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Bank's Posen Says Would Be "nonsense" To Raise Rates

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http://uk.reuters.com/article/2011/06/27/uk-boes-posen-idUKTRE75Q4T720110627

The Bank of England has no reason to raise interest rates, as credit and wage growth are slow and there is little risk of a repeat of 1970s-style stagflation, policymaker Adam Posen said on Monday.

Posen, the most dovish member of the Bank's 9-member rate-setting committee, also said public inflation expectations remained stable. Oil prices and productivity growth -- two other past triggers of stagnant growth twinned with high inflation -- were not yet a cause for concern either.

As a result, Posen dismissed a call on Sunday for higher interest rates from the Basel-based Bank for International Settlements, a forum for central bankers.

"BIS just said all central banks should raise rates, and pointed to the UK's above-target past inflation. Nonsense," he wrote in slides provided by the Bank to accompany a closed-door presentation at the University of Aberdeen.

"In the UK and the west more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not -- yet -- a one way bet," he said.

....

"If the (upward) trend is big enough and reversals short enough, we will respond to keep inflation in line with the target. But a majority of the MPC -- and I agree -- says (we are) not yet there," Posen wrote.

....

Posen agreed that the numbers looked bad at first glance, but doubted they were correct, citing continued hiring at firms with low profit margins and a fairly small increase in company liquidations and long-term joblessness among other factors.

"We should continue to treat trend growth as largely unchanged," he said. "GDP data tends to get revised up after recessions -- particularly in the UK -- and there is an obvious candidate in net export measures," he said.

Thank god for this man.

Some might say he's deluded and not in touch with reality I say he's a genius.

Viva recovery, Viva Posen, Viva Growth.

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It is annoying to say the least, that we now need votes from five eighths of the committee before we start to see any positive movement, what with the lunatic stuck record Posen not using his in any meaningful way.

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He sounds about right to me. Without credit growth, there is nothing for higher interest rates to counter.

IMO, anyone calling for rate rises just want to extract rent from their money, ie. they want risk free interest for doing nothing. In this low growth environment, if you want to accumulate more cash, I'm afraid you will have to either risk it or earn it.

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Low rates seems to be back firing on the retailers as inflation tears through and weak demand causing margins to collapse.

They do indeed. But don't tell the bank of England that.

When Sentance left, I had the feeling that a dove would be recruited for the position and lo and behold, we have Posen who makes Blanchflower look like a hawk.

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IMO, anyone calling for rate rises just want to extract rent from their money, ie. they want risk free interest for doing nothing. In this low growth environment, if you want to accumulate more cash, I'm afraid you will have to either risk it or earn it.

That's plainly not the only reason anyone would call for rises, which should be all the more obvious in the context of this site.

Your point would make some sort of sense if we were talking about increasing already positive real interest rates, but we're not.

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http://uk.reuters.co...E75Q4T720110627

Thank god for this man.

Some might say he's deluded and not in touch with reality I say he's a genius.

Viva recovery, Viva Posen, Viva Growth.

He's wrong about interest rates (and probably knows it):

But he's right to be a dove.

Unless you can point to a UK boom heading out of control.

Oh what a nice show they put up for us.

If only they would stop robbing us while we watch...

Eh? Are you balls deep in fiat or something?

Low rates seems to be back firing on the retailers as inflation tears through and weak demand causing margins to collapse.

It's not low rates, it's lack of spending.

If you want more spending, you need more money.

He sounds about right to me. Without credit growth, there is nothing for higher interest rates to counter.

IMO, anyone calling for rate rises just want to extract rent from their money, ie. they want risk free interest for doing nothing. In this low growth environment, if you want to accumulate more cash, I'm afraid you will have to either risk it or earn it.

Kudos.

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That's plainly not the only reason anyone would call for rises, which should be all the more obvious in the context of this site.

Your point would make some sort of sense if we were talking about increasing already positive real interest rates, but we're not.

You're attempting to enforce *positive real rates (EDIT: by contracting the money supply, forcing defaults etc), therefore increasing your spending power** at the expense of others.

Just because growth is low and the cost of resources are increasing, it doesn't mean that some have the right to extract more rent from their money to make up for it, at the expense of others.

EDIT:

* corrected

** If you have your money in a bank, I'd be careful what you wish for. Defaults will erode the banks ability to meet the liabilities of their savers. Unless you have a pile of bank notes (and believe there will be little printing) or a pile of gold/silver or some other hard assets, you don't want defaults - bank failures aren't good for your wealth.

Edited by Traktion

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The Bank of England has no reason to raise interest rates, as credit and wage growth are slow and there is little risk of a repeat of 1970s-style stagflation, policymaker Adam Posen said on Monday.

Ah 1970s-style stagflation. It's as well he put the 1970s bit in seeing as the UK already has every sign of stagflation.

Likely it'll1970s-style soon enough with the Fonejackers running things.

Edited by billybong

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Eh? Are you balls deep in fiat or something?

As million others. We are called 'savers' and are those who create capital.

It's not low rates, it's lack of spending.

If you want more spending, you need more money.

Completely wrong I'm afraid. Inflation reduces consumption in real terms and encourages investments. Today's investments take the form of building houses that remain empty. More money, less consumption.

Sounds like bliss doesn't it?

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I agree, best to keep rates on the floor, house prices high and continue to kick the can down the road...

But, but, but, please Sir, can we have some more QE Sir?

Will someone please put this zombie down? :P

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He's wrong about interest rates (and probably knows it):

But he's right to be a dove.

Unless you can point to a UK boom heading out of control.

We've had the consumer boom that was out of control fuelled by low interest rates circa 2003. You can't fix the bust with more low rates.

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We've had the consumer boom that was out of control fuelled by low interest rates circa 2003. You can't fix the bust with more low rates.

