Monday, 26 January 2009

Bring UK interest rates down to zero

A quick and perhaps obvious question; why would cutting rates down from 1.5 percent to zero would have more impact on the economy compared to moving rates from 5.5 percent down to 1.5 percent?

DAVID “DANNY” BLANCHFLOWER, the member of the Bank of England’s monetary policy committee (MPC) who consistently warned of the danger of recession, believes UK interest rates should “obviously” head down to America’s near-zero level.

Here is another, perhaps equally obvious question: if UK banks have a massive funding gap, how would lower interest rates help fill this hole with private sector savings?

4 comments:

phd said...

Yes I've never understood David "I Stand Alone" Blanchflower's attempt to collapse interest rates since, well, 1971.

If Mr. Professor could admit that perhaps this is a backdoor attempt to improve bank funding - and therefore nothing to do with passing a cut on to the economy at large - then perhaps I'd pay more attention.

If he really was so ahead of the curve with his worries of recession, he should have advocated raising rates as soon as he joined the MPC to take the sting out of the UK housing bubble.

Markbaldy said...

If banks pass on the full rate cuts to SAVERS, then I see people emptying their accounts and hiding it under the mattress.
It would serve the banks right if people actually did that and then the economy would be really stuffed.
Of course people would not risk their life savings either being robbed or destroyed in a fire at their home would they... much better to have it safe in a bank so the government can steal it from you to bail out the reckless !!!

Anonymous said...

It's a bizarre thing to do as it actually destroys capital, as the old are discovering, and any company that pays its workforce from interest on savings. Obviously his grasp of economics is tenuous, at best.

Anonymous said...

It's a bizarre thing to do as it actually destroys capital, as the old are discovering, and any company that pays its workforce from interest on savings. Obviously his grasp of economics is tenuous, at best.