Mpc's Elderflower Demands Rate Cuts - Again

[0q0]

Also Reuters:

http://www.reuters.com/article/marketsNews...034851320080720

Hysterics.

[wonderpup]

Blanchflower, an academic economist who lives in the United States

So, he lives in the US where they have been cutting interest rates to no visable effect on the housing market- what makes him think it would work here?

[Injin]

So, he lives in the US where they have been cutting interest rates to no visable effect on the housing market- what makes him think it would work here?

He (and the people who nominated him) can make a fortune if cuts occur.

"Heavily bribed man says things that he has been heavily bribed to say."

[eightiesgirly]

'short term shock from oil and commodity prices' Did I miss something, did prices just return to normal while I was hanging out the washing?

[Flatdog]

How dare he say that the US has a bigger stimulus than ours

[South Lorne]

...the guys a plant.....as inflation spirals ....IRs should go up.....is his middle name Mugabe....?....

[A.steve]

'short term shock from oil and commodity prices' Did I miss something, did prices just return to normal while I was hanging out the washing?

Inflation requires prices to continue to rise... if inflation fell to zero, prices would remain at today's high prices. We have a symmetric inflation target... if prices, on average, start to fall, the BoE are under strict instruction to relax monetary policy until they start to go up again.

[uptherebels]

Inflation requires prices to continue to rise... if inflation fell to zero, prices would remain at today's high prices. We have a symmetric inflation target... if prices, on average, start to fall, the BoE are under strict instruction to relax monetary policy until they start to go up again.

So if inflation comes down, they reduce interest rates? Inflation has gone up, and they have shown no sign of raising them.

[A.steve]

So if inflation comes down, they reduce interest rates? Inflation has gone up, and they have shown no sign of raising them.

Quite - the reason is that, much as keeping inflation in check is central to the BoE's role, it is also required to promote monetary stability and "economic growth". Owing to the nature of the problems we face, raising interest rates until inflation returned to target (immediately - say within a few months) would have the side effect of causing a meltdown in the financial sector and giving rise to an economic downturn that could best be called a collapse.

We can scream and shout about how "not OK" CPI has become - but that doesn't alter the fact that the reason for this is that an inappropriately lax monetary policy has been in place since 1997 - and an inappropriate measure of inflation has been used since 2003. No amount of raising interest rates now will fix the problems which have grown over the past decade.

[uptherebels]

Quite - the reason is that, much as keeping inflation in check is central to the BoE's role, it is also required to promote monetary stability and "economic growth". Owing to the nature of the problems we face, raising interest rates until inflation returned to target (immediately - say within a few months) would have the side effect of causing a meltdown in the financial sector and giving rise to an economic downturn that could best be called a collapse.

We can scream and shout about how "not OK" CPI has become - but that doesn't alter the fact that the reason for this is that an inappropriately lax monetary policy has been in place since 1997 - and an inappropriate measure of inflation has been used since 2003. No amount of raising interest rates now will fix the problems which have grown over the past decade.

OK, So what should be done? I have little or no knowledge of economics, or business for that matter. I am struggling to figure out, exactly what it is that's going on at the moment, and what needs to be done. I can see ( I think), that nothing now is going to prevent it, but what would make it less severe? I get the impression that even the people who should know these answers, have not got a clue what to do !

[mbga9pgf]

OK, So what should be done? I have little or no knowledge of economics, or business for that matter. I am struggling to figure out, exactly what it is that's going on at the moment, and what needs to be done. I can see ( I think), that nothing now is going to prevent it, but what would make it less severe? I get the impression that even the people who should know these answers, have not got a clue what to do !

Unless LIBOR is within 1% of base, they shold adjust rates accordingly.

Until LIBOR falls, the absolute minimum the BOE should do is leave rates as they are, for moral hazard reasons, as well as ensuring savers are not punished. Lowering rates will not do anything now; sentiment is shot.

[uptherebels]

Unless LIBOR is within 1% of base, they shold adjust rates accordingly.

Until LIBOR falls, the absolute minimum the BOE should do is leave rates as they are, for moral hazard reasons, as well as ensuring savers are not punished. Lowering rates will not do anything now; sentiment is shot.

So is that what you think will happen, that rates will remain the same? Given the state of the banks, I cannot see why LIBOR would fall. It seems that no one has trust anymore, which is understandable. They all just seem to be adopting a wait and see approach.

Edited July 21, 2008 by uptherams

[mbga9pgf]

So is that what you think will happen, that rates will remain the same? Given the state of the banks, I cannot see why LIBOR would fall. It seems that no one has trust anymore, which is understandable. They all just seem to be adopting a wait and see approach.

If inflation approaches 5% or maintains its level for another 6 months, the BOE will HAVE to hike, its their remit.

But yes, personally I see no rises or falls on the cards for the forseeable.

[uptherebels]

If inflation approaches 5% or maintains its level for another 6 months, the BOE will HAVE to hike, its their remit.

But yes, personally I see no rises or falls on the cards for the forseeable.

