Monday, January 14, 2008

Policymaking UK vs USA

If the Fed is busy mobilising its economic weapons, why is the BoE holding back?

"As a policymaker, what should you do faced with an economy with a huge current account deficit, a currency that's under pressure, a housing market that's hit a brick wall, a banking system that's in crisis, a mortgage lender that might be on the verge of bankruptcy, and a budget deficit that's larger than it once was"?

Posted by alan @ 09:07 AM (712 views)
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5 thoughts on “Policymaking UK vs USA

  • it_is_going_with_a_bang says:

    Well Mr Stephen King it has yet to be proved that what the Fed is doing is actually right.
    The lowering of interest rates and extremely bad lending practices were the source of this problem in the first place.

    Surely going straight back to repeating the same thing is hardly the answer?

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  • also sold to rent says:

    For me this is the most interesting aspect of the current situation. Two central banks with reasonably similar problems but markedly different ideas on how to tackle them. The next few years should prove one approach or the other “right”, and living in the UK I’m hoping it’s the BoE. Also, I’m not so sure that “everyone needs dollars, so the US doesn’t really have to try too hard to behave itself fiscally” will be the case in the next decade. If it isn’t then the dollar and the US could be in big trouble.

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  • sold 2 rent 1 says:

    “The next few years should prove one approach or the other “right” ”

    The BOE will slash IRs eventually. The debt-based monetary system is flawed so how can there be a right or wrong. All central banks can do is muddle through untill we hit a deflationary depression or hyperinfaltion OR worse.

    Gold is at $912 now. For kondratieff-wave theorists, it is conclusive proof that we are in the k-winter.

    The big question is at what price will gold be signalling an even bigger event.
    If gold can beak its all time high of $3100 (in real terms) set in 1492 then maybe this is a singal of a Spengler Winter is head – a radical change in civilization is happening

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  • Dear Mr King

    Quote from your article: “you cut interest rates, you make a promise of lots more interest rate cuts to come, you allow the currency to find its own level…”
    Comment: Rather than letting the currency find its own level, is it not more important for the value of assets to find their own level so that affordability is restored which will boost up consumer spending?
    The USA has been doing what they are doing since the bust and it was their interest cuts than put them where they are in the first place with cheap money leading to super-size debts! I am surprised that you are recommending that they carry doing the same thing and that we follow them!
    Your article provides a short term remedy rather than a long term cure.

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  • An Bearin Bui says:

    Big difference between the US and the UK; the USA has a significant manufacturing base and benefits significantly from increased exports when the dollar is as cheap as it currently is. The USA is home to some of the world’s most important manufacturing corporations – OK, they’ve outsourced most of it to China for the last few years but there’s still enough left to make a cheap dollar act as a boost to their exports and thus their economy. The UK, on the other hand, has nothing to gain from a cheap pound except inflationary pressure due to rising import costs. That’s the big difference.

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