Thursday, 11 June 2009

The true objectives of UK monetary policy

In case anyone was suffering under the illusion that the Bank of England was focused on price stability, MPC member Andrew Sentance helpfully clarified the matter in a recent speech:

“Over the last nine months, the Monetary Policy Committee has been focussed on providing support to demand – through dramatic and unprecedented cuts in interest rates over the autumn and winter – and more recently through our current policy of “Quantitative Easing”.

This programme of substantial asset purchases aims to boost the money supply to support spending in the economy, going beyond the stimulus that can be provided by very low interest rates.

I am confident that these policies will help to support economic recovery – through their effect on asset prices, financial conditions and ultimately spending by households and firms.

It all comes down to one simple point: the MPC have cut rates to almost zero and started printing money to inflate house prices.

Thanks for that, Andrew.


Man in a Shed said...

This sounds like a mostly political act.

Anonymous said...

Doesn't make any difference what they have done.

Asset values are still falling and the debts still there, it hasn't gone away you know!

With unemployment creeping up and wage freezes and pay cuts wheres all this inflation going to come from?

All these attempts are politically driven anyway.

Paul said...

Nice find Alice.

Japan found in the early stages of their deflation that the pesky transmission mechanism stopped their aspirations to reflate the housing and credit bubbles in their tracks. How might things in the UK be any different?

After all, its not a well known fact that the Bank of Japan's strategy from around 2001 was called 'ryoteki kinyuu kanwa' (量的金融緩和), which literally translated means 'quantitative monetary easing'. Sound familiar?

Central bankers never learn - even from each others mistakes.

Kosh said...

Through out my education on economics (late 90's) the lessons from the 1970's and 1980's were:

1. Don't print money

2. Stay on top of inflation

3. Don't let your government borrow so much that the interest cripples growth

4. Don't let the BoE manipulate demand

If you fail any one of these then you're cooking up problems in the medium term. To break them all at the same time is tantamount to sabotage.

I can't believe that Sentance and the rest of the MPC's arrogance is so profound that they can openly declare with pride how they're f*cking this up.