Monday, February 1, 2010

Good job we have a safe pair of hands at the healm

UK economy stuck between a rock and a hard place

Like the ship in Jason and the Argonauts, the UK economy is drifting towards a pair of clashing rocks. On one side: the threat of deflation, a double-dip and an even deeper, longer recession. On the other: dependence on quantitative easing (QE), a massive, growing public deficit and a risk of inflation. At the ship’s helm, facing an acute policy dilemma, is the Bank of England’s monetary policy committee (MPC). It meets this week to decide whether to stop QE, which has injected £200 billion into the economy, or extend it further.

Posted by jack c @ 04:50 PM (1269 views)
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7 thoughts on “Good job we have a safe pair of hands at the healm

  • All this double dip talk makes me laugh. 0.1% rise and we are technically out of recession, but if is one of us fails to buy a bag of crisps this month we’ll be back in recession.

    Sheriar Bradbury hit the nail on the head – ‘Maybe QE protected some industries from destruction but recession… flushes out inefficiencies. We have not had a proper recession since the ’90s and that has let inefficiencies develop.’

    Same goes for housing. Creative finance allowed people who should not have been able to buy a place buy a place, thus shoving up prices. The hpc is there is flush these people out. Yeah it’s a tragedy I know, people get kicked out of their house, but it is an equal tragedy when FTB’s cannot afford to buy a place of their own. The real problem is rampant hpi and someone always ends up suffering through it.

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  • fallingbuzzard says:

    QE for the economy is like giving methodone to a heroin addict. Withdrawal symptoms are less severe than those of heroin but are significantly longer. Sudden withdrawal causes a far worse withdrawal than going straight off heroin. And also available at taxpayer expense.

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  • QE will not stop just yet. BETCHA!!

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  • QE is not going to stop. If it does who buys UK government debt? The Tories, should they get in, aren’t going to be cutting the public sector anytime soon because they know that there will be no way the private sector will mop up the millions of additional unemployed. The plan presumeably will be, as with Labour, to create millions of non jobs in the public sector under some sort of green environmental/co2/energy efficiency agenda thereby mopping up the unemployed from the continuing decline of UK manufacturing.

    There cannot be and isn’t going to be a genuine recovery. The UK is f****d. The IMF should have stepped in last summer when there was a possibility of a chance. Too late now.

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  • The Tories should firmly say that they will continue quantative easing to spook the markets before the general election and thus force labours hand. A further sterling crisis whilst GB hand is on the tiller is what is required to kick start the process without the political repecussions being engineered by the dark lord Mandelson.

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  • See Peston’s latest blog – ‘Tories withdraw support from the gilt market’

    Stephanie Flanders has written a fascinating piece about the Tories’ attempt to cut just enough, were they to win office, such that the Bank of England won’t feel minded to increase the cost of money. She asks whether David Cameron’s apparent desire for a negotiated entente with the Bank of England would taint the central bank’s hard-won independence. But there’s another more immediate risk from what has been widely seen as a watering-down of the Tory leader’s determination to make a decisive start in cutting the UK’s ballooning deficit (which you may have seen on BBC News in an interview with me last Thursday in Davos): will it give the willies to those who lend to the British government?

    Because – as you probably don’t need telling – there are investors who believe that decisive action to reduce UK public-sector borrowing is needed sooner rather than later.

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/02/tories_withdraw_support_from_t_1.html

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  • mountain goat says:

    An understanding that we are between a rock and a hard place is exactly what needs to sink in. Not so that we brace for default, because I doubt we are anywhere near that point yet. But so that we brace for hard work and stop squandering our wealth with endless borrowing.

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