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Let The Bank Of England Take Note: The Risks Of Raising Interest Rates Too Soon Are Greater Than Inflation Overshooting

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http://www.independent.co.uk/news/business/comment/let-the-bank-of-england-take-note-the-risks-of-raising-interestrates-too-soon-are-greater-than-inflation-overshooting-9761201.html

I was in Washington DC last week to attend a conference at the Peterson Institute for International Economics, organised by its president and ex-Monetary Policy Committee member, my pal, the insightful Adam Posen. It brought together representatives from all branches of the US government to talk about labour market slack. There were oodles of distinguished academics, as well as representatives from the Federal Reserve Board, the US Treasury, the Congressional Budget Office, the Bureau of Labor Statistics and the President’s Council of Economic Advisors (CEA).

The CEA is an institution who has only one client: the President. It has had a number of famous economists as its chair, including Ben Bernanke, Alan Greenspan and Janet Yellen. It would be a really good idea if there was an equivalent office in the UK to advise the Prime Minister on economic matters. Boy could the current incumbent do with one!

Inflation never destroys an economy.....

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The highlight was a speech by the excellent and dovish (that’s ok!) Charles Evans, president of the Federal Reserve Bank of Chicago, who is a member of the Federal Open Markets Committee, although he currently does not have a vote, as this rotates between the 12 bank presidents (but will have one in 2015). It should be noted though that the president of the New York Fed, the watcher of Wall Street, always votes. The speech was entitled “Patience Is a Virtue When Normalizing Monetary Policy” and it set out beautifully the case for the doves.

The bottom line is it is better to make a mistake of keeping stimulus going too long than the much worse and potentially fatal error of removing the stimulus too soon. Hopefully Martin Weale and Ian McCafferty and other hawks will read, learn and inwardly digest. The speech warrants our close attention.

That would have raised a good laugh in the 70s and 80s when inflation was out of control and they were desperately trying to rein it in.

Edited by billybong

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There is an assumption made that the 'stimulus' is working to revive the real economy- in reality the correct analogy is that the patient is dead and the 'stimulus' is performing the function of a life support machine- creating the illusion of vitality where none in fact exists.

Like grieving relatives of the deceased the Central Bankers are terrified to turn off the machine lest this reveal the true state of the economy- that of moribund debt laden collapse.

There is this wild mismatch between the growing chorus of 'recovery' and the terror inspired by the idea of raising rates- either the economy is recovering in which case rates must rise- or it's not in which case they must not. Both cannot be true simultaneously.

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Lord, the VIs never shut up, do they.

You were wrong, idiots. You Keynesians have managed to destroy the middle class and enrich banksters. Well Done.

TThink you'll find that was Osborne wot done that.

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There is an assumption made that the 'stimulus' is working to revive the real economy- in reality the correct analogy is that the patient is dead and the 'stimulus' is performing the function of a life support machine- creating the illusion of vitality where none in fact exists.

Like grieving relatives of the deceased the Central Bankers are terrified to turn off the machine lest this reveal the true state of the economy- that of moribund debt laden collapse.

There is this wild mismatch between the growing chorus of 'recovery' and the terror inspired by the idea of raising rates- either the economy is recovering in which case rates must rise- or it's not in which case they must not. Both cannot be true simultaneously.

or the real natural equilibrium rate has fallen.

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There is an assumption made that the 'stimulus' is working to revive the real economy- in reality the correct analogy is that the patient is dead and the 'stimulus' is performing the function of a life support machine- creating the illusion of vitality where none in fact exists.

Like grieving relatives of the deceased the Central Bankers are terrified to turn off the machine lest this reveal the true state of the economy- that of moribund debt laden collapse.

There is this wild mismatch between the growing chorus of 'recovery' and the terror inspired by the idea of raising rates- either the economy is recovering in which case rates must rise- or it's not in which case they must not. Both cannot be true simultaneously.

Reality is postponed until after the election.

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