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G20 Paris: Bernanke Defends Easy Money Policy And Calls For Currency Reform

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http://www.telegraph.co.uk/finance/financetopics/g20-summit/8333854/G20-Paris-Bernanke-defends-easy-money-policy-and-calls-for-currency-reform.html

US Federal Reserve Chairman Ben Bernanke defended his country's easy money policy ahead of the G20 leaders meeting in Paris, and joined Bank of England Governor Mervyn King in calling for currency reform.

Mr Bernanke defended loose monetary policy in advanced economies against the charge it is overheating emerging markets, saying factors such as exchange rate rigidity are also to blame.

Speaking ahead of an economic summit in Paris that will include many critics of the Fed's aggressive $600bn (£370bn) bond buying program, he acknowledged that strong capital flows from advanced economies to emerging markets may be having negative spillover effects.

"Capital flows are once again posing some notable challenges for international macroeconomic and financial stability," he said in remarks prepared for delivery to a Banque de France event in Paris.

Many emerging nations blame loose monetary policy in the developed world for creating a rush of "hot" money that is destabilising their economies by inflating commodity prices and stoking inflation.

However, Mr Bernanke said that although policy-makers in the emerging markets clearly face challenges, such concerns should be weighed against stronger emerging market growth and steps emerging economies themselves can take.

"Countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports," he said.

Central bankers and finance ministers from the G20 are meeting in the French capital to hammer out common criteria for measuring global economic imbalances at a two-day session that host France hopes will lead to an overhaul of world finance.

Bank of England Governor Mervyn King said the world is at risk of renewed protectionism or financial crisis if policymakers do not agree to currency and other reform.

"Global imbalances contributed to the financial crisis and a rebalancing of global demand is the key to a sustainable recovery," Mr King said in a speech he is to deliver in Paris.

Mr King said that while financial regulation can help deal with global imbalances, it has limitations. He said there needed to be an agreement on spending and exchange rates.

I see the imbalances being created by tw@s pumping free money into the system strangely isn't an issue.

NY Times take on it

king2_1829625c.jpg

Quick game of spot the tw@?

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Bernanke and King are correct.

Its sad you can't accept anything they say even when a particular point they might make is so obviously right.

You're like a 3 year old who says "no" regardless of what he is asked.

Would you like a smack bum? No.

Would you like an ice cream? No.

Then later, yes, ice cream please.

That is the hallmark of a petulant child.

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king2_1829625c.jpg

"Come on Ben i dare you"

"No they won't fall for it yet Merv, they havn't suffered enough yet"

"Ok I'll ******ing do it"

"Today Brethren i would like to propose the introduction of a Single Global Currency"

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Bernanke and King are correct.

Its sad you can't accept anything they say even when a particular point they might make is so obviously right.

You're like a 3 year old who says "no" regardless of what he is asked.

Would you like a smack bum? No.

Would you like an ice cream? No.

Then later, yes, ice cream please.

That is the hallmark of a petulant child.

I can accept things they say. Having read Greenspans book, there are parts where he's very open and correct about economic policy, it's just that he then decided to be a political lap dog and take the easy short termist view.

Of course global imbalances helped create this mess, however QE is creating more imbalances and one problem is with Western Central banks having a virtual 0% interest rate the only option is to chase a greater return in the emerging markets which fuels inflation.

It still doesn't alter the fact they are tw@s :)

Now where's my fooking Ice cream. I want one now!

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Bernanke and King are correct.

Its sad you can't accept anything they say even when a particular point they might make is so obviously right.

You're like a 3 year old who says "no" regardless of what he is asked.

Would you like a smack bum? No.

Would you like an ice cream? No.

Then later, yes, ice cream please.

That is the hallmark of a petulant child.

Correct that they have inflated bubbles, and that they are between a rock and a hard place and thay have found a route through?

yeah right....they got us here, unexpectedly, do you really think they can foresee where they are taking us any better than they could 4, 6, 8 years ago.

No, they are doing the self same thing, lowering the cost of money, and expecting a different result. This is the method of the madman.

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Correct that they have inflated bubbles, and that they are between a rock and a hard place and thay have found a route through?

yeah right....they got us here, unexpectedly, do you really think they can foresee where they are taking us any better than they could 4, 6, 8 years ago.

