Thursday, February 17, 2011

Mervyn King should embrace the ‘futile gesture’

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MERVYN KING is under pressure to put up rates. If people begin to think that the Bank is no longer committed to the inflation target, then it is game over for monetary credibility.

Posted by house @ 05:28 PM (1861 views)
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8 thoughts on “Mervyn King should embrace the ‘futile gesture’

  • Investingchick says:

    “If people begin to think that the Bank is no longer committed to the inflation target, then it is game over for monetary credibility.”
    Too late- they already have if they’ve got any sense. The pound is worth not much more than half what it was when Blair’s regime came to power, what does that tell you?

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  • Mervyn’s pension is index linked so he’s not worried.

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  • If people begin to think that the Bank is no longer committed to the inflation target, then…….maybe the Pope is a catholic

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  • If overall UK debt including personal and government obligations is 450% of GDP, which it would seem to be, unless you accept the governments reasoning that future pension liabilities need not be included because they haven’t had to borrow to pay them yet.. then accepting a base rate of 5% would require 22.5% of GDP to service.

    I am not sure what Mervyn can do about that particular puzzle.

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  • general congreve says:

    @3 – And therein lies the beauty of the puzzle, it cannot be solved.

    I reckon the best shot Merv has is to magic up a load of QE money and use it to buy hundreds of tonnes of gold on the open market. The money printing will cause inflation to run wild and interest rates to rocket, and our huge gold purchase will drive up the international price of gold. Consequently, everyone in debt, including the government will default, on their debt due to the interest becoming unservicable, so we will get our HPC. Not a problem, the BoE can subsequently reintroduce gold-backed pounds with all their ill-gotten QE gold and because the old corrupt debt-system has been levelled and the rot cut out of our economy, economic growth,backed by a sound currency can ensue. We will be the envy of the world and everyone will want a piece of our ultra-stable currency, strengthening it (and the price of gold) even further. And I’ll be rich, which is a bonus 🙂

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  • @4, or just change his mind at the pace that suits. i still hold that base rate stays where it is till 2015 or longer

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  • @fallingbuzzard

    I second that forecast – interest rates are going nowhere particularly fast for a long long time. Self-Servin Mervyn is managing consumer and market expectations so can’t say it publicly though.

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  • Problem is when you increase interest rates in a depressed economy with rising unemployment you add fuel to the fire.The level of indebtness of people is so great that they can barely keep their head above the water now. Each quater of % increase would drown thousands.The government does not want a repeat of the 90s slump. i just wonder if there is an alternative to what they are doing at the moment, i e nothing but cutting public sector expenses and hope for a recovery soon.

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