The way prices are going, I think there is a contradiction there

[mbga9pgf]

The way prices are going, I think there is a contradiction there

Yeah! I think that rates will go up to above 4, I dont think 5 is realistic though. The downward pressure on demand is going to nail commodities, Oil less so, but certainly hard commodities used in construction, copper, Steel etc will fall... I wouldnt mind shorting a few companies actually...

Thats why I think rates will stay on hold. I think at the same time there is a figure in Mervs head, together with the MPC, that they will HAVE to raise rates; 5% I reckon is it.

[A.steve]

OK, So what should be done? I have little or no knowledge of economics, or business for that matter. I am struggling to figure out, exactly what it is that's going on at the moment, and what needs to be done. I can see ( I think), that nothing now is going to prevent it, but what would make it less severe? I get the impression that even the people who should know these answers, have not got a clue what to do !

I'm no professional on the subject - just an enthralled arm-chair amateur... but here's my take:

The damage has already been done - and it can't be undone quickly or easily... the damage is huge debts taken on by those who could ill afford them to buy assets that were stupidly over-priced... and a huge amount of short-term inwards investment in that debt from abroad... a trend that has come to an abrupt end and shows signs of reversal.

There is only one positive thing that is left to be done - and it is this: constrain government spending and pay down public sector deficits. This is important in order to avoid the value of sterling dropping and making inflation, in the context of essential goods and commodities, appear to have been trivial to-date. This, of course, is a policy akin to political suicide - unionised workers do not, on the whole, have such considerations at the top of their agenda when they realise that their standard of living is falling rapidly.

If interest rates are either raised (my selfish preference) or prematurely lowered (which I think would be disastrous) the consequences will be worse than they are today - overall... though they may benefit one demographic over another. While leaving rates where they are is not going to achieve anything, at least it doesn't make matters worse. It is now up to the private-sector - individuals and businesses - to take responsibility for their debts. It is up to the financial sector to adopt transparency - and it is a time for the regulators to act robustly to ensure this is done thoroughly. There will inevitably be swathes of spivs and fraudsters exposed as the tide of insane credit recedes - these miscreants must be dealt with firmly in order to allow financial institutions to come clean without fear of exploitation by criminals.

My proposed 10-point plan:

1. Sort out the FSA and ensure that it is run competently and that it leaves no stone unturned - ASAP! This is a shambolic department in crisis.

2. Avoid unnecessary shocks to the system - such as financial stimulus packages and abrupt changes to monetary or fiscal (tax) policy.

3. Minimise bale-outs in order to protect only current accounts and savings - but to underwrite these 100% (in nominal terms).

4. Avoid unnecessary delays through treasury "dithering" while they search for the best political spin.

5. Press for transparency in all matters financial.

6. Zero tolerance policy for financial fraud.

7. Shelve/scrap expensive public sector projects until they can be financed using budget surpluses.

8. Incentivize the public sector to strive for efficiency.

9. Cut red tape and incomprehensible legislation that acts as a barrier to establishing businesses that export.

10. Avoid government interference with the free market when it comes to provision of mortgages and housing.

[uptherebels]

Yeah! I think that rates will go up to above 4, I dont think 5 is realistic though. The downward pressure on demand is going to nail commodities, Oil less so, but certainly hard commodities used in construction, copper, Steel etc will fall... I wouldnt mind shorting a few companies actually...

Thats why I think rates will stay on hold. I think at the same time there is a figure in Mervs head, together with the MPC, that they will HAVE to raise rates; 5% I reckon is it.

A figure in Mervs head? Some of the posters on here had me believing there was nothing in his head I had better get some work done, got to keep the production figures up. Wheels of industry and all that......... If you are going to short some companies, please don't short this one. I don't even know what it means ( it just sounds bad )

[symo]

Dear Daniel,

Thank you for your recent letter advising me to vote for an interest rate cut. I have taken your advice into consideration and on reflection decided to ignore it. For someone foisted upon me by that idiot in Downing Street you really do over-estimate your influence on our council. In fact at our next meeting we are going to raise rates just to annoy you and retard who appointed you.

Regards,

Mervyn.

PS No body likes you and you smell funny.

[Liquid Goldfish]

The idea of the government guaranteeing mortgages Fannie and Freddie style seems to be gaining a bit of traction following the article in theTelegraph yesterday and Robert Preston talking about it this morning on Today on R4

If this actually happens does anyone see it making a big diffrence?

It doesn't seem to have stopped the USA from crashing.

[Guest DissipatedYouthIsValuable]

The idea of the government guaranteeing mortgages Fannie and Freddie style seems to be gaining a bit of traction following the article in theTelegraph yesterday and Robert Preston talking about it this morning on Today on R4

If this actually happens does anyone see it making a big diffrence?

It doesn't seem to have stopped the USA from crashing.

Perhaps sending Blanchflower back home and defaulting on any American debt we have would be a good start.

Edited July 21, 2008 by DissipatedYouthIsValuable