Thursday, November 27, 2008

The tyranny of consensus

'They called me bonkers'

About Danny Blanchflower (MPC) who stood alone for interest rate cuts. His view now completely accepted by policy makers. One for p4c and s2r1?

Posted by letthemfall @ 03:24 PM (1340 views)
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19 thoughts on “The tyranny of consensus

  • “wisest of the wise men” LOL

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  • Gobsmacked

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  • planning4acrash says:

    Couldn’t be farther from the truth. We need interest rates at above 10% if we have any hope of restoring credence to our currency. Standard Variable rates based on the market are already edging that way.

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  • £/$ down 25% in 3 months and this guy’s being praised?

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  • The man is clearly retarded.

    Low interest rates are what casued the crisis. Lets get the interest rates up to 8% and strengthen the pound rather than suffer paying through the nose for food. Absolute idiot.

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  • Technically all those who claimed the Titanic was unsinkable were actually correct. Right up to the moment it sank!

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  • Oh Danny Boy, The pipes (etc. etc)

    You loony, at the time the rates needed to be raised to mitigate the carp now rising around us, yes the other loonies are now reducing rates, but that is their reaction to the chaos caused by low rates, it is not a delayed recognition of your self proclaimed economic brilliance.

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  • notaneconomicsguru says:

    My view after thinking about it and initially vehemently having the opposite view is that in this recessionary/depressionary phase lower interest rates and lower taxes are exactly what we really do need. The economy needs an inflationary stimulus to mitigate the worst effects of the downturn. The PM says there is deflation looming BUT there has already been huge deflation now revealed by pretty much everything getting rapidly cheaper and therefore so some policy driven inflation is now in my view a good not a bad thing. The clever and brave trick will be turn down the inflation knob just as the deflationary cycle starts to subside – once lending starts happening and the money supply starts going up then the inflatiometer has to go back down again and IR’s have to gradually rise in order not to ingite a bubble all over again.

    The reason why we are now in quite a bit bigger mess than we really ought to be is that IRs were too low for too long and there was too much availability and too little control of credit in the years after 9/11 – that’s a major reason in my view why we had a huge (and wholly unjustified based on meagre economic growth) inflation in house prices – the excess money simply drove the house prices higher in an inflationary spiral. Unfortunately, at the same time we had a major deflation going on in consumer goods because of cheaper imports and that masked the fact that what we really needed was higher interest rates – or at the very least a much tighter control on the money supply – one or the other or both was needed to make borrowing money more expensive as the inflation went rampant in 2002 through to 2007. In the end the inflation only stopped when the money supply simply switched off. Of course in 2007-2008 we had higher interest rates – but that was really stupid because we had already entered the deflationary phase and price rises were being forced by demand / supply issues and the result of speculative investments outside and UK IR’s have little or no effect on that.

    Strengthening the pound arguments today remind me of the keeping the pound in the ERM argument that the Major government persisted with long beyond the point at which it was economically rational to do so. That totally bust the economy and the house market and was a very, very damaging time for many people. It came about after a prolonged – at least 6 year long rampant inflation in house prices which the Thatcher government largely ignored (probably encouraged) and only really started paying attention to inflation when ordinary goods started going up and it looked like they were loosing control. It was obvious to Soros et al in 1992 that the then bust state of the UK economy could not sustain the pound at the high level set by the ERM. Contrary to what we were led to believe they would do, none of the European central banks moved to support (because they knew it was overvalued) and after a brief panic induced token gesture of raising of IR’s bakc to silly levels, the pound and exited the ERM. This led to a dramatically lower pound, much reduced IR’s and much to my amazement at the time (based on the fact that the pound was very subtantially devalued) a low rate of price increases. The economy very slowly recovered over a prolonged 4 year period. An inflationary policy was forced down the governments throat even when they had nailed their colours to being anti-inflation crusaders at all costs

    It seems that Governments / Authorities tend to ignore asset inflation even when it is plainly obvious and they are warned repeatedely that it is out of control. This has now happened twice in the UK in the last 25 years. It also seems that once they finally get into the mindset of believing they have inflation (even though they may in fact not have inflation at all) they go totally overboad stamping on it way beyond the point at which the beast and the economy is dead.

