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Should The Goverment Take Back Monetary Policy From The B.o.e?

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Cable's intervervention at the weekend raised eyebrows on this site but it does highlight a debate over who should be running the economy and how they should be made accountable. Mystric Merv and his bunch of merry men are every bit as responsible for the mess we are in as Gordon Brown if not even more so.Unlike Gordon Brown howevver they are still very much in their posts and save for the occasional appearance in front of the Treasury select comittee and the monthly half ars*d letter to the Chancellor explaining why they are not doing their job to keep inflation down are accountable to nowone. Unless I'm much mistaken one of their very 1st actions upon achieving independence was to change the measure of iinflation from R.P.I to C.P.I theirby excluding mortagage interest payments and council tax bill out of the equation with the result that 20%+ house price rises were greeted with a "see no evil hear no evil" shrug of the shoulders. As if that wasn't enough they are now talking of removing food and fuel costs from the C.P.I figures as they consider them "too volatile" i.e. we are too gutless to do our job properly so will change our job description. Must be great being able to change your job description every time you are failing at something (just in time to ask for a payrise at your next review!). Anyway isn't it time some democratic responsibility was restored so those responsible for failure can be ejected from offiice by the electorate?

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No, because the government WOULD print money to fund current expenditure whereas, until proven otherwise, the BOE only print money to bring inflation up into the target zone. Of course they didn't need to QE, inflation was coming up anyway, but at least inflation was below 2% when they did it; they had some kind of excuse.

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I think the separation between the current elected government and the bank of england is a good thing, at least in principle. However I am not sure the current arrangements are working quite as they were originally intended. It would be interesting to see what Mr Cable could come up with to reform it. Personally I think Vince Cable is a positive figure in government, he just doesn't seem to play the politics game/sweet talk the media as well as a number of his peers.

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If you believe in democracy then obviously yes.

If you think the BOE shouldn't be elected, then you don't believe in democracy. That's a perfectly valid position, but if a democratically elected politician holds this opinion, it does suggest that they see democracy as little more than a PR exercise to justify their rule.

Of course, we don't really need to look for subtle clues or hints at the government's contempt for democracy, not since the vote on the electoral system.

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> Unless I'm much mistaken one of their very 1st actions upon achieving independence was to change the measure of iinflation from R.P.I to C.P.I

Yes you are very much mistaken and a bit of googling before posting a paragraph of drivel would have helped. The BOE target is set by the chancellor. The change from RPI to CPI was made by Gordon Brown in 2003.

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It's a difficult question, because govt policy can undermine monetary policy.

The BoE got caught napping the govt borrowed huge sums which ultimately was going to undermine it's own goals, although the BoE actively supported the govt in 2003 when it cut creates triggering the biggest consumer boom of all time.

The BoE clearly isn't as independent as some seem to think.

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If you believe in democracy then obviously yes.

If you think the BOE shouldn't be elected, then you don't believe in democracy. That's a perfectly valid position, but if a democratically elected politician holds this opinion, it does suggest that they see democracy as little more than a PR exercise to justify their rule.

Of course, we don't really need to look for subtle clues or hints at the government's contempt for democracy, not since the vote on the electoral system.

Spot on.

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Do you prefer a bullet in the head or an injection of poison?

As long as they both work in the interests of banksters and corporations it doesn't really matter who of them decides monetary policy...

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Oh err..get her..

Fair enough. What of their current debate to remove food and fuel from the CPI meassure?

> Unless I'm much mistaken one of their very 1st actions upon achieving independence was to change the measure of iinflation from R.P.I to C.P.I

Yes you are very much mistaken and a bit of googling before posting a paragraph of drivel would have helped. The BOE target is set by the chancellor. The change from RPI to CPI was made by Gordon Brown in 2003.

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A chamber of publicly elected BoE members is needed, not so-called experts appointed by MPs

Great, you'll end up with Kirst f***ing Allsop running it on a manifesto of 0% interest rates forever.

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Perhaps the Treasury select comitee could take the M.P.C's powers?

Great, you'll end up with Kirst f***ing Allsop running it on a manifesto of 0% interest rates forever.

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Monetary policy is already in the hands of the government; it never left. The BoE merely implements it. The Treasury is responsible for setting the methodology (currently 'inflation targeting'), the measure to be used (changed from RPIX to CPI in December 2003), the target range, and also directly appoints the majority of the Monetary Policy Committee who implement it. The MPC should be called the Interest Rate Executive Committee (IREC).

The real problem here is the manageralist fashion for 'inflation targetting'; it's a crackpot crazy idea with no basis in sound economics. Nevertheless it's been adopted by many countries worldwide with disastrous consequences for all. It was obvious that all the new money being borrowed into existence in the early years of this century would eventually feed through into rises in the RPI. Price rises are first seen in the assets for which new money is borrowed - houses, commercial property and the shares of takeover targets - then that money gradually leaks out into the rest of the economy driving up prices in goods and commodities. A monetary policy which largely ignored excessive growth in money supply and asset prices was always going to result in disaster.

