for an increase in quantitave easing to £200 billion.

“(King) learns fast and is capable of changing his position quickly when necessary. Others on the MPC are more plodding,†he said, dubbing them the “feeble sixâ€.

"Unfortunately, practical folk who knew how to spot and cope with banking crises were in short supply at the Bank of England Instead, the Bank was full of mathematical modellers who had never seen the inside of a commercial bank or hedge fund," he argued.

Economists expect the MPC at its September meeting to leave interest rates and the scale of quantitative easing unchanged.

At August’s policy meeting Mr King and two other MPC members, David Miles and Tim Besley, voted to expand the quantitative easing programme to £200 billion from £125 billion but the other six MPC members supported a rise to £175 billion.

“Unless some very strong data is released soon, in my view, King cannot, and will not, continue to vote in the minority for very long, as his credibility with the markets would be threatened,†Professor Blanchflower wrote.

“My bet is that he will get his way and the MPC will approve further quantitative easing by November at the very latest. He may even manage to get rates down below 0.5 per cent,†he added.

I think he'll find groupthink has infected the whole of economics.

Although Blanchflowers plans wouldn't have resolved the situation either as he still ignores the problem of debt.

Share this post


Link to post
Share on other sites

http://www.newstatesman.com/economy/2009/0...sion-king-rates

The risk of a long-lasting economic depression is not over. There have been some positive signs recently, and the worst may be behind us - but we should not get too carried away. Retail sales have risen a little and there are some positive signals from the housing market. There was even some evidence of positive GDP growth in France and Germany. Nonetheless, in the United Kingdom, money supply growth ­remains weak, banks are still not lending and mortgages are hard to come by. The latest surveys for construction and manufacturing still show contraction. Negative equity is on the rise, as are mortgage defaults. Unemployment is climbing fast and a million jobless young people under the age of 25 are in danger of becoming a lost generation.

One year on from the financial crash and the ensuing recession, the question remains: how did we get into this mess in the first place? In my view, and as I have consistently argued over the past two years, the economy would have been in much better shape today had the Bank of England's Monetary Policy Committee (MPC) - on which I sat as an external member for three years until 31 May - not kept interest rates so high, especially from the beginning of 2008. House prices had peaked by the end of 2007 and business and consumer confidence surveys had collapsed. By the second quarter of 2008, based on both output and employment, the UK economy had moved into recession. But my colleagues on the MPC did not join me in voting for rate cuts until October 2008.

So why did the committee get it so wrong? From my perspective, it was hobbled by "group think" - or the "tyranny of the consensus". Governor Mervyn King, the old iron fist of the Bank of England, with his hawkish views on rates, dominated the MPC. Short shrift was given to alternative, dovish views such as mine. I focused on the empirical data suggesting Britain was heading for recession; Mervyn and the rest of the committee focused on their theoretical models and the (invisible) threat of inflation. In fact, the Bank of England may more suitably be called "the Bank of Economic Theory". Unfortunately, the economic theories failed just when we needed them most.

Throughout this crisis the MPC needed the advice of experienced bankers, lawyers, businessmen and market-watchers. Unfortunately, practical folk who knew how to spot and cope with banking crises were in short supply at the Bank of England. There were too few regulators on the staff. Instead, the Bank was stocked full of mathematical modellers who had never seen the inside of a commercial bank or a hedge fund - and the models they used failed to pick up on the greatest financial crisis in a century. Yet, in my view, it was clear from roughly six months before the Lehman's crash in September 2008 that a financial tsunami was heading our way from the United States.

Clever as Mervyn King may be, he missed the crash and the subsequent recession, and hence, so did the consensual MPC on which I sat. In August 2008, the MPC's quarterly Inflation Report did not even contain the word "recession"; it saw the economy standing still over the next year. I very nearly quit the committee at that point. In an interview that month with Reuters, I called the forecast "wishful thinking". Mervyn called me into his office to admonish me for that one.

