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What Mervyn King Said To Dave (And Geoerge)

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http://blogs.telegraph.co.uk/finance/jeremywarner/100007137/what-the-governor-said-to-dave

Mervyn King, Governor of the Bank of England, had his first meeting with the Prime Minister yesterday since the formation of the coalition Government. I’ve not been able to find any report of what was said in this morning’s press, but I’ve got my own spies, so here’s my fly on the wall account.

After a few minutes of mutual congratulation and small talk, it’s down to the serious stuff. What’s next week’s Inflation Report going to say, where’s the economy heading and what on earth are we going to do if there is a double dip? Mr Cameron wants to know whether he should be postponing at least some of the fiscal consolidation, including the planned rise in VAT, if the economy is again contracting by the end of the year.

Absolutely not, is the Governor’s view, which fortunately chimes with that of his new best friend, Chancellor George Osborne. If you run at the first whiff of grapeshot, no one will take you seriously. It’s important to think about what would cause such a contraction. If it’s the European economy going belly up once more, then that will only heighten market concerns about fiscal deficits, for all these deficits are going to look a great deal worse if there is no growth. In these circumstances it will become even more important to have a credible deficit reduction plan.

Osborne then pipes in; and of course we’ve given ourselves quite a lot of slack in our targets for deficit reduction, which under the present trajectory will be achieved a year ahead of schedule. That means we should be able to absorb any short term increase in the nominal size of the deficit caused by the activation of automatic stabilisers without upsetting our plans to eliminate the structural deficit.

This is all very well says Cameron, but if we cannot provide fiscal support beyond the automatic stabilisers in the event of a further contraction, can we rely on you, Governor, to do the necessary instead, with another burst of quantitative easing? We don’t want the Europeans to pull us down with them.

That depends, says King. There’s no support right now on the Monetary Policy Committee for more QE, though it has been raised as a possibility at the last two meetings. Indeed, far from wanting more QE, one member of the MPC, Andrew Sentance, demands an immediate rise in interest rates. It’s hard to make the case for more QE while inflation is still so far above target.

It was reported in the press the other day that one former MPC member, Sir John Gieve, reckoned interest rates might be as high as 2.5 per cent a year from now. The Governor is dismissive. He would be only too delighted if rates were that high, for it would mean the recovery was proceeding apace.

But infact there were still more reasons for pessimism about growth than optimism. Despite weak growth, inflation was still a problem and had remained much more stubborn than anticipated. The VAT rise would keep it well above target for the next year, and there were rising food prices to contend with too. This was making the policy dilemma particularly acute. But as yet there was little sign of second round inflationary effects.

So more QE? Not now, but if the economy tanks again, the hawks will return to their eyries without much prompting. And the doves will come out of the dovecotes? Well, there can be no guarantees, the Governor concludes, but plainly something would have to be done.

He who laughs last isn't holding Sterling with the chuckle brothers in charge...

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http://blogs.telegraph.co.uk/finance/jeremywarner/100007137/what-the-governor-said-to-dave

He who laughs last isn't holding Sterling with the chuckle brothers in charge...

Very interesting news. Thanks for posting it.

But... first meeting?! Only yesterday?!

That is really very very odd, ins't it?!

I mean, "it's the (fecking) economy stupid!"

Weird.

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Very interesting news. Thanks for posting it.

But... first meeting?! Only yesterday?!

That is really very very odd, ins't it?!

I mean, "it's the (fecking) economy stupid!"

Weird.

Mañana mañana seems to be the attitude.

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Mañana mañana seems to be the attitude.

Well, at least they are all on the same frequency, and the correct one - bring the deficit down. And if needed, better to stimulate the economy with monetary policy than with fiscal policy.

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post-10802-12810298110031.jpg

  

Hmmm....Are Cameron and Osborne getting worried that this poster may become relevant?  

Do you think DC is still chuffed that he got the job? After his latest gaffe on when the Yanks came in to WW2 I reckon he will be known as Wahington DC from now on.

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Bring back Gordon eksay..erm..not.

What the hell is it with this country, the fellows in the picture are actually 'in charge' of the circumstances of all who live here..

Freakin' abysmal that this pair of clowns (at least Clegg ain't in the pic) are the best that we could come up with.

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Guest Noodle

Bring back Gordon eksay..erm..not.

What the hell is it with this country, the fellows in the picture are actually 'in charge' of the circumstances of all who live here..