Edited by CrashConnoisseur

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Sound money (e.g. a gold standard) could make this sort of thing irrelevant. Interest rates would be set by the supply of and demand for credit.

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It's a difficult question, because govt policy can undermine monetary policy.

The BoE got caught napping the govt borrowed huge sums which ultimately was going to undermine it's own goals...

The government didn't borrow "huge sums". The annual PSBR was in the range 30-40bn - less than 3% of GDP. Net borrowing for residential mortages alone was typically £100 billion per annum.

Edited by CrashConnoisseur

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Interesting Historic Side Note:

On June 4, 1963, a virtually unknown Presidential decree, Executive Order 11110, was signed with the authority to basically strip the Bank of its power to loan money to the United States Federal Government at interest.

With the stroke of a pen, President Kennedy declared that the privately owned Federal Reserve Bank would soon be out of business.

When President John Fitzgerald Kennedy - signed this Order, it returned to the federal government, specifically the Treasury Department, the Constitutional power to create and issue currency -money - without going through the privately owned Federal Reserve Bank. President Kennedy's Executive Order 11110 gave the Treasury Department the explicit authority: "to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury." This means that for every ounce of silver in the U.S. Treasury's vault, the government could introduce new money into circulation based on the silver bullion physically held there. As a result, more than $4 billion in United States Notes were brought into circulation in $2 and $5 denominations. $10 and $20 United States Notes were never circulated but were being printed by the Treasury Department when Kennedy was assassinated.

It appears obvious that President Kennedy knew the Federal Reserve Notes being used as the purported legal currency were contrary to the Constitution of the United States of America.

President Kennedy was assassinated on November 22, 1963 and the United States Notes he had issued were immediately taken out of circulation. Federal Reserve Notes continued to serve as the legal currency of the nation. According to the United States Secret Service, 99% of all U.S. paper "currency" circulating in 1999 are Federal Reserve Notes.

Edited by Milton

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Osborne (and Darling) are responsible for monetary policy.

Merv has written indemnities guarateeing the BoE balance sheet against QE asset purchases and writes a letter to Osborne every month explaining why they've missed the target, again. Osborne sent him a note back telling him not to worry about it.

Similarly Merv took a further indemnity against the Bradford and Bingley depositor bailouts 'cause there wasn't any money in the FSCS to cover them. So bailing out B&B was also a political decision.

So, Merv's policy is Osborne's policy. It's simply dressed up to appear it isn't. BoE is a just a sub-branch of the Treasury. Merv's a civil servant.

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Monetary policy is already in the hands of the government; it never left. The BoE merely implements it. The Treasury is responsible for setting the methodology (currently 'inflation targeting'), the measure to be used (changed from RPIX to CPI in December 2003), the target range, and also directly appoints the majority of the Monetary Policy Committee who implement it. The MPC should be called the Interest Rate Executive Committee (IREC).

The real problem here is the manageralist fashion for 'inflation targetting'; it's a crackpot crazy idea with no basis in sound economics. Nevertheless it's been adopted by many countries worldwide with disastrous consequences for all. It was obvious that all the new money being borrowed into existence in the early years of this century would eventually feed through into rises in the RPI. Price rises are first seen in the assets for which new money is borrowed - houses, commercial property and the shares of takeover targets - then that money gradually leaks out into the rest of the economy driving up prices in goods and commodities. A monetary policy which largely ignored excessive growth in money supply and asset prices was always going to result in disaster.

Ultimately the government has control over the rate setting as it could remove the BOE's powers if it wished.

Although a lot of people get hot under the collar about the Banks seeming lack of motivation to "manage" inflation, I don't believe this is the Banks fundamental remit, although it is one that has gained the most publicity.

I believe the Bank has an overriding remit is to manage the base rate in the greater interests of the economy, irrespective of the inflation figures.

If the banks job was solely to adjust the base rate to control inflation, then surely you wouldn't need a commitee of economists, just a computer that moves the rate up or down each month depending on the inflation figures. Of course this may lead to non optimal rate setting due to economic lag, but it would be a start.

To my mind if the MPC has a clearly defined remit then it is a job for a computer, not a committee, with maybe emergency interventions as necessary. If the remit is woolly and a matter for interpretation (as it is now) then I think its a matter for the democratically elected government to decide, not the bank.

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BoE is a just a sub-branch of the Treasury. Merv's a civil servant.

All very true. You hardly ever see reference to the BoE's "independence" in the media anymore. Even mainstream financial journalists are not that gullible anymore.

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Great, you'll end up with Kirst f***ing Allsop running it on a manifesto of 0% interest rates forever.

Isn't that kind of the whole point of democracy?

The electorate can pick a horse if that's what they want - and then they'll live with the consequences.

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The real problem is that politicians borrowed money on YOUR credit card in order to bribe YOU to vote for them.

This is a complete subversion of democracy.

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I think the separation of government from the BoE is just a superficial invention. There really is little that the BoE are doing that the government doesn't want them to do.

There has to be seen to be a separation for confidence in policies, nothing else.

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  • 331 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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      • Even
      • up 2.5%
      • up 5%



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