No, they are doing the self same thing, lowering the cost of money, and expecting a different result. This is the method of the madman.

Agreed, with an ounce of talent and forward thinking we wold never be here.

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Correct that they have inflated bubbles, and that they are between a rock and a hard place and thay have found a route through?

yeah right....they got us here, unexpectedly, do you really think they can foresee where they are taking us any better than they could 4, 6, 8 years ago.

No, they are doing the self same thing, lowering the cost of money, and expecting a different result. This is the method of the madman. central bankers.

More accurate I think.

Mad man would try to fix the problem with pencils up their noses saying wibble wibble.

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Has *************e been asked about this at the G20?

http://www.businessspectator.com.au/bs.nsf/Article/Fed-QE3-monetary-policy-inflation-jobless-claims-pd20110211-DXRTE?OpenDocument

I don’t think we can take the resignation of Fed Governor Warsh as a good signal. He is only 40, had seven years remaining in his term, is leaving relatively quickly – end of March – and apparently has no immediate careers plans. Moreover, while he ended up being a bit of a wimp and voting with the Bernanke to print money, he made it quite clear in speeches and op-eds that he wasn’t a fan. You know the old saying, people don’t leave jobs, they leave managers – and this could be a slap in the face to Bernanke. It also makes me worried that QE3 is going to become a reality.

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Bernanke and King are correct.

Its sad you can't accept anything they say even when a particular point they might make is so obviously right.

You're like a 3 year old who says "no" regardless of what he is asked.

Would you like a smack bum? No.

Would you like an ice cream? No.

Then later, yes, ice cream please.

That is the hallmark of a petulant child.

It's the hallmark of shit parenting.

Which is what this crisis is all about.

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It's the hallmark of shit parenting.

Which is what this crisis is all about.

Injin.....................................Good to see yeh to see yeh, don't f00k off again, its a worse place without yeh.................................P

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I see the imbalances being created by tw@s pumping free money into the system strangely isn't an issue.

Mervyn King is exactly right on this. I've only read half of the PDF in the document, but the man knows what he is talking about.

It is all about balance. Balance of trade, balance of wealth, balance of power. Look around the global economy, look around our national economy - it is the lack of balance which is the problem. Is this really that surprising or complicated a concept to digest? You can't have all the wealth flowing in one direction, indefinitely, without it causing problems in the long run.

China could have made changes to its exchange rate policy long ago. They could have made changes since the crisis in 2007. They didn't (at least not enough) and the developed world has been left with no option but to force their hand, by giving them an ultimatum - allow your currency to appreciate and your current account to rebalance OR face waves of inflation as we make the changes for you.

You simply cannot maintain growing imbalances indefinitely. I do not understand how anyone can argue otherwise.

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Paul Farrell: "Fed Dictator Bernanke Needs To Be Toppled"

Submitted by Tyler Durden on 02/15/2011 09:43 -0500

Alan GreenspanBen BernankeBlack SwanBrazilCentral BanksFederal ReserveFederal Reserve BankFree MoneyGreat DepressionHank PaulsonIraqIrrational ExuberanceMain StreetMeltdownMonetary PolicyRecessionRobert ShillerTim GeithnerTime Magazine

This must read Paul Farrell piece has to be recreated in its entirety.

Via MarketWatch

Fed Dictator Bernanke Needs To Be Toppled

Fed boss Ben Bernanke is the most dangerous human on earth, far more dangerous than Hosni Mubarak, Egypt’s 30-year dictator, ever was. Bernanke rules a monetary dictatorship that will trigger the coming third meltdown of the 21st century.

But this reign of economic terror will end.

Just as Mubarak was blind to the economic needs of the masses and democratic reforms, Bernanke is blind to the easy-money legacy that’s set the stage for revolution, turning the rich into super rich while the middle class stagnates and peanuts trickle down to the poor.

Warning, Egypt also had a huge wealth gap before its revolution. Bernanke is the final egomaniac in America’s bubbling 30-year wealth gap, where the top 1% went from owning 9% of America’s wealth to owning 23% during this dictatorship.

