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R K

Carney Speech On Inflation, Deflation & Monetary Policy

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Writing the path back to target

It sounds like Forward Guidance by another name.

"A rose by any other name would smell as sweet"

Edited by billybong

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If one ignores the intentional inflation in fundamental 'asset' prices subject to monopoly/cartel market conditions where price is inverse to yield and leverage, the blatant political and distributional effects of policy layered onto reality, and the pretended-away contradictions of the entire message - it's a good speech.

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"ZIRP is forever not just emergencies."

We have NIRP for emergencies now!!! We are due another recession shortly and the conventional monetary toolbox is empty. We are all welcome to the Mad Hatters Tea Party.

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Sterling is only one currency out of many currencies in the world.....surely he has little control over inflation/deflation when realistically we are only a small part of a bigger picture...without trade barriers/controls we are free to shop around. ;)

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"Why do we target the low, but positive, inflation rate of 2% rather than a zero or even negative rate?

The simple answer is because it’s our job, given to us by the democratically elected representatives of the

British people. We are accountable to Parliament for meeting it."

I'm not sure whether to laugh or be dumbfounded.

Nice cushion Carney. "We did it cos they said do it". Cosy little number being Guvna isn't it? No important decisions to make because they go to a vote and no responsibility for courses of action because he never made it up, your Honour.

Sheesh. I wish my job was like that.....and that I got paid £millions for it.

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"Why do we target the low, but positive, inflation rate of 2% rather than a zero or even negative rate?

The simple answer is because its our job, given to us by the democratically elected representatives of the

British people. We are accountable to Parliament for meeting it."

There must be a better explanation than that.

Avoiding responsibility for all the consequences - and what about all that stuff about he has the power to prevent a house price bubble. A power that he denied.

It's no way to run a country.

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We have NIRP for emergencies now!!! We are due another recession shortly and the conventional monetary toolbox is empty. We are all welcome to the Mad Hatters Tea Party.

Sorry, my bad. It's one long emergency, ofc, which the BoE's general equilibrium models can neither explain nor cure.

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"Why do we target the low, but positive, inflation rate of 2% rather than a zero or even negative rate?

The simple answer is because it’s our job, given to us by the democratically elected representatives of the

British people. We are accountable to Parliament for meeting it."

Interesting that he makes the point.

May be setting the scene for a higher target. Say ooo I dunno....4%?

(he also mentioned nominal wage rigidity and ZLB)

One example of that is in the labour market, where workers usually resist reductions in their cash wages
when economic conditions deteriorate. This behaviour can prevent the inflation-adjusted value of wages
from declining when demand for labour is weak, leading to unemployment. If that is the case, it may be
better for the economy as a whole if firms’ real labour costs can adjust over time through increases in prices
– a little inflation – instead.
4
A positive average inflation rate also gives monetary policy space to respond to negative shocks by cutting
interest rates.
That’s because in normal times the ‘equilibrium’ level of interest rates at which the economy would tend to
settle without generating inflation reflects, broadly, the rate of underlying growth in the economy plus the
inflation target. The lower is average inflation, the less scope there would be for monetary policy to reduce
interest rates in response to shocks before they approac
h zero. Because the equilibri
um rate is so central to
monetary policy I will come back to discuss it further in a few moments.
Edited by R K

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If one ignores the intentional inflation in fundamental 'asset' prices subject to monopoly/cartel market conditions where price is inverse to yield and leverage, the blatant political and distributional effects of policy layered onto reality, and the pretended-away contradictions of the entire message - it's a good speech.

I think the horse has bolted on the idea of controlling asset prices, specificaly house prices, with interest rates.

I'd rather we all accepted that prices are simply out of control against the public interest and discuss what to do about it.

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So Carney says we need inflation, devaluing the pounds I have previously earned to grease the wheels of the economy .... but of course property prices are outside the scope of inflation. Why doesn't he just admit that all that matters are the 1% and the banks .... but that would be telling and could kill the golden goose if the farmed realised why we really need inflation.

We need eternal 2% inflation, because it stops our debts catching up with us.

