It was right that liquidity should be reduced. The Fed has resisted cutting its interest rates to help America\’s tottering banks keep off the casualty list. We should go further. Inflation is roaring ahead, as yesterday\’s figure of 4.7 per cent (a 16-year high, and some way below the real figure) showed. For all the talk of "meltdown" there is still cash out there. The Bank of England\’s monetary policy committee has been split between those who would cut, hold, or raise interest rates.
It would seem blindingly obvious, given the weakness of both sterling and the savings ratio and the rate at which borrowing is soaring, that rates should go up. But we lack a leader who will confront that reality.
Indeed – and the irony of this is so vast I can hardly compute it – the only prominent politician even heading towards the right set of economic values is Nick Clegg, the leader of the Lib Dems. They have at last owned up to something that the Tories, to their shame, refuse to acknowledge, that some of Labour\’s public spending is wasteful. Mr Clegg wants £20?billion off public spending, and tax cuts. This suggests that he at least has understood what, at root, is wrong with our economy: that we, in common with much of the western and capitalist worlds, are living beyond our means.
The supply of money has to be tightened and a correct market price put upon it.
Umm, no Mr. Heffer, no. When we\’re undergoing a massive deliveraging, when the greatest risk is deflationary, no, we really don\’t want to raise the price of money and thus reduce the money supply. That\’s what Hoover and his bubbas did way back when and what led to the Great Depression.
We really, really don\’t want to do that.
Pleasse, read a little more Milton Friedman. Or give Tim Congdon a call.