Bernanke’s ruling ideology is the culmination of a 30-year economic war that has forged together Reaganomics for the super rich, former Fed chairman Alan Greenspan’s toxic allegiance to Wall Street, the extreme Ayn Rand’s capitalist dogma, culminating in the toxic bailouts of Treasury Secretaries Hank Paulson and Tim Geithner, two Wall Street Trojan Horses corrupting government from within.

Since 1981 this monetary dictatorship has caused enormous collateral damage, systematically sabotaging democracy, capitalism and the American dream while fueling the rise of our most dangerous new enemy, China. See “Secret China war plan: trillions in U.S. debt.”

When Obama reappointed Bernanke a couple years ago, “Black Swan’s” Nicholas Taleb was “stunned.” Bernanke “doesn’t even know that he doesn’t understand how things work,” that Bernanke’s economic methods are so inadequate they make “homeopath and alternative healers look empirical and scientific.”

We called Bernanke, the “Captain of the Titanic,” warning that he was setting up the third meltdown of the 21st century, predicted by “Irrational Exuberance’s” Robert Shiller, a coming crash worse than the 2000 dot-com crash and the subprime credit meltdown of 2008 combined. See “Capt. Bernanke sinks the U.S.S. Titanic.”

Inside the Fed: Cassandras, Chicken Littles, governors crying wolf

Unfortunately, as with Egypt’s dictator, the 30-year dictatorship now headed by Bernanke must end soon: And this class war will not be pretty. But it is no black swan; no one can claim they didn’t see a new crash coming.

For several years before the 2008 meltdown we reported on money managers, economists and financial gurus warning of a coming meltdown. They included two Fed governors who warned Greenspan in the early Bush years. And yet, as late as summer 2008 Bernanke, Paulson and Greenspan were systematically dismissing mounting evidence of a mega crash dead ahead.

That’s why Time magazine’s cover story about Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, grabbed me. David Von Drehle’s “The Man Who Said No to Easy Money” is a warning to all America.

Like Ed Gramlich and William Poole, the two Fed Governors who warned Greenspan during the Bush years, Hoenig regularly dissented from Bernanke’s easy-money policies that have been favored by Wall Street throughout this 30-year dictatorship.

We’re paraphrasing Drehle’s interview with Hoenig as 10 warnings because it brilliantly reveals the broader historical tragedy of the Fed’s 30-year monetary dictatorship driving America to the edge of another 1930s economic revolution, one that will be triggered by a repeat of the 1929 wake-up call.

1. Commodity price inflation will soon end the Fed dictatorship

Hoenig consistently “cast his lonely ballot against the indefinite reign of easy money. Eight meetings, eight no votes … an unyielding point of view, one that has become ever more relevant now that rising commodity prices have put inflation worries back on the economic radar screen.”

In short, global commodity inflation may soon do what Hoenig could not, put an end to America’s self-destructive easy money reign of economic terror, and more importantly finally end the Fed’s 30-year “monetary dictatorship.”

2. Central bank dictatorship destroying America’s democracy

Hoenig was America’s lone voice against the Bernanke monetary dictatorship, says Drehle: “For all the headlines over the past quarter-century about the death of American manufacturing and the twilight of community banks and the vanishing farmer, those humble building blocks of a sound economy still figure significantly in Hoenig’s perspective. The way to strengthen them … is not by pumping money into a financial system that encourages megabanks to engage in high-risk speculation. You build them up by encouraging savings, which form capital for investment, which builds stronger businesses, which hire workers and pay dividends, which leads to more savings and more investment.”

3. Near-zero rates, banks richer, masses poorer, meltdown

Honenig’s opposition to Bernanke dictatorship is also clear, says Drehle: “By keeping interest rates near zero indefinitely, the Fed is asking savers to continue to subsidize borrowers. What incentive is there to save and invest?”

Earlier in his long career, Hoenig was heartsick as an “irrationally exuberant Alan Greenspan kept piling so much money onto the economic bonfire that led to the Great Recession” in 2008. Now the “time’s come to start sobering up.” Except Wall Street’s addicted to easy money, won’t sober up.

