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Jason

Why King Is Wrong To Be Hawkish On Interest Rates

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"I think Mervyn King, the governor of the Bank of England, is wrong. Or rather, he is right about most things in the world of global economics but he is wrong about the balance of risk in the UK economy between growth and inflation. Accordingly, his resistance to further cuts in interest rates is unwarranted. "

More:

http://news.independent.co.uk/business/com...ticle319181.ece

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"I think Mervyn King, the governor of the Bank of England, is wrong. Or rather, he is right about most things in the world of global economics but he is wrong about the balance of risk in the UK economy between growth and inflation. Accordingly, his resistance to further cuts in interest rates is unwarranted. "

More:

http://news.independent.co.uk/business/com...ticle319181.ece

ladies and gentlemen... please give a warm welcome to your new Governor of the Bank of England...

Hamish McRae!

:ph34r:

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Trying for a promotion to Millbank Hamish?

to be fair to him, it is a very cunningly argued piece. However, he seems to have overlooked the basic thrust of King's speech - i.e. it is not the MPCs responsibility to be concerned with growth. Their remit is pretty straightforward... control inflation.

Of course he is right in implying that it doesn't seem to work like this in practise. We will probably never know the extent to which the MPC is prone to insidious external political pressures.

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to be fair to him, it is a very cunningly argued piece. However, he seems to have overlooked the basic thrust of King's speech - i.e. it is not the MPCs responsibility to be concerned with growth. Their remit is pretty straightforward... control inflation.

Of course he is right in implying that it doesn't seem to work like this in practise. We will probably never know the extent to which the MPC is prone to insidious external political pressures.

Let`s not forget that last week Hamish was predicting a plateau for house prices and the economy. Complicated fellow, just plain thick, or Devil`s Advocate? Perhaps a mixture of all 3.

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[quote name='Fancypants' date='Oct 13 2005, 01:17 PM' post='212238'

Of course he is right in implying that it doesn't seem to work like this in practise. We will probably never know the extent to which the MPC is prone to insidious external political pressures.

I remember listening to a BBC Radio4 politics programme some 3 years ago.

Can't recall title but a political commentator said words to the effect, never mind what the official minutes etc say, a lot is nod and a wink stuff, the unrecorded phonecall, the word of mouth by minions.

Just like a lot in life.

I'm just a cynic anyway, so no surprise to me.

Or most here I assume.

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I think Mervyn King, the governor of the Bank of England, is wrong. Or rather, he is right about most things in the world of global economics but he is wrong about the balance of risk in the UK economy between growth and inflation. Accordingly, his resistance to further cuts in interest rates is unwarranted.

Yeah its unwarranted to try and control inflation!! Duh!!!!!

:angry:

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Perhaps someone should send him the Telegraph piece in the Blog by Evans Pritchard!

I am not sure he understands the BoE/MPC "fan charts" properly (or is it me who doesn't?) - they are a probability analysis of sorts but I thought the BoE admitted they were as much a target/aspiration as anything else and should not really be regarded as an objective inflation prediction.

Anyway, it is at times like these that poor journalists bet their reputations in making sweeping statements/predictions about the economy which can look very foolish later on. All it takes is for inflation to hit 3% in the next year (anyone care to bet against) and he could be.

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to be fair to him, it is a very cunningly argued piece.

Is it though? How often do we hear that the housing market can't collapse because of 'record low unemployment, rising incomes and low interest rates, etc' they're always beating the same drum.

So, our economy is so strong we can't sustain interest rates at a whopping 4.50%, and economic growth is so good that interest rates need to be cut, they can't have it both ways, either the economy is faltering and wage settlements are coming under pressure and we're running below capacity or things are strong. They argue things are going well and then somehow then argue that means we can have lower rates.

Employment is on a poor trend so bargaining power is lesser and retail spending is on its back leading to further job losses, do the happy clappy people see this as good as it will lead to lower rates or bad because it blows apart all their "low employment, sustained growth" arguments they use dismiss a housing crash?

How do you symultaniously argue that the economy is all milk and honey so housing can never crash yet things are so knackered IR's should be cut right down to Eurozone levels.

Merv isn't stupid, our rates will soon be at parity with the US and consequently the pound is taking a hammering, can you imagine what would happen if our rates were below that of the US, if you look at the historial data it's practically unheard of, our trade deficit figures for August are the worst on record, goods from China are no longer falling in price, they're not going up rapidly, just not falling and we've traditionally relied on consumer goods deflation to offset other things (higher taxes, energy, transport, services).

If Brown thinks he can pass the buck on this one he is quite wrong, who made the BoE 'independent', who sets the target, yardstick and appoints members and his meddling regards CPI v. RPI-X and its rather ironic outcome is stereotypical Brown control freakery that has gone wrong for him in less than 2 years.

So, the commentators are basically saying prop up a bunch of BTL mugs at any cost even if it destroys our currency in the process, Merv should keep his eye the Fed and oil, as they've often reminded us in the past it's not their job to control housing, now is the test of that.

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It's a curious article. The thrust of it is that since the MPC were willing to put up rates to deflate the housing bubble when inflation was below target, they should be willing to cut them to keep the economy going with inflation above it.

There is a difference between the two scenarios however. When the MPC raised rates they must have been pretty sure inflation was going to rise. After all, it wasn't just housing we were flashing the cash on. So in putting up rates they could be confident that vis a vis inflation it was the right thing to do. And it turns out that they were right.

McCrae would have a better case if inflation was falling or likely to fall in the near future. Then you could say, cut rates, inflation will fall of its own accord. But that isn't so. Quite the contrary. There's a good deal of evidence to suggest that not only have we not seen the full effect of the oil price hike working its way through the inflation figures, but that other inflationary forces are at work and that sterling may shortly need propping up to cope with rises in US interest rates.

In other words McCrae is saying to the BoE, go on, take a punt, cut rates, it may be alright. It may let inflation into the system, but so what? Better risk inflation than risk recession.

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  • 301 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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