    From a personal point of view I went onto a fixed interest rate mortgage in August so I should be arguing for higher IR’s but I don’t think that’s the right thing for the economy right now.

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  • His only solution ever has been “CUT RATES”, since 2006 when he was appointed to the MPC.

    If an aircrash investigator proclaimed “a crash could have been avoided by pointing the nose up” completely ignores the simple fact that the only reason the plane crashed was because it stalled.

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  • P4AC you would love if we all had to struggle through on basic rations because you can buy squash x 10 and put them in a can. You dream of a basic existence because you feel you would be better equipped to cope with that than others. The thinner the gruel the better for you. Don’t you see how your theories about what should happen are about what you want to happen. The life you want to live and therefore the life others should live. Ok you are far more connected to reality than s2r1 but then by that token you should know better. He thinks he’s heading to heaven in 2012 or whenever.

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  • @8 seems reasonable to me. Why would we want to strengthen our currency right now except as an exercise in masochism, the fantasy of a cleansing purge which would in reality be closer to chaos and misery.

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  • A temporary ‘knee-jerk’ reaction by the instigators of a financial calamity,adding more fuel to the fire. The good thing is that all its supporters will pay dearly for this decision,so I wouldn’t feel too proud right now.

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  • I did not hear his lonely wise cries while the problem was growing.Twice in 2006 he voted against a rise to curb the greed. It wasn’t poisoned water they were drinking; it was alcohol and they knew it.

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  • The man can only be found to be wise by the unwise.

    Higher Interest rates, whether the central bank likes it or not, is the least painful way forward.

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  • Total and completely utter bo££ocks – we need to do away with interest rates and taxes altogether

    we’ve just past (oops passed) the end of the fifth night of the galactic underworld

    and are looking at ethics taking over from power in the next couple of years

    interest rates and taxes are a function of power and must be wiped out if we are to

    benefit from the evolution of consciousness as presented by Calleman !

    We won’t have much time to sort this out in the Universal underworld

    so I vote we sort it out before Xmas

    or at least whilst Woolies is still open

    crumbs, where is nooneo?

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  • If you had to single out one person to blame for the whole sorry mess that has engulfed the economic world most comentators now point the finger at Alan Greenspan. He was head of the Fed (bit of a rhyme there) from August 11, 1987 to January 31, 2006 and the low interest policy persued in the latter part of his term in office is in no small part responsible for where we are today – so like the alcoholic who needs treatment Mr Blanchflowers answer to the problem is pile on more drink.

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  • Two months of slight economic contraction is not a recession. We tend to be conservative in our growth estimates anyway, excluding any guess as to growth in small business, which are only picked up much later in tax returns. Small business tends to grow faster than large companies – and, IMO, are less likely to have got themselves in trouble. My (small) employer is very busy at the moment, having an order book up to March next year. (We’re a small software contractor.)

    Incidentally, the US try to compensate their figures and typically overestimate. When the estimates are revisited later, US and UK *actual* growth are typically similar. The notion that the US continually outgrows the UK and Europe is because commentators compare the monthly estimates, where the difference is largely an artifact of how the statistics are compiled.

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  • What I find incredible as no one mentions that our REAL interest rate is already well below that of most OECD countries. Put in the fact that the real effective exchange rate is so weak, and our monetay policy has been incredibly loose for well over 6 months.

    The only instutututions that will are and will be helped by the cuts are the banks. So his point (he was saying cut well before the crisis or he potential for one was accepted by him and the mainstream) will not help the economy anyway.

    The only way to liquidity in the system is everything else they are trying. Not a cut in official rates (as has been proved in the US now and Japan for 20 years). Lets not suggest he is some kind of oracle because even now cuts are a very small part of the puzzle.

    The reasons he gave for cuts were different to why they are actually needed, and I doubt they will work anyway now.

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