4. Easy money blowing new speculation bubble … pops soon

“This is how bubbles are formed,” warns Hoenig, whose long career as president of the Kansas City Federal Reserve Bank made him leery of the power buildup by the central banks monetary dictatorship. So again, “rocketing land and energy prices are telltale signs … too much money sloshing around. When you put this much liquidity into the system, it has to go somewhere.”

But with the Fed keeping interest rates near zero, easy money won’t go into savings. Instead, “money starts chasing assets with higher yields — like land, the once again booming stock market and energy” and “as more money joins the chase, asset prices rise and keep rising until … pop,” a new meltdown.

5. Bernanke’s narcissistic illusion of monetary power

The Fed has too much power: Hoenig “watched uncomfortably as the central bank began playing a larger and larger role in the public’s perception of the economy. Monetary policy came to be seen as the solution to more and more economic issues. It has been used to deal with one crisis after another,” stock .market crashes, recessions, the tech bubble, after the 9/11 attacks, during the Iraq war, then the 2008 meltdown.

Hoenig warns against the Fed’s power: “People came to feel that all you had to do was ease interest rates and everything would be fine. But that’s what gives us these bubbles.”

6. Easy money fueling worldwide inflation, and a new meltdown

Yes, Hoenig’s an inflation hawk: “The sequence of events that led to runaway inflation in 1979 got started back in the mid-1960s. That’s … long term.” Drehle captures the shift in Hoenig’s position: At first backing “the Fed’s dramatic actions in 2008 and 2009 to pour trillions into the staggering financial system.”

But now it is time to stop. As easy money chases higher returns across the world, in places like Brazil and China, Hoenig warns that “inflation is rising sharply. Global food prices have risen 25% in the past year, according to the U.N., and many nations are starting to hoard commodities.”

7. Fed policies favor the rich, sabotaging American Dream

In favoring Wall Street bankers, Bernanke’s monetary dictatorship is clearly feeding the conditions that, as happened in Egypt, will ignite a class war in America: “The poorest 60% of American households spend 12% of their income on energy alone, compared with the 3% spent by the richest 10% … Inflation is so unfair … it is the most regressive tax you can impose on the public … eroding the buying power of the poor and people on fixed incomes. The people who have money and are savvy come out ahead. In fact, they end up stronger than before.”

8. Unfortunately, the Fed learned nothing from the 2008 crisis

A lot more than the Fed’s toxic alliance with Wall Street bothers Hoenig: America “learned little from the crisis … government policy continues to smile on Wall Street but not on Main Street. Instead of breaking up the financial giants whose gambles crashed the economy, the government has let the biggest banks grow even bigger. Now they’re gorging on free money.”

9. Market economy? A joke, big-money lobbyists run America

Remember folks, 20 years ago in the S&L bank crisis 3,800 bankers were jailed. This time? Wall Street robbed us, got away with it, are still robbing us. Hoenig asks: “Where’s the penalty for failure? … We don’t have a market economy.” American capitalism is now “crony capitalism … who you know, how big your political donation is.”

10. America must end easy money, add new Glass-Steagall

What would Hoenig do as Fed chairman? “High savings rates, low leverage and a strong currency.” Finally, Drehle says Hoenig would bring back the Depression-era Glass-Steagall rule that barred commercial banks from taking excessive risks. He would reduce government debt and promote a manufacturing revival, but it won’t be easy, there is no painless approach.”

Unfortunately, none of this will happen until America gets hit over the head by brutal wake-up call, like 1929 and the Great Depression 2. Until then, the 30-year monetary dictatorship now headed by Bernanke will keep pushing its self-destructive easy-money policies, ignoring the warnings of Thomas Hoenig and all of the other Cassandras, Chicken Littles and Americans Crying Wolf, over and over again.

As above.

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Mervyn King is exactly right on this. I've only read half of the PDF in the document, but the man knows what he is talking about.

It is all about balance. Balance of trade, balance of wealth, balance of power. Look around the global economy, look around our national economy - it is the lack of balance which is the problem. Is this really that surprising or complicated a concept to digest? You can't have all the wealth flowing in one direction, indefinitely, without it causing problems in the long run.

China could have made changes to its exchange rate policy long ago. They could have made changes since the crisis in 2007. They didn't (at least not enough) and the developed world has been left with no option but to force their hand, by giving them an ultimatum - allow your currency to appreciate and your current account to rebalance OR face waves of inflation as we make the changes for you.

