Quite remarkable monetary policy here

The key question Julia Hartley-Brewer (no friend of Labour) put to me was what could actually be done by John McDonnell to manage this situation? My response was simple. One of the major mechanisms I suggested that might be used to engineer an attack on sterling would be a large scale sale of government bonds (gilts). This would indicate a withdrawal from sterling, a lack of confidence in the government, a signal that the market would not lend what Labour wanted, and would (because interest rates are the inverse of price in the case of gilts) force interest rates up (which is the surest indicator of there being a run on the pound) by forcing prices down.

But, I said, any Labour government could now manage this. What it could say, even before it was elected, was that it would actively intervene in the bond markets by requiring that the Bank of England intervene to buy any amount of gilts that the market wished to dispose of in the event of its election using newly created money that would be put into use by the Bank of England for this specific purpose. As a result any seller would find a willing buyer, and the price would not go down after all. None of the signals the attack would be meant to deliver would arise in the market as a result. In that way any market storm could be ridden out, interest rates could be kept stable, the debt market would be kept in good ordering, there would be no pressure on base rates and within days the hysteria would have dissipated and the identity of the party really in control of the markets (the Labour government) would have been firmly etablished.

Spuds going to raise the price of something by increasing the supply of it.

He’s going to make pounds more expensive by making more pounds.

23 comments on “Quite remarkable monetary policy here

  1. For Bank of England read: Swiss National Bank.
    For Bonds read: Euros.

    Then that is EXACTLY what the SNB did for about 5 years. And the aim and result was to WEAKEN the CHF.

    Now that the CHF is slowly rising again, they’re now slowly working on getting rid of the glut of EUR they bought with CHF at a rate slow enough not to scare the horses.

  2. “One of the major mechanisms I suggested that might be used to engineer an attack on sterling would be a large scale sale of government bonds (gilts).”

    This large scale sale, would the engineers of this attack on sterling be carrying it out in the secondary market, or the primary?

  3. ‘None of the signals the attack would be meant to deliver would arise in the market as a result’
    He thinks any ‘attack’ on sterling would just be a signal by some shady neo-liberal cabal (probably based in a tax haven), rather than a reaction by the many entities that make up the market to the very real prospect of Corbyn et al destroying the country. Projection or what.

  4. This is why I say Corbyn et al can’t last long if they get into power. There no longer is the amount of independence in a nation that allows socialism time to take over and implement its policies before a crash, now it’ll happen very quickly. The last time socialists were in power in the UK, we had exchange controls, capital controls, far greater border controls, a far greater self reliance of the necessities of life (and it occurs to me a balanced budget). People were stuck, as was their money. Now they are not, and they won’t wait to be fleeced either. So from the moment he was elected the markets would be in melt down, as would the pound. The price of everything would be rising within weeks. The effects would be instant, and uncontrollable for a government who hadn’t even sat down, let alone worked out how to pull the levers of government.

  5. it is a tenet of modern left-wing thought that supply and demand does not happen automatically and can be dictated by the government. Genuinely. I have seen it described as a “key idea of neoliberalism”

  6. Murphy is right that in principle, unlimited money-printing could be used to underpin the nominal sterling prices of gilts.

    If he has somehow convinced himself that this would underpin the value of sterling itself, words fail me…

  7. “no friend of Labour”

    The day after he posts about inappropriate attacks on Laura Kuenssberg, then sits back as his BTL cronies tear her to bits, he’s blatantly smearing JHB. As if her question is somehow less valid because she’s an “enemy”.

  8. I think if a Corbyn government got in, they’d enact capital controls almost immediately, and probably try to tax UK citizens living abroad. That’s my biggest fear. If some reciprocal version of Free Movement of People and Capital Light would be retained post-Brexit, the courts would probably block that though.

    Then we would have to see whether a Corby government would just try to override the court.

  9. I’m sure Spud can come up with some wierd reason why buying bonds will have the opposite effect to the SNB’s buying euros, but I can’t imagine what it would be…

    From an engineering perspective, that is.

  10. It’s fascinating how he’s currently fixated by gilts.

    He gets stuck in these ruts where he bounces along, trying to absorb the objections and corrections of commentators and then bends those to suit something vaguely related to his unchanged (as he would have it) starting point.

  11. Quote: “One of the major mechanisms I suggested that might be used to engineer an attack on sterling would be a large scale sale of government bonds (gilts).”

    Not as major as the markets just selling sterling.

    In the days before White Wednesday, Soros was amused to hear Lamont say that the BoE had £10 billion in foreign exchange available to defend sterlng, as that was roughly the same amount as he alone had available to attack it.

  12. Spud’s denial of the efficient markets hypothesis allows him to continue to live in cloud cuckoo land. A Labour victory will be priced in to sterling and other markets long before Labour gets anywhere near the ability to apply capital controls and all the other mechanises the trot out to justify their fantasy world.

    The only way they would get to stop it happening is a coup well before election day.

  13. @BiND – aah, but they’d use the financial crisis their election caused as an excuse to apply controls at the first opportunity, when the new govt is constituted post-election

  14. I think the words ‘Dotard’ and ‘Mentally deranged’ apply to Richard Murphy…..

    I am hopeful that the excellent analysis of Jim is correct and that the Markets enable a coup to overthrow Momentum and then some kind of Ecksian countermeasures, including confiscation of pensions, wealth taxes and the like for the prominent Corbynites and Momentum Leaders.can be enacted post haste.

  15. VP&Jim–All well and good –if true–but we can’t afford to give the senile fucker the chance.

    Thus all efforts must be focused on ditching the Fish-Faced Cow and getting someone in the job who has a chance to rally those against socialism. Of which there are still enough to win –in my estimation–if everyone who wants Corbyn shitbashed votes together.

  16. “Vote Labour and see 20-50+% of your pension wiped out”

    I’m starting to wonder what I can invest my pension in to protect it from a Labour government. Gold bars? Wheelbarrows? Shares in pitchfork factories?

  17. “jgh

    “Vote Labour and see 20-50+% of your pension wiped out”

    I’m starting to wonder what I can invest my pension in to protect it from a Labour government. Gold bars? Wheelbarrows? Shares in pitchfork factories?”

    I am having the same dilemma.

    My pension is a shares SIPP plus my house. Both will collapse in value if Corbyn gets in.

    I can liquidate of course but then cash will soon be worthless too.

    The only solid investment would seem to be a ticket out of the UK.

  18. After reading Tim’s ‘No Breakfast fallacy’, I started filling the fridge and larder with fewer days’ supplies, just enough to carry comfortably from the car.
    Now I’m wondering if I should go full Doomsday Prep and lay down a season’s supply of Tesco value rice, chili con carne, hexamine and water in the outhouse.
    And that’s just with the Maybot in charge, a woman who knows I’ll likely be worth £5/hour tops to an employer when I’m 67 and wants it to be illegal for any employer to hire me at said rate even if mutually agreed. If she believes in a free market economy, then I have a talking arse.

  19. @ AndrewC
    The principal beneficiaries from a Labour government are public sector workers but in the private sector (i) tax lawyers, (ii) spivvy properyty developers building office blocks to house the additional civil servants, (iii) Insolvency Practioners.
    Since 2010 most quoted Insolvency Specialists have de-listed or – embarrassingly – become insolvent. So your best bet is to find a spivvy property development company run by a paid-up member of the Labour Party.

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