Sigh

It’s a weird world when Mark Carney seems to be the one person able and willing to act on the UK economy. But we are, very definitely, living in weird times and as a result it is his voice that is giving indication as to what may happen next.

What we know is twofold: the Bank of England is likely to cut its interest rate. Already at 0.5% and with 10 year government borrowing costs at less than 1% this is the clearest indication that even if we are not yet heading for negative interest rates in the UK we are certainly following the trend in that direction.

Second, we will almost certainly have more quantitative easing (QE) which must mean that he thinks that there is a shortage of liquidity in the banking system.

Sigh.

1) So the Bank of England actually is independent then, is it?

2) QE is not about bank liquidity. Never has been never will be.

Sigh.

Put these two factors together and it is obvious that Ritchie is ignorant of what he speaks.

QE is a backstop measure when a cut in interest rates does not work and means that the Bank of England does, itself, create the money that the economy needs to keep functioning.

Nope, it’s an attempt to lower long term interest rates.

That both measures were mentioned in the same speech clearly indicates that Mark Carney has little confidence that interest rate adjustment work: it is symbolic rather than effective.

Nope, QE is how the bank affects long term interest rates.

This puts us back in the position we were in in 2010. QE will pump money into the economy, but the reality is that the vast majority that will go into speculative activity, will support financial trading, will boost bankers’ bonuses, and will preserve the integrity of bank balance sheets, which is, however, an objective that could be much better achieved by the government taking direct stakes in their share capital instead using the same money.

No, it will lower long term interest rates. Safe assets become more expensive as the BoE buys them, yields fall (the same statement) and thus people move out along the risk curve in search of yield. Thus lowering those long term interest rates in the private sector of the economy.

That’s how it worked last time and that’s how it is supposed to work anyway.

This is why Colin Hines and I created the idea of what we then called Green Quantitative Easing in 2010, which is probably best explained here. Jeremy Corbyn did, of course, rename this as People’s QE but the essence did not change.

In this alternative form of QE the money created by the Bank of England is provided to a National Investment Bank to inject into the real economy. In other words, it funds new investment. In the short term that could be infrastructure repairs. It could also be investment support to businesses. That investment in business can either be in equity capital or by way of loans. In this way the risk that the money will be used to fund speculation and not to promote real economic activities is avoided: the banks as middlemen are cut out.

That’s not QE though, that’s straight printing of money to spend. The Magic Money Tree in fact.

Sigh.

48 comments on “Sigh

  1. “This puts us back in the position we were in in 2010. QE will pump money into the economy, but the reality is that the vast majority that will go into speculative activity, will support financial trading, will boost bankers’ bonuses, and will preserve the integrity of bank balance sheets, which is, however, an objective that could be much better achieved by the government taking direct stakes in their share capital instead using the same money.”

    Hi Tim

    Should that bit be in small writing, as quote from Ritchie?

  2. Carney is trying to create a downturn, so he, the Remnants and the Vampire Squid can do the I Told You So.

  3. Ian B. Ruth Lea was very scathing about his actions yesterday, you could be onto something.

  4. Also, the “weird world” is because all these leftists who consider themselves to be anti-Establishment heroes fighting The Man are suddenly finding it impossible to ignore that they are cheerleading for the political establishment, central banks, “The Corporations” etc while fighting the expressed will of the excluded.

    It can’t be a pleasant feeling.

  5. And I hope a rapid UK-US trade deal will mean I can import my jeans without massive customs duties from now on.

  6. Jeans – are you Jeremy Clarkson? If you are, can you please punch a fvcking luvvie for me?

  7. Ian B – “Also, the “weird world” is because all these leftists who consider themselves to be anti-Establishment heroes fighting The Man are suddenly finding it impossible to ignore that they are cheerleading for the political establishment, central banks, “The Corporations” etc while fighting the expressed will of the excluded.”

    It shows how much the metropolitan elites are more or less on the same page and political disputes are just show business for ugly people.

    I hope we are seeing a realignment of British politics. We have had two neo-liberal/social democratic parties until now. We have the Blairite consensus everyone seems to subscribe to. Perhaps the Blairites can merge and the actual Tories can join UKIP?

  8. If Murphy combined with DBC Reed maybe the Mantra ‘Land Value Tax’,’People’s QE’ could be adopted by the Remainers currently marching up and down the country bemoaning the ‘lack of democracy’ which means the vote did not go their way?

