We Can't Predict Recession, Says Bank Of England Deputy Governor Charles Bean

[interestrateripoff]

http://www.telegraph.co.uk/finance/economics/8089832/We-cant-predict-recession-says-Bank-of-England-deputy-governor-Charles-Bean.html

The Bank of England can not predict major recessions with any “precision”, the deputy Governor has admitted.

In frank comments to the Royal Statistical Society, Charlie Bean also conceded that the Bank failed to foresee the “Great Contraction” of 2008 and 2009 – although he stressed that it was not alone. “Almost all forecasters were in the same boat,” he said.

The only recessions that are “broadly predictable”, he claimed, are those that “are deliberately policy-induced in order to squeeze inflation down”. Even then, however, “it may still be difficult to get the magnitude and timing right, and there will always be other unexpected events that perturb the path of the economy”.

In a damning comment on the models used by central bankers and other economic forecasters, he stressed: “The moral from this is that one should not expect to be able to predict the timing and scale of these sorts of events with any precision.” The best policymakers can hope is to “be more alert to the vulnerabilities” building up to a crisis.

“It is somewhat analogous to seismologists trying to predict earthquakes along a fault line,” Mr Bean said. “It is impossible to predict the day and magnitude of a shock with any precision, but it may be possible to say something about the likelihood of an earthquake occurring within a given period from seismic measurements and indicators of latent stress.”

His comments suggest that countries can not ever prepare properly for recessions because the depth and timing will always take forecasters by surprise. For “downturns associated with financial or banking crises... One would need to be endowed with perfect foresight to have been able to predict how the financial crisis would unfold”, he added.

Mr Bean argued that one of the problems is the available data is limited in its use and, therefore, forecasts of recessionary behaviour will not be accurate if the information is applied correctly. Mr Bean claimed: “Deviations of outturns from central forecasts should be unpredictable if those forecasters are using the information that is available to them efficiently.

“While it was predictable that the availability of credit would tighten as risk aversion rose and financial institutions rushed to de-leverage their balance sheets, it was far harder to know by how much.”

The UK economy shrank by 6.5pc from peak to trough during the recession, which lastest 18 months from the second quarter of 2008, the deepest contraction since the 1930s. In August 2008, the Bank put the chances of contracting more than 1.5pc at just “1 in 20”, Mr Bean admitted.

“It is a fair bet that, if we had, then we would have put the chances of a contraction as large as the ONS’s current estimate as being virtually negligible,” he added.

You cannot accurately predicted the future from past data, no matter what you do the variables will always be different and yet economics is infected with these mathematical charlatans claiming they can predict the future.

Policy makers simply chose to ignore the flashing warning lights because they didn't want to stop the party, the politicians didn't want to stop the party everyone was too busy troughing to care.

House price inflation was conveniently removed from the inflation figures therefore the models didn't have to pick up the warning signs because the bubble was in an area where it wasn't going to be a policy problem. The problem was no one really gave a 5h1t.

“William McChesney Martin Jr. vividly described the Fed's role as to "take away the punch bowl." In essence, the Fed was supposed to be the "adult chaperone" at an economic party that was likely to get out of hand. Thus, the Fed was supposed to allow, even induce, if necessary, the occasional recession to cleanse the excesses of the economy”

[OnlyMe]

Their forecasts, their models and their reasoning isn't worth shit.

They still haven't cottoned onto how their own inept, short-sighted policies have caused way more and deeper damage to the economy than a mere recession.

They are crooks, they have encouraged crooks, they have shat on the prucent, rewarded the profligate, destroyed UK competitiveness together with counting on millions of jobs now and mired the country into unrivalled trade deficits (about which they say absolutely nothing other than some poeple in this country have got to pick up the bits and get exports going again - the ones that they themselves helped destroy). - In a word or two ****** you, do it yourself.

[Toto deVeer]

In frank comments to the Royal Statistical Society, Charlie Bean also conceded that the Bank failed to foresee the “Great Contraction” of 2008 and 2009 – although he stressed that it was not alone. “Almost all forecasters were in the same boat,” he said.

Yes. The Titanic.

Edited October 27, 2010 by Toto deVeer

[Errol]

More complete and utter nonsense from Mr. Bean. Living up to his name, I see.

[billybong]

The Bank of England can not predict major recessions with any “precision”, the deputy Governor has admitted.

Can't predict with any "precision"

They can't even predict them at all - never mind with "precision".

They certainly can't even predict them without "precision".

But if the BoE hadn't a clue (IF) it's a fair bet that the major banks knew. Of course if asked the question would they have ever given an honest answer - some hope.

Edited October 28, 2010 by billybong

[billybong]

In frank comments...

Yeah so frank

[interestrateripoff]

http://www.telegraph.co.uk/finance/comment/damianreece/8091221/Warnings-of-recession-You-could-just-have-read-the-papers-Mr-Bean.html

The answer is no. There was already plenty of evidence in early 2008 to show we were headed for recession. Bean, and his Monetary Policy Committee colleagues, could have read the newspapers more closely too. That might have helped.

But the MPC, and many others, ignored the warnings or insisted on interpreting the evidence through rose tinted spectacles. Put simply they were not sceptical enough of the received wisdom emanating from Gordon Brown's Treasury that pre-crisis Britain had abolished the business cycle. Brown's statement of March 2001 that: "Mr Deputy Speaker we will not return to boom and bust," still echoes horribly. It was a common theme of his from 1997 onwards.

But it was clear to newspapers such as this one in early 2008 that we were headed for recession and rates had to be cut.

For instance on June 6, 2008, I wrote: "The doves among you should be watching M4 money supply growth, which is already falling quite sharply, and the purchasing managers' index for signs of weakness over the next couple of months. I'll plump for an August rate cut to deliver some relief - exactly a year from the onset of the credit crunch.''

Nothing happened. On July 8, 2008, after dire manufacturing figures, I said: "It's clear to me we're headed for recession and as soon as that fact dawns on the MPC it should cut rates without delay.'' Again nothing. Further warnings followed but it wasn't until October 8 the MPC started cutting rates. Too little, too late.

Although I suspect most HPC's saw that it we were heading towards a recession in 2007, but still at least someone in the press is calling Mr Bean into question.

Next we just need them to work out the current mess is partly due to the fact the BoE deliberately created a consumer boom in 2003 to avoid recession.

[Bloo Loo]

The MPC is like a human standing in front of a termite mound.

the MPC decides when to allow a termite eater near the mound.

they do this by counting the termites on the surface once a fortnight...actually, someone else counts the termites and presents the results tabulated over 150 pages.

what they dont do is look at the termites, the cost of termite food, the food each termite gets. All they see are termites on the surface and the growing mound.

then, one day, its gone....

reason...they didnt give a shite about the termites....just their job of counting the ones on the surface every fortnight.

Edited October 28, 2010 by Bloo Loo

[DabHand]

Although I suspect most HPC's saw that it we were heading towards a recession in 2007, but still at least someone in the press is calling Mr Bean into question.

Next we just need them to work out the current mess is partly due to the fact the BoE deliberately created a consumer boom in 2003 to avoid recession.

This is a credit bubble bust. BOE was instrumental in creating the credit bubble, and therefore knew exactly what they were doing (cf Eddie George back in 2002). Therefore they are lying, there's not even any room for considering good old incompetence.