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EmpiricalBear

Kaletsky Imagines The Worst

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What would be the political reaction to such a loan? Especially when it turned out that Northern Rock’s collateral included buy-to-let and unsecured lending in a housing market on the brink of a freefall?

My goodness.

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I think Kaletsky's conclusions are totally wrong. He's saying that if other banks (A&L, B&B etc) end up in the same trouble and house prices crash then the government will have no alternative but to flood the markets with money and cut interest rates but he's got it the wrong way round. That may be the only way to avoid such a scenario but if it happens then it will already be too late to reinflate the bubble. In fact this would free the BoE to conduct a monetary policy targetting inflation.

It seems that he's missed the real parallel with the ERM crises. Then, the government were desperately raising rates to prop up Sterling. Once Sterling had been forced out of the ERM they were able to accept the new reality, devalue and drop interest rates. This time we should move from desperately trying to keep the bubble inflated, to accepting that the bubble has burst and raising interest rates to tackle inflationary pressures.

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I think Kaletsky's conclusions are totally wrong.

To be fair to good old Anatole, he doesn't conclude anything - the article is hypothetical and, in my opinion, very good. He simply follows a certain plausible chain of reasoning to some unpleasant conundrums.

I thank him for my shiny new sig :)

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Yeah but, no but: Gordon has to maintain his economic miracle- lets consider this from his angle- what is HE going to do- I think the last thing he will do is accept that the bubble has to burst- he is bound to do something to keep it afloat

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Anatole Kaletsky paints a picture of how we could see the government pushed into an inflationary bailout

http://business.timesonline.co.uk/tol/busi...icle2469501.ece

I'm buying some Euros today.

Talking about Merv King..

He might even have to acknowledge that in such exceptional crises, the decision ten years ago to split the Bank of England, spinning off its responsibility for banking regulation, might appear a mistake.

Anyone reviewing the situation would probably recommend regulatory should be under the BofE hat. I cannot see evidence of close liaison between the FSA and the BofE. It's probably run along the lines of 'that's your patch not our's.... :o:o:o

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Gold, Silver up, despite everything else falling - they have well and truely decoupled from equities now. :)

silver is still within the downward trend it has been in for most of the year. If it rises above 13 and a bit $ it may have broken the trend.

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