A sad day for the MPC

Rick62

How do we know that low interest rates now is 'right'?

Because the same politicians and journalists who didn't see this coming tell us so?

WTF?_2

Rick62 wrote: »

How do we know that low interest rates now is 'right'?

Because the same politicians and journalists who didn't see this coming tell us so?

We're in a catch-22 situation.

If rates had been managed properly by the MPC, they'd have been jacked up during the good times. Saving would have been encouraged and dependence on borrowing would not have reached the endemic levels it did (because of higher costs of borrowing). Result: much reduced funding gap that didn't need to be filled with credit from the New Financial Instruments.

Then when the bad times hit, the rates could be substantially eased, there would have been plenty of scope for large cuts to provide an immediate stimulus. Funding wouldn't have dried up like it has because of the demise of the NFIs either.

Because of thinking like Blanchflower's, interest rates were kept low, borrowing skyrocketed, savings plummeted and NFIs came to prominence for their ability to magically fill the funding gap between borrowing and saving. (Until the reality barrier was reached and they failed miserably of course). Result: Massive crash, little scope for meaningful cuts and massive credit contraction.


Well done Blanchflower - please see yourself out of the MPC meeting room.

ad44downey

kennyboy66 wrote: »

http://business.timesonline.co.uk/tol/business/columnists/article5321634.ece



At least he goes knowing that he was right.

Nonsense. It was interest rates being too low that caused the boom and bust cycle. He should toddle off back to America hanging his head in shame

tomstickland

JayScottGreenspan wrote: »

Even a stopped clock is right twice a day.

What about the day when the clocks go forwards?

macaque_2

Gordon Brown defined the MPC's terms of reference, what constituted inflation and who would sit on the panel. It was like giving the steering wheel to someone with the 'crook lock' still attached.

monkeymaster

kennyboy66 wrote: »

At least he goes knowing that he was right.

No he wasn't. He didn't predict this credit crunch/recession. He argued for lower interest rates despite inflation being above target. He was calling for 0.25% cuts - if he saw it coming he should have been arguing for radical cuts. So yes he was calling for small reductions in interest rates but he was no more right than anyone else on the MPC.

fatpig_2

If anyone else did half the damage this geyser has done to our economy they'd be thrown in the Tower of London. And then hung, drawn and quartered.

setmefree2

!!!!!!? wrote: »

We're in a catch-22 situation.

If rates had been managed properly by the MPC, they'd have been jacked up during the good times. Saving would have been encouraged and dependence on borrowing would not have reached the endemic levels it did (because of higher costs of borrowing). Result: much reduced funding gap that didn't need to be filled with credit from the New Financial Instruments.

Then when the bad times hit, the rates could be substantially eased, there would have been plenty of scope for large cuts to provide an immediate stimulus. Funding wouldn't have dried up like it has because of the demise of the NFIs either.

Because of thinking like Blanchflower's, interest rates were kept low, borrowing skyrocketed, savings plummeted and NFIs came to prominence for their ability to magically fill the funding gap between borrowing and saving. (Until the reality barrier was reached and they failed miserably of course). Result: Massive crash, little scope for meaningful cuts and massive credit contraction.


Well done Blanchflower - please see yourself out of the MPC meeting room.

Interest rates are lowered and raised wth regard to factors other than house prices. Interest rates were lowered to counter the effects of deflation from imported goods from emerging economies such as China & India. The MPC has many other factors to consider other than just house prices.

ManAtHome

setmefree2 wrote: »

Interest rates are lowered and raised wth regard to factors other than house prices. Interest rates were lowered to counter the effects of deflation from imported goods from emerging economies such as China & India. The MPC has many other factors to consider other than just house prices.

Well, leaving aside (ie ignoring in MPC-speak) the property asset boom, IMHO inflation has been distorted by cheap credit. I'd suggest that if you could get easy 'credit' (deferred debt), most people would use this to buy the shiny stuff which has been deflating rather than essentials which have been inflating. This skews the 'average spend' towards shiny stuff which then under-states inflation.

BTW If we'd kept the 'pre-swizz' target RPIx at 2.5% +/- 1%, Merv would have had RSI (over 3.5% more than 50% of the time in the last couple of years).