My former colleagues on the MPC have clung to the narrative that it was the collapse of Lehman Brothers which changed everything and that, once the financial crisis had begun, the MPC responded rapidly to events. This argument ignores certain facts: that the UK had been in recession since April 2008, that unemployment had risen by 164,000 in the three months to August, and that house prices had been falling since the end of 2007. In addition, the United States had been in recession for nine months.

Next the claim was made that if we had cut interest rates earlier, it would not have made any difference. The implied logic of this strange argument is that there is no point in having an independent central bank - or that nobody could have seen the recession coming. Wrong.

Throughout much of the crisis, the four external members of the nine-member MPC were not kept well-informed. From my own base at Dartmouth College, in the US, I had to find out what was happening to the UK economy from the newspapers and the internet. The external members were briefed after the fact only, and after we complained. In the eyes of the Bank, it seems, it was none of our business. We were not told what was happening to British banks such as Northern Rock, Royal Bank of Scotland, Lloyds, Bradford & Bingley or Alliance & Leicester. Or to US banks such as Lehman Brothers or Bear Stearns. We weren't kept in the loop, but we should have been. With hindsight, Mervyn King's focus on moral hazard - the idea that banks are encouraged to take more risks because they know they will be bailed out - was a huge mistake. I sat across the pond watching in astonishment as Northern Rock failed in September 2007 - and I didn't even get a phone call.

More of Blanchflowers musing at the link.

Clearly the MPC is full of idiots with no guts to be independent and state the truth.

Share this post


Link to post
Share on other sites
http://www.newstatesman.com/economy/2009/0...sion-king-rates

More of Blanchflowers musing at the link.

Clearly the MPC is full of idiots with no guts to be independent and state the truth.

Blanchflower has acquired a reputation as a sage for predicting the recession, despite the fact that he sat on the MPC and didn't raise a squeak while the bubble was inflating and that his proposed remedies were snake oil and bunkum.

Share this post


Link to post
Share on other sites

A link from an older article, but quoting a third party poster and a another article link .......

Blanchflower, like Greenspan are coming back to write their very own history of events, leaving out the key bits.

http://www.independent.co.uk/news/business...bs-1670453.html

This from Blanchflower?

[info]bongothewhippet wrote:

Saturday, 18 April 2009 at 06:43 am (UTC)

Perhaps Blanchflower should take a long hard look at his MPC voting record over the past few years if he wants to know where British jobs went. He has consistenly voted for rate cuts to keep the housing market afloat to the detriment of the rest of the UK economy.

That is why when you walk down a UK high street every second shopfront is an estate agent. That's thanks to the likes of Blanchflower keeping house prices too high and the price of risk associated with subprime mortgages too low. To those deniers that say that the MPC does not target house prices, I would say look closer at the figures.

For at least the last seven years, economists on the MPC have voted for rate cuts REGARDLESS of inflation, whenever house price inflation dropped below about 9%. The last rate cut was no exception - at a time when the MPC knew that their preferred measure of CPI inflation was rising (even though they did not mention it at the time). Did anyone else see the irony of the rate cut and money printing strategy being embarked upon at the same time that Mervyn King had to 'apologize' to the Chancellor for above target inflation?

I think we're starting to see the MPC for what it is. Instead of Bank of England independence, we've given up transparency for a politically motivated sham of a central bank. Consider your own role in the current mess, Mr

Blanchflower.

And another.

He actually produced a report stating that employing migrant workers did not affect either the number of jobs or salaries of those in the economy to which those migrants go to work.

http://devilskitchen.me.uk/2007/01/gold-an...anchflower.html

Or so you would believe if you read nothing other than the effusions of Professor David Blanchflower, a member of the Bank of England's Monetary Policy Committee, who went on the record earlier this week as saying that there was 'little or no evidence' that mass immigration has any effect on either native wages or native unemployment.

Blanchflower, whose contribution to the jurisprudence of same-sex relationships has been as great as his contribution to economics, is a British born naturalised American who only took the MPC job on the condition that he could continue teaching at Dartmouth; however the idea that a foreign national helps mould British economic policy might be as startling to some as Nick Griffin being appointed a columnist for 'The Guardian', or Jared Taylor getting a weekly gig at 'The New York Times'.