You simply cannot maintain growing imbalances indefinitely. I do not understand how anyone can argue otherwise.

HIs stance is entirely specious as he and others did nothing but encourage that imbalance through their policies. Cheap money to buy foreign tat, expensive manufacturing base pushed abroad, land, housing and industrial land at prices almost nobody would even consider putting into new productive use or worse flee at the fastest pace possible.

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HIs stance is entirely specious as he and others did nothing but encourage that imbalance through their policies. Cheap money to buy foreign tat, expensive manufacturing base pushed abroad, land, housing and industrial land at prices almost nobody would even consider putting into new productive use or worse flee at the fastest pace possible.

The've destroyed us alright, but we went along with it, its time we all got in the trenches and smoked out these leeches. Lets continue this meme, always refer to them as dictator Bernanke/Merv.

Edited by Scott Sando

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"Countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports," he said.

Ben's doing what politicians refuse to do. Good on him.

China have a choice. nobody is forcing them to maintain massively negative real rates, suppress their currency and spend 70% of their GDP on building empty houses.

All those defending their policy need to take a good hard look at themselves (Unless you're posting on bahalf of the Chinese govt. of course)

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Mervyn King is exactly right on this. I've only read half of the PDF in the document, but the man knows what he is talking about.

It is all about balance. Balance of trade, balance of wealth, balance of power. Look around the global economy, look around our national economy - it is the lack of balance which is the problem. Is this really that surprising or complicated a concept to digest? You can't have all the wealth flowing in one direction, indefinitely, without it causing problems in the long run.

China could have made changes to its exchange rate policy long ago. They could have made changes since the crisis in 2007. They didn't (at least not enough) and the developed world has been left with no option but to force their hand, by giving them an ultimatum - allow your currency to appreciate and your current account to rebalance OR face waves of inflation as we make the changes for you.

You simply cannot maintain growing imbalances indefinitely. I do not understand how anyone can argue otherwise.

So they are attacking globalisation then?

They may know what they are talking about but in over 20 fooking years the idiots at our central banks have done nothing to tackle it because there's been too much profit.

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So they are attacking globalisation then?

They may know what they are talking about but in over 20 fooking years the idiots at our central banks have done nothing to tackle it because there's been too much profit.

If you mean globalism as in the nasty corporates taking over the world, I doubt it's their ambition. However, trade between countries around the globe must be balanced in the long term. There is no alternative. One country can't keep borrowing to fuel imports forever, as there is a saturation point where people simply can't borrow any more. In order to buy stuff, you need to sell stuff to fund it - this is unavoidable.

Is Mervyn King responsible for the last 20 years of poor policy? As he has only been governor for the last 8 years, I think this is unfair. Moreover, he disagreed with the 2% CPI target which Gordon Brown set, since the start. He also warned of the dangers of letting the housing bubble grow. Did the politicians listen? No... they were too busy believing their own hyperbole of ending boom and bust.

[What could have helped? Ignoring CPI would have been a good start, instead concentrating on credit (broad money) growth. Using interest rates alone to combat this seems flawed too, with so much capital moving between countries, but lending could have been curbed easily with mortgage multiples, for instance.]

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If you mean globalism as in the nasty corporates taking over the world, I doubt it's their ambition. However, trade between countries around the globe must be balanced in the long term. There is no alternative. One country can't keep borrowing to fuel imports forever, as there is a saturation point where people simply can't borrow any more. In order to buy stuff, you need to sell stuff to fund it - this is unavoidable.

Is Mervyn King responsible for the last 20 years of poor policy? As he has only been governor for the last 8 years, I think this is unfair. Moreover, he disagreed with the 2% CPI target which Gordon Brown set, since the start. He also warned of the dangers of letting the housing bubble grow. Did the politicians listen? No... they were too busy believing their own hyperbole of ending boom and bust.

[What could have helped? Ignoring CPI would have been a good start, instead concentrating on credit (broad money) growth. Using interest rates alone to combat this seems flawed too, with so much capital moving between countries, but lending could have been curbed easily with mortgage multiples, for instance.]

