"Bank of England - Wrong and Powerless"

earlgrey_3

Although I don't think anyone would want a government to plough on regardless just to avoid losing face.

As Keynes said: “When the facts change, I change my mind – what do you do, sir?”

gozomark

I agree, in which case they shouldn't have titled it "strict rules" and "golden rule" then

Reaper

The trouble was what they saw as an economic cycle was actually a minor wobble, so they blew their reserves only to discover it was a ripple on a tsunami and when it hit, as the Torys put it, "the cupboard was bare".

Count_Dante

The issue with Democracy is the extent to which strangers should have power over your life. If the people vote for a government that favours a short term, inflationary economic policy, then why should someone who has scrimped and saved for years have to see the savings destroyed by the policy? Why should strangers effectively vote themselves some of that savers money through the inflationary policy? Why is that just?

ed123_2

...what caused the banking crisis were the ninja loans in the US...which were then packaged up and flogged all over the world.....

john_s_2

18 months ago the general public would have never worn any attempt to limit the amount they (we) can borrow for a mortgage. There were all sorts of schemes to allow borrowers to stretch themselves. I don't have a definitive list but I remember reading about things like getting your parents to act as guarantors; professionals able to borrow larger multiples as they expect a rapid increase in their salary; interest-only; self certified mortgages; 125% mortgages (my inlaws have one of these - they're in their 70s - Northern Rock of course!)

If there had been any BoE, FSA, or Government action to prevent such mortgages there would have been outcry about the Nanny state, blah blah blah.

The only tool the BoE has (as far as I can see) is the interest rate, which (used to) largely determines the interest lenders charge. And we will borrow whatever we (think we) can afford to repay every month, without looking at the actual amount being borrowed.

IMHO the only solution to the massive house prices is to build more of the damn things. The reason they inflated so much is because of the high demand, due to the low supply. (And houses people want - there were too many small flats built in city centres.)

But the nimbies would never allow a new housing estate to be built anywhere near them. Not totally unreasonable as this would probably reduce the value of their houses.

That's my understanding of the whole sorry mess, in any case. I'm probably being very naive in some of my perceptions.

fullstop

I remember John Redwood MP, published a report from some Tory policy group last year or the year before , saying there was too much regulation in the mortgage sector and recommending less.

Milarky

I worry about the MPC's choice of a two-year timescale and their definition of 2% inflation as merely a 'target' - losing all sight of the fact that that 'price stability'='2%' required them to be as close as possible to the figure at all times, not as far away as they could allow themselves (+/-1%)

Attaining the 2% inflation target thus became relegated to a mere 'goal'... 'within two years'... of rate setting - particularly as the divergences built up.

What they should have done was bite down on inflation - keeping in the 1-2% range for as long a possible so that, when the boom came to an end they could have eased rates responsibly and had a period of time when prices rose 2-3%.

They now talk as though having inflation under 2% (but not under 1%) is 'overshooting' their 'target' - when inflation over 2% (but not 3%) was not counted as such. Inflation actually needs to go below 2% (but preferably not below 1%) for an extended period of time simply for the MPC to 'meet' the 'target' - because the 'target' is supposed to be the average rate of price increases

Count_Dante

If the government had increased the banks capital requirements (the amount of money they must hold in reserve) gradually, the banks would not have been able to afford to lend money at the rate that they did. The rate of money that banks lend can be regulated through complex and easily bent rules, or they can be regulated by simple and effective procedures.

gozomark

the MPC doesn't set the 2 year timescale, or the definitions - the Government does.

'price stability'='2%' required them to be as close as possible to the figure at all times, - not true
http://www.bankofengland.co.uk/monetarypolicy/framework.htm
"A target of 2% does not mean that inflation will be held at this rate constantly. That would be neither possible nor desirable. Interest rates would be changing all the time, and by large amounts, causing unnecessary uncertainty and volatility in the economy. Even then it would not be possible to keep inflation at 2% in each and every month. Instead, the MPC’s aim is to set interest rates so that inflation can be brought back to target within a reasonable time period without creating undue instability in the economy."