Yes but you can keep the zombie economy lurching forward with them... We are just days away from discovering the lost species of Nibbler, last seen in Grimsby...

150px-Lord_Nibbler.png

They shit dark matter, enough to solve the whole worlds energy crisis, cheap fuel = growth and the UK will be at the forefront of it.

Edited by MrFlibble

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We've had the consumer boom that was out of control fuelled by low interest rates circa 2003. You can't fix the bust with more low rates.

Higher rates aren't guaranteed to fix it either. Forcing liquidation won't necessarily mean a return to a booming economy afterwards - industry may just grow abroad instead and take up the slack, leaving us as a hollowed out husk.

The damage is done and not all of it was avoidable either - cheap long term credit was flooding in from China et al and pushing up short term rates would have done little to combat this. Less government* borrowing and more education on the risks of banking may have helped quell the boom, but it's too late now... we either struggle on (low rates) or gamble (high rates).

EDIT: * Private borrowing too, but from a central planning perspective, it's harder to stop that.

Edited by Traktion

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Here is the full brief from Posen, I must admit i found it intersting and an easy read for those who have 5 min. An insight into his thinking if nothing else!

http://www.piie.com/publications/papers/posen20110627.pdf

Thanks for that!

Interestingly, narrow money growth is lower now than in previous inflationary bursts. So, all this talk of QE being a modern phenomena must be lies - they were surely printing back then, just under a different name. How else would narrow money grow?

I agree with all of his main points. The only thing I don't understand is why oil is mentioned. If it is increasing in price, I suppose it could lead to rampant borrowing and speculating (credit growth doesn't show that yet). However, an increasing oil price is surely going to dampen growth if anything?

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Unless you can point to a UK boom heading out of control.

John Lewis, Ocado, Waitrose, Burberry - industries that serve those close to the source of money printing.

The problem with unconventional monetary policies is that it cannot control where the money goes and apparently

a small numbers of people are doing better than ever (and my friends in the city have just changed job because

the bonus isn't up to scratch - no fear of unemployment there either).

Latest Burberry result:

REVENUE GREW DOUBLE-DIGIT

IN ALL REGIONS

• ASIA PACIFIC LARGEST REGION IN H2

– 35% of sales in H2

– China acquisition

– Strong performance in Hong Kong, with five stores opened

• EUROPE UP 15%

- Double-digit comp growth

– Opened first European Brit trial store in Milan

– Retail about two-thirds of Europe revenue

• AMERICAS UP 16%

– Opened four further Brit trial stores in US

– Opened fourth store in Canada, two stores in Brazil and one in Mexico

– Wholesale about one-third of Americas revenue

• REST OF WORLD UP 43%

– Opened one store in the Middle East and three in India

– Net nine franchise stores opened

– Roughly half ret

Edited by easybetman

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Thanks for that!

Interestingly, narrow money growth is lower now than in previous inflationary bursts. So, all this talk of QE being a modern phenomena must be lies - they were surely printing back then, just under a different name. How else would narrow money grow?

I agree with all of his main points. The only thing I don't understand is why oil is mentioned. If it is increasing in price, I suppose it could lead to rampant borrowing and speculating (credit growth doesn't show that yet). However, an increasing oil price is surely going to dampen growth if anything?

At a guess because Oil price is heading down, backing up their line that external inflation pressure (Oil etc) is short term and will reverse in 2012. To be fair it looks like they may be right!

Edited by FIGGY

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At a guess because Oil price is heading down, backing up their line that external inflation pressure (Oil etc) is short term and will reverse in 2012. To be fair it looks like they may be right!

Sure, but what would changing the base rate do to (substantially) change this? I can see them being concerned that it may push up/down price indexes, but there isn't much they can do about this, as far as I can see.

Edited by Traktion

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I think he is agreeing with you. I think he is just truing to point out that external pressures cant be changed by upping interest rates and due to this and the fact that Oil prices are far from locked into their high prices its pointless to consider interest rate increases as a way of controling external inflation pressure.

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It is not a great surprise to see Adam Posen back advancing his views now that commodity and oil prices have dipped back a bit. Perhaps next year inflation will be lower although it was supposed to be his job to keep it down over the past eighteen months to two years where he and the MPC have failed. He told us in February 2010 that inflation would now be 1% so he is something of a scratched record in this regard.......

I read a week or two ago an interesting critique of Adam Posen's views and here it is.

My critique of Adam Posen’s opinion piece in the Financial Times

http://t.co/kM3CMyh

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http://t.co/kM3CMyh

I wrote a critique of Adam Posen’s views in the Long Room section on FT Alphaville back last September and updated it on May 17th for those interested in the alternative viewpoint.

For now I would just like to quote this section.

“I never made any prediction for inflation in 2011,”

This is somewhat disingenuous as Adam is part of a Monetary Policy Committee which suggested in February 2010 that inflation would now be around 1%, and in May suggested more like 1.7%. Both were a very long way from reality unless of course another new inflation measure is about to be presented to tell us that inflation is at those levels! Adam has been forecasting below target inflation for some years now and the record so far is shocking.

Disingenuous to say the very least.

Disingenuous

adjective

1. not straightforward; not candid or frank; insincere

2. slyly deceptive or misleading, typically by means of a pretense of ignorance or unawareness

Edited by billybong

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Not seen this on a separate thread but this is Krugman's thoughts on it.

http://krugman.blogs.nytimes.com/2011/06/28/british-inflation-a-teachable-moment/?seid=auto&smid=tw-NytimesKrugman

Not that I can call into question a Nobel winner but how long can Sterling's Euro deval remain a "one-off"event and how much did the VAT rise add as it matches a VAT last year in the way the index is compiled?

Confused from Manchester

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  • 312 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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