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iamnumerate

Carswell on low interest rates

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Teresa May and Jeremy Corbyn must be so happy he is unlikely to be in charge of UKIP.  He could - if Farage were to co-operate - make a real change to the UK.

http://talkcarswell.com/home/blame-monetary-policy-for-income-stagnation/3222

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"Government reforms are projected to increase inequality", claims the IFS. But there's a big point missing from their analysis. If inequality is rising, it's not primarily because of fiscal policy. It's down to monetary policy.

One of the main reasons incomes have stagnated since the financial crisis is because interest rates have been kept artificially low.

The Bank of England's vast monetary stimulus kept up inflation even during the recession. That enabled employers to keep staff and maintain wages in cash terms – because they were falling in real terms.

The IFS notes that income inequality fell in the years following the financial crisis, because wages stagnated for all both high and low earners. But income inequality only tells part of the story.

The most pernicious effect of ultralow interest rates has been to stoke asset bubbles. As a result, those that already owned assets – e.g. houses – saw their value appreciate, while those who didn't were prevented from buying them.

In short, there was a huge transfer of wealth from the asset poor to the asset rich. And it happened with no public consent.

If you want a different taxation and spending regime, you can vote to turf out this government and elect a new one. But whom do you vote for if you want to raise interest rates?

As Moneyweek's John Stepek writes, the closest thing to a dictator in the United States – at least where the economy is concerned – isn't the elected Donald Trump. It's the unelected Chair of the Federal Reserve, Janet Yellen.

Central banks are artificially sustaining a fatally flawed monetary and banking system. The side-effects at the moment are unfair. But the consequences when the system finally collapses could be disastrous.

The world is going to need a new monetary model. It's time monetary policy stopped being the sole preserve of technocrats, and became part of public debate.

 

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That enabled zombie employers to keep zombie staff and maintain zombie wages in cash terms – because they were falling in real terms.

 

In the UK's zombie economy.

Edited by billybong

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The world is going to need a new monetary model. It's time monetary policy stopped being the sole preserve of technocrats, and became part of public debate.

 

 

There is public debate but they just aren't listening.  Even some other politicians have regularly made similar points over time - Carswell is just the latest in line although there's no harm in him reinforcing it.  

Eventually, a bit like the stopped clock, some politician will time it just before the policy does change so that he/her can claim that his/her opinion resulted in the change of policy.  Even the Bank for International Settlements (BIS) of which the main central bankers are directors, including Yellen and Carney, say the present policies have failed and just enrich the perpetrators of the policies - but the central bankers continue doing it because they and their pals (including many MPs and Lords etc) can't resist the easy troughing.

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In short, there was a huge transfer of wealth from the asset poor to the asset rich. And it happened with no public consent.

 

 

Indeed - no public consent - though the policy in part resulted in the consequences seen in the Leave the eu and Trump votes - plus the SNP victories and in UKIP winning the eu elections.

Edited by billybong

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I do wonder if the world would be in a better place if no quantitative easing had taken place, post 2008 financial crisis.  If salaries cannot align with the increases in asset prices, then its only logical that a correction will occur.

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5 hours ago, billybong said:

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There is public debate but they just aren't listening.  Even some other politicians have regularly made similar points over time - Carswell is just the latest in line although there's no harm in him reinforcing it.  

Eventually, a bit like the stopped clock, some politician will time it just before the policy does change so that he/her can claim that his/her opinion resulted in the change of policy.  Even the Bank for International Settlements (BIS) of which the main central bankers are directors, including Yellen and Carney, say the present policies have failed and just enrich the perpetrators of the policies - but the central bankers continue doing it because they and their pals (including many MPs and Lords etc) can't resist the easy troughing.

 

Indeed - no public consent - though the policy in part resulted in the consequences seen in the Leave the eu and Trump votes - plus the SNP victories and in UKIP winning the eu elections.

The irony being of course 15 or so years ago people were saying the same thing about politicians setting the rates for their own short term interests.

Personally I think the benefit of having one body responsible is that they can't put the blame in the other direction. I seem to recall the BOE (maybe I'm wrong) saying that house price issues were as much to do with lack of supply as they were with interest rates. No doubt if you asked the government they would throw the ball back into the BOE's back yard. 

I think the BOE is about to start making some decisions that will probably be unpopular, and it's going to be interesting to see how the blame for them gets pushed around between them and the politicians. June 2019 looks to me to be past the point of getting out before tshtf.

 

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6 hours ago, iamnumerate said:

Possibly true but is he wrong on this?

Interest rates are determined by demand. Only the US economy can be said to have experienced any kind of recovery since 2008, so it's the Federal Reserve to which Carswell should address his criticism. In respect of the UK, EU and Japan he is almost certainly wrong, they are far too weak (read: indebted) to sustain any kind of rate rise.

The income inequalities Carswell alludes to have grown more or less without interruption since 1979. When questioned in 2007, Carswell cited privatisation and the Right to Buy as two of the three most successful policies of the the post-war era; Margaret Thatcher as the country's greatest prime minister because she 'understood Friedman, Hayek, Popper and Smith at a fundamental level'.

I haven't read his book but I suspect from the reviews that it's full of the standard neo-liberal crap about 'sovereign' inviduals and the supposed infallibility of the market.

 

 

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On 3/3/2017 at 5:50 PM, Gigantic Purple Slug said:

The irony being of course 15 or so years ago people were saying the same thing about politicians setting the rates for their own short term interests.

Personally I think the benefit of having one body responsible is that they can't put the blame in the other direction. I seem to recall the BOE (maybe I'm wrong) saying that house price issues were as much to do with lack of supply as they were with interest rates. No doubt if you asked the government they would throw the ball back into the BOE's back yard. 

I think the BOE is about to start making some decisions that will probably be unpopular, and it's going to be interesting to see how the blame for them gets pushed around between them and the politicians. June 2019 looks to me to be past the point of getting out before tshtf.

 

Indeed it is ironic they were saying something similar 15 years ago to justify giving the BoE so called independence in setting interest rates (in conjunction with the Chancellor's remit).  For example they said that with the BoE there wouldn't be the political/vote buying decisions - decisions made just before general elections.  The BoE would act responsibly just like the German central bank and it would support the UK economy like in Germany and take difficult decisions avoided by politicians - ho hum.

At that time the BoE had a period of success in doing that job and NuLabour (Blair and Brown etc) hadn't had any significant set backs after the incompetence, sleaze and general disrepute of the Conservatives in the 90s.  The LibDems were still in the wings as a possible alternative to Labour and Conservative - an alternative still with some apparent integrity.  Competition to the main parties was pretty much nil.

In 2017 however the whole UK lot of them have joined the ranks of the failed and discredited - it actually happened before 2017.  The BoE, the Conservatives, Labour and the LibDems (not to mention the eu) - so in that sense it is much different to 15 years ago and that is partly reflected by the Leave the eu vote and the Trump victory - plus the SNP victories and in UKIP winning the eu elections etc.

The BoE and the government have demonstrated their buck passing competence on the issue of who is in control of the house price bubble - and recently Carney seemed to be blaming shortcomings on divisions within the new regulatory system and on poor definitions of responsibility within the new system.  The new system that was set up to replace the old system after its failures which were blamed on divisions within the old regulatory system and on poor definition of its responsibilities.   

Edited by billybong

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