Share this post


Link to post
Share on other sites
Blanchflower has acquired a reputation as a sage for predicting the recession, despite the fact that he sat on the MPC and didn't raise a squeak while the bubble was inflating and that his proposed remedies were snake oil and bunkum.

Like Greenspan, all the way through the bubble he was one of the blowhards that perpetuated and gave succour to it. His voting record shows this.

Share this post


Link to post
Share on other sites

pot kettle black

Blanchflower has acquired a reputation as a sage for predicting the recession, despite the fact that he sat on the MPC and didn't raise a squeak while the bubble was inflating and that his proposed remedies were snake oil and bunkum.

blanchflower allowed a bubble by keeping rates historically at the lower end, then he wanted to cut rates to ease the burden on those he had already encouraged into debt, how big of him.

the cutting of rates to where they are now risks making another bubble and it seems this is now happening (unless we have a crack-up boom element).

OnlyMe, thx for those forum cut/pastes, very insightful, i agree with all that. the robbing of savers to pay for mortgagors' reckless borrowing and banks' reckless granting of that borrowing is a scandal which some of the bulls will scoff at today but wont be laughing quite so much when they have the tax rises to pay and see their services slashed by whichever party is in power, then their assets tumble big time. these overgrown bullish children who now think they have escaped the consequences of their greed and dishonesty will find out that not only have the savers been stitched up but every last one of them on both sides of the fence will be screwed for the incompetence of the policies over the past 10 years. it's a failed BoE, a failed government, and what we have in front of us now is a turnaround paid for with imaginary money and a hope and a prayer that it all works out. this from the same people who brought you the mess in the first place. so what chance they know what they're doing now? exactly.

Share this post


Link to post
Share on other sites

Hang on. Blanchflower joined the MPC in June 2006. He wasn't voting for rate cuts back in 2001-2002 like Greenspan. I'm not sure it's the same situation at all. Maybe rates should have gone aggressively higher in late 2006 but I think by then the die was largely cast already.

Share this post


Link to post
Share on other sites
Hang on. Blanchflower joined the MPC in June 2006. He wasn't voting for rate cuts back in 2001-2002 like Greenspan. I'm not sure it's the same situation at all. Maybe rates should have gone aggressively higher in late 2006 but I think by then the die was largely cast already.

If I remember correctly I think subprime defaults had started in 2005, so the chain of events had already begun.

Share this post


Link to post
Share on other sites
Hang on. Blanchflower joined the MPC in June 2006. He wasn't voting for rate cuts back in 2001-2002 like Greenspan. I'm not sure it's the same situation at all. Maybe rates should have gone aggressively higher in late 2006 but I think by then the die was largely cast already.

True to a point, however during just that one year Northern rock captured a huge proportion of the lending market via totally reckless lending policies, enough damage was probably done in that one year to seal the demise of Northern Shithouse. Was Blanchflower jumping up and down in the BOE screaming for reckless lending to be controlled asap - NO.

Then, what about this labour market expert. How can you seriously suggest that mass migrant labour has no effect on either wages or jobs in the affected market? Total absurdity.

Edited by OnlyMe

Share this post


Link to post
Share on other sites

A bit sad really. You expect people to air this stuff in private, this just makes him look childish. If I was a prospective employer of his then I would think twice about employing the man.

No style. No style at all.

Share this post


Link to post
Share on other sites

I do agree with his views on house prices, but he is obnoxious to his former work colleges.

Our currency has plunged against the Dollar and Euro, if we had dropped rates sooner or more aggressively then Sterling would have been cut more. His argument is not a fair and balanced view.

Share this post


Link to post
Share on other sites
A bit sad really. You expect people to air this stuff in private, this just makes him look childish. If I was a prospective employer of his then I would think twice about employing the man.

No style. No style at all.

You mean keep everything secret because it looks better?

No I expect these debates to be held in public as that is what a democracy demands.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   288 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.