Freakin' abysmal that this pair of clowns (at least Clegg ain't in the pic) are the best that we could come up with.

You didn't come up with any of them. You don't get to choose. They are all selected from their 'clubs', left and right.

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You didn't come up with any of them. You don't get to choose. They are all selected from their 'clubs', left and right.

Too right, it is such a travesty.

Democracy hey.

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QE was designed to last them into the last quater, by 2011 QE2 will be with us.

Mike

Same old same old.

Utter and irresponsible incompetence.

Until recently I believed (hoped?) that this country had something special going for it, i.e. clever fellows at the helm..

What a joke England has become.

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post-10802-12810298110031.jpg

  

Hmmm....Are Cameron and Osborne getting worried that this poster may become relevant?  

Yeh really and what is causing their perplexing demeanor , Gordon sticking his eye back in?

Willfully blind imbecile.

To support Gordon's mismanagement is absurd, ML , he's the main txxt who FUBAR'd our country..

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Yeh really and what is causing their perplexing demeanor , Gordon sticking his eye back in?

Willfully blind imbecile.

To support Gordon's mismanagement is absurd, ML , he's the main txxt who FUBAR'd our country..

Exactly Zngland. Well said. I was just writing about that, a few minutes ago, in another thread:

I think you are over estimating them. I think reality is even worse!

In 2003 Brown's goal was to be the next prime minister. The "country" was not his main concern, nor even "bring a modicum of wealth to those without". His concern was with the 2005 election. RPI was overshooting the inflation target, due to rising housing costs, and the the BoE was going to raise IR in 2004. That would slow down the economy, and reduce Labour's chances of wining the 2005 election, and Brown's of becoming Prime Minister.

All very logical. Brown's solution? Remove housing costs from the inflation index, and that will stop the BoE from raising IRs. Very simple.

There are question whether Brown knew at the time that this index tampering would create this housing bubble, or the size of it, or the consequences for the financial system, or for the real economy, or for millions of people.

The more he foresaw, more of a b@stard he was. The less he foresaw, more of a moron he was. Open question. :)

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Bring back Gordon eksay..erm..not.

What the hell is it with this country, the fellows in the picture are actually 'in charge' of the circumstances of all who live here..

Freakin' abysmal that this pair of clowns (at least Clegg ain't in the pic) are the best that we could come up with.

I didn't vote, but I'm quite impressed with the pair of them so far. They've taken decisions that Labour would never have had the stomach for, and the important thing is the the general population and the media (even the BBC) now accept that we're skint and that cuts are the only option. I can't stand the sight of Clegg though, the TV program 'The 5 days that changed Britain' showed him to be the devious lying son of Blair that I always suspected he was.

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(...) I can't stand the sight of Clegg though, the TV program 'The 5 days that changed Britain' showed him to be the devious lying son of Blair that I always suspected he was.

How, when, why? I watched it, (I think), and I didn't have such a a bad impression, IIRC. He was OK.

I just wish we could just have a centrist, liberal government. Not old Tory aristocrats landed gentry, and no social-democrats do-gooders. Just liberal, modern, centrist, free-market, pro-development, pro-science and the enlightenment - liberal!

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Yeh really and what is causing their perplexing demeanor , Gordon sticking his eye back in?

Willfully blind imbecile.

To support Gordon's mismanagement is absurd, ML , he's the main txxt who FUBAR'd our country..

I didn't say I supported Gordon - personally I am will Bill Bonner on this one - read the Daily Reckoning or Money Week, or buys Mobs, Messiahs and Markets.

Edited by Mikhail Liebenstein

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How, when, why? I watched it, (I think), and I didn't have such a a bad impression, IIRC. He was OK.

I just wish we could just have a centrist, liberal government. Not old Tory aristocrats landed gentry, and no social-democrats do-gooders. Just liberal, modern, centrist, free-market, pro-development, pro-science and the enlightenment - liberal!

The LibDems had a dreadful election result, yet Clegg had no shame in the way he double-dealed in the negotiations. I'm probably biased, but I find him shifty and untrustworthy (like Blair) - and I just don't like him! I have no problem with the coalition though, I think it's been a healthy development and I hope it's a success.

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The LibDems had a dreadful election result, yet Clegg had no shame in the way he double-dealed in the negotiations. I'm probably biased, but I find him shifty and untrustworthy (like Blair) - and I just don't like him! I have no problem with the coalition though, I think it's been a healthy development and I hope it's a success.

