Mervyn King Vs Osborne & Carney

LauraW10

Mervyn is worried. He's warning that a return to high inflation would be scary.

governor Sir Mervyn King has warned the Treasury against watering down the commitment to low inflation in the budget next week, describing a return to high inflation as "scary".The inflation target, which was set by the Treasury in the 1990s, is under threat following months of criticism directed at Threadneedle Street for the weak pace of economic recovery.
King's rare television interview came amid speculation that the chancellor will tell parliament next week in his budget that a review of the Bank of England's mandate is needed to include a requirement to focus on economic growth.
The governor is thought to have lobbied against the move and told ITV: "What was scary when we had high inflation was businesses faced high interest rates … mortgage repayments doubled, there was pressure on household finances … people stopped looking at the long term and focused entirely on the short term."
Earlier, chief economist Spencer Dale had given a speech where he too endorsed the Bank's mandate and said the inflation target still allowed it to take an active approach to boosting growth.
In what appeared to be a co-ordinated attack on the chancellor's plans, Dale described calls for policies to promote growth as "dangerous talk".
"The target is not a sham, but a vital anchor," he said. "We will hit the inflation target. And if we don't hit the inflation target over time, the cost to our economy will be very severe."

Constrained by his focus on debt repayments, Osborne has come to rely on King expanding the funds he puts into the economy to support bank lending to households and small businesses.
The governor will be replaced by Mark Carney in the summer and it is understood the Canadian central bank chief is keen to adopt a broader range of measures to kickstart the ailing economy.

http://www.guardian.co.uk/business/2013/mar/15/mervyn-king-budget-governor-inflation

vivatifosi

I think it's interesting. An early sign of a change in emphasis to inflating away the problem and allowing a weaker pound with a view to propping/developing weak exports. The coalition know that they can't easily cut more, but somehow the public is more open to capping rises in benefits etc while inflation rises more quickly. I do wonder if that will be the sign of the Carney/Osborne partnership.

ETA: it might be an idea to merge both threads though.

Thrugelmir

michaels wrote: »

A new governor would be the ideal time to change the BoE mandate to targeting nominal GDP rather than inflation, especially as the current inflation target seems to be being honoured in the breech. Don't forget the US fed doesn't have an inflation target remit.

GDP isn't something the BOE can influence or control.

Oil, gas, grain , livestock prices etc are determined by the markets.

HAMISH_MCTAVISH

Thrugelmir wrote: »

GDP isn't something the BOE can influence or control.

Oil, gas, grain , livestock prices etc are determined by the markets.

Absolute Rubbish.

The BOE can set monetary policy to stimulate the economy and directly influence nominal GDP as a result.

michaels

HAMISH_MCTAVISH wrote: »

Absolute Rubbish.

The BOE can set monetary policy to stimulate the economy and directly influence nominal GDP as a result.

Of course you can have falling GDP and still meet a nominal GDP target as long as you engineer enough inflation...

HAMISH_MCTAVISH

michaels wrote: »

Of course you can have falling GDP and still meet a nominal GDP target as long as you engineer enough inflation...

Indeed.

But what is being discussed is NGDP targeting.

Thrugelmir

Originally Posted by HAMISH_MCTAVISH
Absolute Rubbish.

The BOE can set monetary policy to stimulate the economy and directly influence nominal GDP as a result.

Should I add the decline in banking activity conducted in London to the list.

There has to be a fundamental readjustment in the UK economy. Something which money alone will not do. People are the real drivers.

Fella

HAMISH_MCTAVISH wrote: »

Absolute Rubbish.

The BOE can set monetary policy to stimulate the economy and directly influence nominal GDP as a result.

Influence yes, Control no.

Not that I'm agreeing monetary policy stimulas influences GDP upwards.

The point is you're saying Thrugelmirs post was absolute rubbish then citing something he never said in the first place as evidence.

HAMISH_MCTAVISH

Fella wrote: »

The point is you're saying Thrugelmirs post was absolute rubbish then citing something he never said in the first place as evidence.

Thrugelmir said they could not influence GDP.

They can.

Hence his post is nonsense.

DecentLivingWage

Thrugelmir wrote: »

Should I add the decline in banking activity conducted in London to the list.

There has to be a fundamental readjustment in the UK economy. Something which money alone will not do. People are the real drivers.

... and at the moment those 'people' need to be at home spending, cos Europe our main trading partner is stuck in a rut - many countries are looking to the ir pops to boost growth - we need to do same but Osborne has done the opposite!

Generali

Thrugelmir wrote: »

GDP isn't something the BOE can influence or control.

Oil, gas, grain , livestock prices etc are determined by the markets.

Nominal GDP targeting effectively means letting inflation rise as GDP falters. Unfortunately there are 2 problems with this:

- the real economy (GDP) moves very quickly whereas monetary policy takes a couple of years to feed through entirely.
- (the biggie) inflation imposes significant costs and inefficiencies on an economy which will tend to push down GDP. It is perfectly possible to see a time when rising inflation is pushing down GDP so inflation is increased which again reduces output and so on.