  9. Carney is trying to create a downturn, so he, the Remnants and the Vampire Squid can do the I Told You So.

    That dingbat and evidence-free conspiracy theory is worthy of the Murphatollah.

  10. Hang on. We know (but not necessarily the Sage of Ely) that the Bank of England isn’t independent, in terms of their assignments – the targets are set by the Chancellor, presumably with some degree of Cabinet discussion or approval.

    Where they are independent is in the use of the limited levers available to them to achieve those targets.

  11. Or “Osborne abandons 2020 budget surplus target”

    Hands up anyone who thought he would get within a country mile of the budget surplus target in the next decade, even without the referendum vote going the right way?

  12. BiW – there is that, but he’s decided to publicly abandon the target in the aftermath.

  13. “Also, the “weird world” is because all these leftists who consider themselves to be anti-Establishment heroes fighting The Man are suddenly finding it impossible to ignore that they are cheerleading for the political establishment, central banks, “The Corporations” etc while fighting the expressed will of the excluded.”

    Someone on Twitter pointed out to Owen Jones that he finally got the working class revolt he had been pining for and he was on the wrong side.

  14. “Osborne abandons 2020 budget surplus target”

    I have also announced that I am abandoning my target of winning the Tour de France by 2020

  15. “the evidence is Carney’s behaviour”

    So the evidence for your interpretation of Carney’s behaviour is your interpretation of Carney’s behaviour.

    Like Murphy, you mistake your brain droppings for reality.

  16. FFS Theo. Carney, amongst other players, are appalled at the referendum outcome. It’s not for the “little people” to democratically interfere with the affairs of their betters. So he along with others is determined, if they can’t get the result ignored the Brexit negotiations will produce an outcome indistinguishable from remaining in the EU.
    Conspiracy? Do you really think there haven’t been off-record chats about damage limitation?

  17. Talking down the economy by Carney is either malignant or incompetent. I don’t think he’s an idiot (GS don’t tend to hire idiots) so I presume it’s the former.

  18. for crying out loud, first why on earth do you think what Carney says has a direct effect on economic activity (as opposed to an indirect effect because what Carney says informs expectations about monetary policy and that has some impact on economic activity) but secondly, and more importantly, do you really think he’s actually crater the economy if he could just so he could say i told you so? man you are nuts.

  19. oh theophrastus I did reply to you on why I think recession a result of Brexit on previous thread don’t know if you saw it.

  20. I think human beings are emotional creatures who hate to be proved wrong and will do most anything to save face. He’d rather be seen as the man who shepherded the floundering economy through a depression caused by idiots voting against his wise counsel, than as The Central Banker Who Cried Wolf.

    Remember Osborne’s Punishment Budget. Human beings are capable of astonishing levels of recklessness and vindictiveness when they feel threatened.

  21. “QE will pump money into the economy, but the reality is… will preserve the integrity of bank balance sheets”

    Oh. I see. Could you take me through hat step by step please and show me the effect on “the integrity if bank balance sheets”

  22. Bloke in Wales
    July 1, 2016 at 1:23 pm
    Or “Osborne abandons 2020 budget surplus target”
    Hands up anyone who thought he would get within a country mile of the budget surplus target in the next decade, even without the referendum vote going the right way?

    Yep, Osborne’s pronouncement is essentially just a gullibility test (or should that be credulity?). It sure tests for stupid, either way.

    Even the Grauniad’s comments section is full of people calling bullshit.

  23. I think human beings are emotional creatures who hate to be proved wrong and will do most anything to save face.

    That’s certainly true of you, IanB. And Murphy. As LE says, man you are nuts.

  24. LE

    I did reply to you on why I think recession a result of Brexit on previous thread don’t know if you saw it.

    Sorry, I missed that. If you have a link, please post it here.

  25. b(tn)is

    So he along with others is determined, if they can’t get the result ignored the Brexit negotiations will produce an outcome indistinguishable from remaining in the EU.

    But that proposition is not the same as IanB’s dingbat claim that Carney is trying to create a downturn so he can say ‘I told you so’. I know you and logic are strangers, but at least make an effort.

  26. LE, a common mode of action doesn’t require a conspiracy; as we’ve seen on numerous occasions, these people are so insulated from the consequences of their actions that they’ll stick to their theories regardless – and the referendum result was, at least partly, a repudiation of that disconnect. For many it would have been immigration, but I think energy policy a better example: the whole renewable boondoggle must look just great if you can afford access to it – a house to put solar panels on, spare cash to invest in green funds or even a father in law with land for three nicely-remunerated wind turbines – but not so good halfway up a tower block and energy taking a far greater proportion of your cash.