I see. OK, I see the same "PR" ability in Clegg, I agree, but I think this is a necessity in his job. And I think his goals are in the right direction. Of course he has personal ambitions (bless), but I think his ideology (liberal) is compatible with the national interest - unlike Gordon Brown's.

Just one thing, on the "double-dealing", you mean negotiating with both Tories and Labour? If, so, to be frank, for a while I am not really sure what does it mean, precisely. Like: suppose you are buying a house, you'll visit many, and you may well tell an estate agent that this house is too expensive, because there is another one down the road for £10k less. Is this double dealing? What is the difference? Sellers do the same, and sell for the best offer. Auctions are exactly that. I really don't get why is it wrong to negotiate with different parts, trying to find the best deal.

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I see. OK, I see the same "PR" ability in Clegg, I agree, but I think this is a necessity in his job. And I think his goals are in the right direction. Of course he has personal ambitions (bless), but I think his ideology (liberal) is compatible with the national interest - unlike Gordon Brown's.

Just one thing, on the "double-dealing", you mean negotiating with both Tories and Labour? If, so, to be frank, for a while I am not really sure what does it mean, precisely. Like: suppose you are buying a house, you'll visit many, and you may well tell an estate agent that this house is too expensive, because there is another one down the road for £10k less. Is this double dealing? What is the difference? Sellers do the same, and sell for the best offer. Auctions are exactly that. I really don't get why is it wrong to negotiate with different parts, trying to find the best deal.

Negotiating is fine. Clegg's conduct was more similar to that of a gazumper.

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Negotiating is fine. Clegg's conduct was more similar to that of a gazumper.

I see. Because he had said before the election that they would support the part with more votes and seats? Yes, he did say that. OK. After the election he changed from "support" into "negotiate first". Yes, that was gazumpy.

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Mervyn seems to be guaranteeing low rates with the way he frames the debate, saying that if interest rates were at 2.5% that would mean the recovery would be well underway. He is not interested in raising rates while the economy is contracting, regardless of his inflation remit. It's a logical trap: measure GDP in a way that captures bubbles as GDP growth and then say you will only raise rates if it doesn't result in a fall in GDP. You are prohibiting yourself from ever allowing bubbles to burst.

I wish they'd stop with the new game where they say inflation is due to a "spike" in oil prices or in food or a rise in VAT etc but "underlying inflation" is fine. Who cares what caused it, the cost of living is going up! Also why on earth do we not count income tax, NI, and council tax as part of the cost of living? It's not like these things are optional.

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Mervyn seems to be guaranteeing low rates with the way he frames the debate, saying that if interest rates were at 2.5% that would mean the recovery would be well underway. He is not interested in raising rates while the economy is contracting, regardless of his inflation remit. It's a logical trap: measure GDP in a way that captures bubbles as GDP growth and then say you will only raise rates if it doesn't result in a fall in GDP. You are prohibiting yourself from ever allowing bubbles to burst.

I wish they'd stop with the new game where they say inflation is due to a "spike" in oil prices or in food or a rise in VAT etc but "underlying inflation" is fine. Who cares what caused it, the cost of living is going up! Also why on earth do we not count income tax, NI, and council tax as part of the cost of living? It's not like these things are optional.

Going to cause a massive collpase when the population can no longer afford the essentials - then discretionary spending will be totally screwed and bearing in mind that nearly all the new jobs created are reliant on crapola discretionary spend then the real state of the economy and reckless financial planning will be laid bare. There will be no savers to catch the ball when it drops either as they have been drained of purchasing power.

Edited by OnlyMe

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Mervyn seems to be guaranteeing low rates with the way he frames the debate, saying that if interest rates were at 2.5% that would mean the recovery would be well underway. He is not interested in raising rates while the economy is contracting, regardless of his inflation remit. It's a logical trap: measure GDP in a way that captures bubbles as GDP growth and then say you will only raise rates if it doesn't result in a fall in GDP. You are prohibiting yourself from ever allowing bubbles to burst.

I wish they'd stop with the new game where they say inflation is due to a "spike" in oil prices or in food or a rise in VAT etc but "underlying inflation" is fine. Who cares what caused it, the cost of living is going up! Also why on earth do we not count income tax, NI, and council tax as part of the cost of living? It's not like these things are optional.

Yes, looks like that is his plan.

But inflation should go up, and even if assets' nominal prices don't fall, real prices should fall.

As someone else says around here: "gravity always wins".

.

Edited by Tired of Waiting

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  • 153 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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