Saturday, July 21, 2007

The Governor of the Bank of England, Mervyn King, has told the BBC he wishes mortgage costs were part of the official inflation target.

Bank: Mortgages part of inflation

"Mr King acknowledges the omission is "controversial" and causes "particular difficulty" for the Bank". Money supply back in fasion, mortgage costs back in fasion, higher rates back in fasion?!

Posted by planning4acrash @ 07:00 AM (541 views)
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16 thoughts on “The Governor of the Bank of England, Mervyn King, has told the BBC he wishes mortgage costs were part of the official inflation target.

  • planning4acrash says:

    This apparently throwaway comment sheds a rare ray of light into recent conflict at the MPC. King, it appears, has fundamental doubts about the ability of CPI to guage future, and indeed present inflationary pressure, whilst the average Dove tends to not question the reliability of the measure, prefering to stick with the status quo, as dictated by Brown. One can only assume that David Branch Flower Power takes the more radical view that inflation targets, period, aren’t particularly important.

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  • planning4acrash says:

    “In the first programme of a new series, Inside Money asks how worried we should be about the rising cost of living. And how far might interest rates have to rise to keep inflation under control?” Listener Adam Potter meets the BoE governor Mervyn King
    Saturday, 21 July, 1204 BST
    On Radio 4 and online
    (I’ll try to post a link to the show once its online) Apologies for the multiple posts, but a lot seems to be going on today.

    http://news.bbc.co.uk/1/hi/programmes/inside_money/6902569.stm

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  • planning4acrash says:

    Just one more comment, and I promise this will be my last for the day! Maybe King isn’t being radical enough, maybe inflation targets are fundamentally flawed because todays inflation is relative to yesterday’s inflation and does not measure cumulative change, i.e. divergence from trend. Maybe, for example, BOE should be interested in how far house prices have diverged from their long term price more than their growth in the past year, the trend price should be about £140k. So, the bank could say that prices are inflated 35% above trend and grew 7% in the last year, and 35% above trend is where we were in the last crash. When you put it like that you can see panic buttons being reached. Because a bubble, in effect is distance from trend. You could do this with whatever basket of goods in an inflation target and other measures. That would give a more balanced measure than today’s measure, which doesn’t care if inflation is 0.5% above target for 5yrs, or 0.25 above for ten, equal to being 1% above for 2.5yrs (which would have everybody squeaming), but only the latter raises alarm bells until bubbles get out of control. You would’t measure carbon emmissions without thinking about how they have risen since industrialisation and discussing a level, above which they should rise. Why should economic warming be any different? Who cares how much GDP rose this year, 5% growth could be fine for example if total UK GDP was 10% below trend, whilst at the moment, 3% is probably too high given that the UK economy has balooned of late. If that was the case, government would spend more time focusing on structural adjustments to raise the long term sustainable economic capacity of the economy rather than spending time encouraging bubbles, because this framework could largely inhibit bubbles.

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  • japanese uncle says:

    Merding’s role for this phase of boom-and-bust (2003-2012) is over. He has done a good job, particularly by maximizing the size of the bubble through lowering rather than raising the IR at the crucial point in 2005. Now the chaos of a galactic order has been perfectly arranged (at both sides of the pond) during which trillions of assets will change hands generally from the poor to the mega-rich, he might be feeling like revealing just a bit of original scholastic conscience, hence this comment. He may also wish to say, “No hard feeling. Job’s a job.”

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  • “Scholastic conscience” eh?

    JU I am continually surprised at how well you can write, especially as a non-native speaker. Anyway.

    I see this as a little divisive – why is he saying this now? Because he thinks mortgages will go down now, thus making his job easier.

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  • Matt_the_hat says:

    Maybe they should just concentrate on meeting the current (easier) target for the CPI.

    Its all well and good wanting to include property in the inflarion figures when the asset is about to devalue!!

    Nice one Merv.

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  • japanese uncle says:

    Education, education, education. not through Nulabor, but the opportunities to make myself understood on this fascinating subject in this esteemed website.

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  • The ‘omission’ was deliberate and calculated in order to maintain ‘economic’ growth during the late nineties and early noughties and was engineered to keep things going when the economy should have nosedived about 7 years ago. JU is right with his statement ‘star wars esque’ statement that ‘the chaos of a galactic order has been perfectly arranged’, (god thats a fantastic assemblage of words).

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  • dohousescrashinthewoods says:

    I agree, JU, I am shocked at the vagueness or some posters’ grasp of English. I think the OECD is going to have to start including interchangeable spellings for there, their and they’re and for to, too and two and I think apostrophes will have to abandon hope. (not that I’m immune to mistakes). It seems even Mervyn is no longer required to speak English (assuming this isn’t a meja schoodent misquote):

    “the European statisticians have not worked out a way of how they can calculate”
    should that have been:
    “the European statisticians have not worked out how they can calculate”
    or
    “the European statisticians have not worked out a way of calculating”

    Rushed talking from Merv or sloppy editing in the article?
    Structurally, this country was built by genuinely educating children in a straightforward manner and being able to grade achievements to a standard. These days I hear that the word “fail” is illegal in schools and that achievement, “well, it’s all relative, you know”.

    “Some critics fear the CPI may not reflect the true cost of living”

    I have to say that nearly made me laugh – understatement of the decade?

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  • dohousescrashinthewoods says:

    Arent’ public and private sectors normallt counter-cyclical?
    The public sector is being gradually downsized so if the private sector suffers now, where can the unemployed go?
    seems like a “perfect storm”

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  • japanese uncle says:

    Unfortunately inaccurate use of language is common throughout the world (including Japan) notably in the press.

    These days newspaper editors cannot distinguish ‘warships’ from ‘battleships’. Alas.

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  • I can’t understand it either, Merv? It seems so obvious to put the greatest and potentially most volatile cost into the calculation of inflation. But, alas, it is not there. I don’t buy your explanation that it’s to do with European harmony, if it were, we’d be in the Euro. Complete tosh. No wonder nobody believes headline CPI inflation.

    So, what is the real reason??

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  • dohousescrashinthewoods says:

    A warship being the general term and a battleship being the largest, most heavily armored type of warship?

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  • japanese uncle says:

    Corrrect. Warships include battleships, cruisers, aircraft carriers, destroyers, frigates, etc. Battleships refer to capital ships in the ‘big gun’ navy era.

    Anyway when people stop reading, their power of thinking shrinks. After all abstract thought is built on words, not vision or sound. Power of thinking is proportinate to the square of the size of vocaburary. Younger generation who depend on audio visual information, and not on printed information, tend to be more easily taken advantage of, as clearly illustrated by their thoughtless/reckless behaviour in this housing bubble.

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  • Has anyone seen the Bill Still documentary Money Masters at http://video.google.com/videoplay?docid=-1583154561904832383 ? The privately owned bank of England manipulates the media as well as all of us mortals. I really do wonder what they are up to at the BOE? As seen in the film, their ultimate aim is to transfer money from as many people/ countries as poss back into their own pockets. The big surprise is that they lowered interest rates after 9/11 – maybe to create an even bigger bubble so they can then reap even more profit when it bursts? When enough fish (lenders) are in their nets then they start squeezing to gain more profit by upping interest rates so why are they trying to keep the rates so low?????

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  • JU wrote : These days newspaper editors cannot distinguish ‘warships’ from ‘battleships’. Alas

    I would add : (english is not my birth language too 🙂 )

    These days newspapers editors cannot distinguish “hard landing” from “crash”, nor “soft landing” from “recession”. Alas…

    I, joyfully, let all of you thinking about the differences 🙂

    Salutations distinguées,
    Tangara

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