    So I’ll maintain a very healthy scepticism to the wise benevolence of the elite, thanks all the same.

  27. Cause for celebration – the two child limit on new tax credits claims comes into effect today for practical purposes. Well done George.
    Now do a few more cuts like that, the pension triple lock can be kicked into touch perhaps, and your target date could be back on.

  28. You have far too much faith in the wrong people.

    So disagreeing with your evidence-free assertions about Carney’s intentions means I have faith in him and his ilk? That’s a classic Murphy-esque non sequitur. In fact, I am very sceptical about our elites, and I fear some of them are hoping to minimise or prevent Brexit. But there is zero evidence that Carney is talking down the economy deliberately.

  29. Luis Enrique – “do you really think he’s actually crater the economy if he could just so he could say i told you so? man you are nuts.”

    That seems to be France’s post-Brexit policy. It would be odd to see it in a British politician but it is not uncommon. A lot of people around me have been saying recession is inevitable and people like me deserve it. It is a short step from assuming it is inevitable to making decisions that make it inevitable.

  30. I took Carney’s comments to be a net boost to the economy because he is promising an overdue easing of monetary policy.

    George Osborne should enjoy a period of quiet reflection, with the emphasis on quiet.

  31. @Theo
    It is entirely logical to presume everyone will seek to maximise their own advantage. Carney will have a career after the Bank. Possibly commencing quite soon. That will be his priority.

  32. One has to remember Carney is in a bind of his own making. He painted Brexit as the worse thing possible for the UK economy only a few weeks ago – how can he come out now and say ‘Only joking! Everything’s fine, we can deal with whatever problems arise, don’t worry!’ without posing the obvious question – were you lying then or are you lying now? He was drawn into (or jumped into, who knows?) the Cameron camp of ‘Brexit is the work of the devil, and will visit the 7 plagues on the UK, and is so bad we won’t even consider what we’d do if you all vote Leave ‘ and now is stuck on his previous pronouncements. Unfortunately unlike politicians who can turn on a sixpence, and no one bats an eyelid as we all know they are liars, Governors of the BoE are supposed to be slightly more honest in their pronouncements, so can’t now do a 180 with the insouciance of politicians.

    So in order to maintain his own ‘integrity’ he now has to subtly infer than things are very serious, and we should all be worried, and that Honest Mark Carney will do everything in his power to solve the horrible problem that you the nasty little voters have created.

  33. So, here’s another conspiracy theory for Theo to enjoy:

    Gove is a deliberately sacrificial candidate. He does not intend to become leader. He was the only person with the heft to push the unreliable Johnson out of the race and give a clear run to the real Brexiteer candidate, Andrea Leadsom.

    Basically they are engineering things to ensure that the final two (on whom the membership get to vote) are May and Leadsom. Gove’s role is to take the blame for the backstabbing of Johnson. Then if Leadsom gets the leadership, he will be rewarded with one of the major offices of state.

    Meanwhile, Iain Duncan Cough (already in the Leadsom camp) will go back to the DWP with a sympathetic Chancellor and free rein to do his One Nation Benefits System project.

    Off you go, Theo. I haven’t got any “evidence” for this either, it’s speculation based on watching events and nothing more.

  34. Hunches and speculations are fine, IanB. Usually, though, you can’t tell the difference between yours and reality.

  35. Theo, your starting condition is Carney’s pre-referendum position was Carney’s assessment of the likely consequences of Brexit. There’s absolutely no evidence to confirm this. It could have been simply his position for public consumption,,to suit Carney’s purpose. Likewise, Carney’s position, post-referendum, could be exactly the same.
    There’s absolutely no evidence to presume Carney has any interest in the UK economy prospering, other than if it suits his interest.
    You might regard this as overly cynical but is there any level of cynicism unjustified when considering these people? Experience would tend to indicate not. It would certainly encompass IanB’s assertion, or mine, or both.

  36. “I’ve no idea what you are on about, BIS.”
    They were lying then. They are lying now. They will lie tomorrow.
    What’s so hard to understand?

  37. “What’s so hard to understand?”

    It’s relevance to my original point. Your inchoate nihilistic rage is no substitute for logic and evidence.

  38. Hardly rage, Theo. Not my country. Don’t give a f**k how your economy performs. No skin in the game. Even the European economy will be a spectator sport for me, in a couple years.
    Call it detached observation & amusement

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