Of course if you have savings and no debt....

Fill your boots & leverage up! It's 'Gubbermint Policy, innit'.

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I think the horse has bolted on the idea of controlling asset prices, specificaly house prices, with interest rates.

I'd rather we all accepted that prices are simply out of control against the public interest and discuss what to do about it.

Not sure I understand your point. The horse hasn't bolted, it's being ridden by the Government and steered using a bit of interest rate but mostly other leveraging and social engineering whips. i.e. Controlling prices in an upwards direction is policy. Nothing will be done about it until either it breaks or a critical mass of productive people transact counter to it (via act or omission, through choice or no choice).

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Interesting that he makes the point.

May be setting the scene for a higher target. Say ooo I dunno....4%?

(he also mentioned nominal wage rigidity and ZLB)

One example of that is in the labour market, where workers usually resist reductions in their cash wages
when economic conditions deteriorate. This behaviour can prevent the inflation-adjusted value of wages
from declining when demand for labour is weak, leading to unemployment. If that is the case, it may be
better for the economy as a whole if firms’ real labour costs can adjust over time through increases in prices
– a little inflation – instead.
4
A positive average inflation rate also gives monetary policy space to respond to negative shocks by cutting
interest rates.
That’s because in normal times the ‘equilibrium’ level of interest rates at which the economy would tend to
settle without generating inflation reflects, broadly, the rate of underlying growth in the economy plus the
inflation target. The lower is average inflation, the less scope there would be for monetary policy to reduce
interest rates in response to shocks before they approac
h zero. Because the equilibri
um rate is so central to
monetary policy I will come back to discuss it further in a few moments.

stagflation.jpg

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stagflation.jpg

The bankrupt of england, delivering shit growth, high inflation, wage malaise, no rebalancing and bubbles.

These shysters should not be responsible for anything of importance.

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"Why do we target the low, but positive, inflation rate of 2% rather than a zero or even negative rate?

The simple answer is because its our job, given to us by the democratically elected representatives of the

British people. We are accountable to Parliament for meeting it."

It was given to them by the elected government in 1997 although it wasn't an issue debated about (or voted on) in the approach to the election. It was a surprise decision by NuLabour immediately after the election.

Considering their abject performance performance set against the 2% target (plus the wrecked economy) it's time that 1997 decision was reconsidered.

There's still time to get something in the 2015 election manifestos to vote on it (as if of course).

Edited by billybong

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Having read his speech, it sounds to me like he's going to use the threat of deflation as an excuse to start printing more money again.

Got to out do the printing of the Euro.....race to the bottom, how low can you go....soon be drowning in it all. ;)

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It was given to them by the elected government in 1997 although it wasn't an issue debated about (or voted on) in the approach to the election. It was a surprise decision by NuLabour immediately after the election.

Considering their abject performance performance set against the 2% target (plus the wrecked economy) it's time that 1997 decision was reconsidered.

There's still time to get something in the 2015 election manifestos to vote on it (as if of course).

why target 2% and not 0%, or better still let the market do the targeting?

because their borrow short, lend long fractional reserve tower of Babel CANNOT exist without inflation.!

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why target 2% and not 0%, or better still let the market do the targeting?

because their borrow short, lend long fractional reserve tower of Babel CANNOT exist without inflation.!

the system cannot cope without inflation. Next crisis due anytime soon. Time it went pretty serious with QE for the public, helicopter drops for any bank accounts older than 1 year.

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why target 2% and not 0%, or better still let the market do the targeting?

because their borrow short, lend long fractional reserve tower of Babel CANNOT exist without inflation.!

Banks would be constantly going bust and savers taking haircuts. Like 19th century see-saw periods of rapid deflation/inflation.

Curious that those people who hate the current system mostly also want their savins 100% protected.

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Banks would be constantly going bust and savers taking haircuts. Like 19th century see-saw periods of rapid deflation/inflation.

Curious that those people who hate the current system mostly also want their savins 100% protected.

Banks have been constantly going bust for the last six years, surely you've noticed? Savings had nothing to do with it.

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