Friday, October 23, 2009

No real change then.

Bank of England will not target asset bubbles, say deputy governor Paul Tucker

The Bank of England's leading voice on finance last night all but ruled out suggestions that the central bank will in years to come target asset bubbles as well as inflation, in one of the first hints of the shape of Britain's protean monetary policy framework.

Posted by flintster1994 @ 08:32 AM (1893 views)
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21 thoughts on “No real change then.

  • Is the real issue here the shift in focus away from regulating inflation? Are we preparing here for the argument that inflation is ‘good’ and should be allowed to grow unchecked in order to reduce debt levels?

    Such an argument has real strengths. Interest rates can be left at near zero for the forseeable future to ensure the housing market is minimally impacted. All Penfold will need to do then is print £1000 notes with which we can buy our weekly shopping…

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  • For as long as the BOE is tied to the hip with The Federal Reserve dont expect anything positive as an outcome.

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  • A central bank should not target asset bubbles, that is not the root cause of the observed economic woe.
    Yes, economic woe may be caused by asset bubbles, but they in turn are caused by some other policy decision – just as the housing bubble was caused by cheap credit and favourable taxation status.

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  • What if we just include house prices in the inflation index? Then any 2% inflation target would have to take into account house prices.

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  • We will never know about the people responsible for the massive naked short selling of Lehmans Bros which technically started this ball

    rolling.

    We will never know the full truth regarding 9/11.

    These are amongst some of the crimes of the century.

    No one has been legally charged for the above devastation. Go figure!

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  • cynicalsoothsayer says:

    But will they keep asset bubbles inflated?

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  • fallingbuzzard says:

    We do however know who led Lehman and other investment and retail banks into positions where it made economic sense for investors to short sell them rather than buy. As usual, don’t shoot the culprit, shoot the messengers

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  • 4. crunchy said…We will never know the full truth regarding 9/11.

    Didn’t you hear? A bunch of religious fanatics mistakenly believing that they were assuring their place in Paradise, hijacked two planes and flew them into a pair of skyscrapers.

    Suprised you missed it – it was all over the news.

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  • @crunchy – PWC has raked in £154m since Lehman collapse – Top firm Pricewaterhouse Coopers has racked up a tidy sum since the collapse of Lehman Brothers. It has billed a total of £154m for its work winding down the failed bank’s European affairs – legal costs had hit £68m in the year since the bank’s collapse. Full story @
    http://www.thisismoney.co.uk/markets/article.html?in_article_id=492199&in_page_id=3#

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  • Edmund Conway is clearly surprised that the Bank is not targeting asset prices and particulary house prices
    which he correctly identifies as crucial. He is a bit of a bellwether: the only journalist on one of the non-red top
    but popular papers to nibble at Land Value Tax and express serious reservations about the Home Ownernist agenda.
    The intelligent papers like the FT and Guardian have seen through the nonsense long ago, but the stubbornly Home Ownernist centre still holds.

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  • 2. 51ck-6-51x – surely you agree that targeting asset bubbles would ‘close-the-loop’ on the interest rate setting mechanism and dampen the effects of cheap credit

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  • ontheotherhand says:

    Without an extremely clear mandate to seek to control inflation, the BofE would suffer a credibility problem with the markets and people. Inflation expectations are key and if the BofE is not believed then it is useless. The MPC is full of frail humans who worry about their legacy and repuation and none of them ever want a recession pinned on them (since that is what any Government would do) if they do the necessary to pop a bubble or rein in loan growth. Howls of protest would fill the BBC from VIs. Cut Cut CUT! They will only raise rates if they are forced to by their mandate and so have a ready excuse.

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  • They can’t target asset (house price) bubbles without bringing the economy to it’s knees. To much equity was taken out and spent on flat screens tellies. If house prices were allowed to fall to their natural level spending would stop. The only way out from here is inflation.

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  • Telegraph: Bank of England will not target asset bubbles, say deputy governor Paul Tucker

    Yes this is exactly what we should expect from the group of people who deliberately create them. Surely no one can doubt any longer that the BoE and MPC are a bunch of crooks (along with the Fed) who deliberately go out of their way to create bubbles with easy credit and then claim they never saw the problems coming. Why? because the way to preserve the structure of the financial pyramid is to regularly fleece the vast majority of the population with manufactured booms and busts and then inflate away afterwards and punish the people who weren’t stupid enough to join in the speculative orgy.

    Timmy t @ 13 you are just a pathetic apologist for the MPC. Maybe you are GB himself. It would be better if the UK economy wasn’t a pyramid scheme with people getting into debt buying rubbish they don’t need.

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  • matt_the_hatt,
    I certainly do agree, yes, but believe it’s definitely the wrong way to go about it – capital should flow freely, by attempting to dampen one bubble another will just appear elsewhere – and a further side effect would be that transactional fees become higher during such periods and those brokers ( or estate agents ) will become richer.

    Anyway, I believe that you already know that I would prefer free banking rather than a central bank.

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  • Chrisa – thank you for those kind words…
    If it were left to me, I’d let the banks fail and let those who borrowed too much go bankrupt. I was saying what I think will happen, not what I want to happen. I wish I was GB – I’d resign!

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  • We use to include house prices in the inflation index – the RPI – but labour removed it and asked the bank to target the CPI index, hence the mess were in.

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  • dbc reed,

    I think the newspapers are reaching critical mass. In London (where most papers are based), house prices are so far removed from average wages that it’s starting to affect journalists too. It helps that newspapers are in financial difficulty and pay scales in journalism have lagged behind other sectors. Judging by his photos, I would guess Edmund Conway is young enough to be affected by this (i.e. he’s probably not a homeowner). I’m surprised the Daily Mail and Daily Express haven’t hit these same problems – either that or they have stricter editorial control.

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  • 9. jack c

    Thanks for that.

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  • Lucas,

    The RPI is flawed too though, since it uses mortgage payments rather than house prices. If the BoE cuts rates, the RPI falls – whereas in reality it leads to higher house prices because the cost of finance is lower.

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