A few days before the Bank of England cut 150 basis points off the base rate, Sir Terry Leahy, the chief executive of Tesco had a breakfast meeting with Mervyn King, governor of the Bank of England. Today's guardian reported that during this cosy little discussion, Leahy "put pressure on the monetary policy committee to slash interest rates".
Leahy figured that only a rate cut would keep his deeply indebted customers coming to his supermarkets and filing up their trolleys. Leahy might have posed a rate cut in terms of the national interest, but Tescos profits mightily when consumer borrow and banks again recklessly started to expand their balance sheets.
This corrupt little tale crystallizes everything that is wrong about UK monetary policy today. Where is this so called independence of the Bank of England? The events of the last two months have exposed that particular canard.We all knew about New Labour's pressure on the MPC; today we learnt that private business interests can also pile it on and force the MPC to cut rates.
Where did this frightful dependence on interest rates come from? Why is the price of credit so central to the UK's economic welfare? Actually, it is not a hard question to answer. Many UK households live in semi-bondage, crushed by huge personal debt levels. Changes in interest rates can mean the difference between another shopping spree down at the mall or an afternoon of despair contemplating the credit card bill.
But what about savers? Why doesn't Mervyn King invite a debt-free renter for breakfast. Why can't he share a slice of toast with someone who decided to put some money away for the future rather than build up an unsustainable balance on her credit card, and then plead to the MPC for relief via a rate cut. Why can't savers lobby the Bank of England for a rate hike, just like the supermarkets and debtors, who endless pressurize the bank to cut rates.
The answer is a depressing one. There is a new almost unnoticed realignment within British politics. The debt-serfs are in the majority. On top of them, there are the banks, supermarkets, and retailers who provide the infrastructure for this system of debt oppression. Everyone has an interest in keeping the scam going; the government, the Bank of England, and even the debt-serfs themselves.
Savers are the new oppressed minority. In today's Britain, they are voiceless. They are too few to be heard. So, when the Bank of England wants to rip them off with negative real interest rates, which will see their savings eroded and their prudence punished, the government, the supermarkets and the banks are happy to help. The government will follow up with withholding tax on interest income and as savers are impoverished, the banks will be there, ready to offer credit cards and loans that will shackle them with debt.
It is so hard to say no to debt. There is absolutely no incentive to save and enormous pressure to jack it in and borrow like the rest of them. However, debt is slavery, and even if the government steals your savings, at least there is the freedom of owing nothing to the bank.