It's been a continuation of weak policy from our central bankers for decades. King and Bernanke are part of the same mould. Yes King made comments about house prices and debt and then kept quite. Not good governance.

“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”

I see no evidence of Western central banks acting as a chaperone to the economic party.

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It's been a continuation of weak policy from our central bankers for decades. King and Bernanke are part of the same mould. Yes King made comments about house prices and debt and then kept quite. Not good governance.

“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”

I see no evidence of Western central banks acting as a chaperone to the economic party.

How are they supposed to do any of the above, when their remit is to keep to a 2% CPI target? Said target didn't allow them to 'take away the punch bowl' in the boom times. The medicine many want to give, is to take away the drinking water the following morning instead. That won't help either.

As to the governor not being stronger, when you have the likes of Ed Balls saying Mervyn King is saying too much, how exactly should King have made his voice heard? He could have resigned and let a 'yes man' take his place, but that wouldn't have helped either. I find it puzzling that people who post here, who supposedly can see the cause and effect of the housing/credit boom, can blame the BoE rather than the policy makers who set this mess up. In my job, whether I disagree with my boss or not, I have to do the work or leave; all I can do is advise, but whether this is ignored or not is beyond by sphere of influence.

Regardless, the OP and the point about the trade deficit stand. No matter what you think of the BoE, they are making valid points.

Edited by Traktion

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http://uk.reuters.com/article/2011/02/20/uk-g-idUKTRE71H0IM20110220

Finance ministers of the world's major economies reached a fudged accord on Saturday on how to measure imbalances in the global economy after China prevented the use of exchange rates and currency reserves as indicators.

French Finance Minister Christine Lagarde, who chaired the Group of 20 talks, said the deal nevertheless represented a significant step towards better coordination of economic policies worldwide to help prevent another financial crisis.

"It wasn't simple. There were obviously divergent interests but we were able to reach a compromise on a text that seems to us to be both balanced and demanding in its implementation," she told a news conference.

Ministers and central bank governors agreed on a list of indicators including public debt and fiscal deficits, private savings and borrowing, the trade balance and other components of balance of payments such as net investment flows.

But at Chinese insistence there was no mention of the real effective exchange rate or of foreign currency reserves.

"Reserves have been dropped," Lagarde acknowledged, adding that the deal included a mechanism to take account of exchange rates when assessing the overall balance of payments.

The United States and other western countries accuse Beijing of keeping the yuan artificially undervalued to boost its exports, hence accumulating massive foreign currency reserves that they say distort the world economy.

U.S. Treasury Secretary Timothy Geithner repeated after the talks that China's currency "remains substantially undervalued" and its real exchange rate had not moved much despite a slow appreciation since a reform last June.

"There is broad consensus that the major economies, not just Europe, Japan and the United States but also the large emerging economies, need to allow their exchange rates to adjust in response to market forces," he said.

Once more we get a fudge. Perhaps if Keynes has been listen too we might have avoided the majority of these imbalances.

Fudging it's what our political elite are best at.

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How are they supposed to do any of the above, when their remit is to keep to a 2% CPI target? Said target didn't allow them to 'take away the punch bowl' in the boom times. The medicine many want to give, is to take away the drinking water the following morning instead. That won't help either.

As to the governor not being stronger, when you have the likes of Ed Balls saying Mervyn King is saying too much, how exactly should King have made his voice heard? He could have resigned and let a 'yes man' take his place, but that wouldn't have helped either. I find it puzzling that people who post here, who supposedly can see the cause and effect of the housing/credit boom, can blame the BoE rather than the policy makers who set this mess up. In my job, whether I disagree with my boss or not, I have to do the work or leave; all I can do is advise, but whether this is ignored or not is beyond by sphere of influence.

Regardless, the OP and the point about the trade deficit stand. No matter what you think of the BoE, they are making valid points.

I like how you assume the BoE isn't setting policy, King signed up with the govt when he turned on the printing press and started buying govt bonds. He's nothing more than an inept lacky.

http://www.independent.co.uk/news/business/news/exgovernor-george-says-bank-deliberately-fuelled-consumer-boom-441160.html

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee "did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

Remind me again who was the deputy governor at the time?

The BoE has no where to hide it helped create this mess.

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  • 311 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% +
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      • up 5%



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