Man gets badly confused

Third, in reality, bankers were given only one tool to deliver on the task given to them, which was the control of interest rates. This tool is, however, almost useless when inflation is rising because it is far too blunt a tool to use without creating considerable social friction. And when rates are low it is also useless, because as has been seen for much of the period of independent central banks, rates had to be near zero, leaving them without impact.

That near zero interest rates were the right policy to avoid deflation and that they worked now proves that near zero interest rates have no effect upon inflation.

Man’s an abject fool.

Further:

First, until now we have had no serious inflation since the early 1990s, which was well before Bank of England independence. The reality is that they have never done their job: other factors have weighed on inflation instead.

The actual argument for independent central banks is that interest rates will be lower for any given worry about future inflation if the central bank is independent. Because we know that politicians will try to time things for the electoral cycle – in favour of their being re-elected. Taking the decisions out of their hands reduces risk – therefore interest rates are lower for any particular stage of the inflation/boom/bust cycle.

Man’s a fool.

Fourth, changing taxes was always a better tool to tackle inflation, with a much greater degree of finesses in the targeting and so the likely result,

Citation required. For the general economic consensus is that fiscal policy can indeed be used but with greater time lags and less accuracy than monetary policy.

Abject ignorance.

Fifth, quantitative easing was never used as it should have been. It should have been used to inject money into the economy very largely as direct investment.

Then it wouldn’t have been quantitative easing, it would have been direct monetisation of fiscal policy.

Ignorance.

Sixth, put in place capital controls to stop the upward direction in house prices.

Eh?

Seventh, deflate capital markets using seriously progressive taxation on wealth, including by reintroducing withholding on overseas holdings.

The man who wants to increase investment in the British economy now wants to reduce investment in the British economy?

Abjectly ignorant foolishness.

17 thoughts on “Man gets badly confused”

  1. It’s like the opposite of elephant power. I sprinkle elephant powder on the lawn, look, no elephants. Bending the analogy, it’s a fox-proof chicken coop. I put a fox-proof fence around my chicken coop, and no chickens have been eaten by foxes. “Well, thusly, that proofes there are no foxes, you don’t need the fox-proof fence”.

  2. I actually stopped fisking the last Entry in ‘Ragging on Ritchie’ (which he refers to in this one) because as I read into the post I realized it would probably require something similar to a dissertation to point out the many fallacies but I had a similar reaction to his sixth point:

    Sixth, put in place capital controls to stop the upward direction in house prices.

    Can anyone else take a guess what this means? Is he talking about stopping Buy to Let investment by anyone other than the state or something similar?

    Third, understand money and the actual spend and tax cycle.

    I think the phrase which comes to mind is ‘physician, heal thyself’

    Second, make the Bank the issuer of notes and coin,; the agent of the Treasury on QE; the regulator of other banks and the supplier of central banking services to them.

    Have we got other bodies issuing Notes and coins? Seems to be a recipe for tax evasion (getting more payments in cash) – not sure what the second section of this means, or indeed the third part. Is he looking at the abolition of the FCA/PRA and their replacement by the BOE? Does he know what he is talking about to even the slightest degree?

    I do think we are looking at the early onset of dementia in this man’s case. Certainly the posts are getting increasingly rambling and incoherent. Of course I would be sorry to lose the ‘Ragging on’ category which is such a highlight of this blog but should we consider that the man is truly losing his mind and perhaps go easier on him?

  3. Ducky McDuckface

    VP – He might mean a price cap (this sort of thing seems to be in the news at the moment) on the value of the house, or he might mean limits on mortgage lending.

  4. Sixth, put in place capital controls to stop the upward direction in house prices.

    Can anyone else take a guess what this means? Is he talking about stopping Buy to Let investment by anyone other than the state or something similar?

    Just a guess, but I assume he’s talking about the sorts of capital controls that existed post-war until the 1970’s. Where you opened a savings account and were polite to your bank manager and that got you into an informal queue for a mortgage. I’m sure there was more to it at the local branch -> Bank HQ -> Bank of England interface, but couldn’t tell you more.

    Probably a more sensible approach was to keep the 3 x earnings (3.5 x earnings if wifey worked) which meant there was a strong tie between wages and house prices.

    Problem was that those running their own businesses often had the cash but not the PAYE income, since they extracted the majority through tax efficient dividends which weren’t subject to NI. Prior to (early 2000’s) they’d simply go to a specialist mortgage broker for a “liars mortgage”, paying a higher commission to have some accountant sign-off your books as kosher.

    Liars mortgages were scrapped in favour of “affordability” and that’s when house prices really started to escalate, since with low-to-zero interest rates mortgage payments of 7x earnings could be justified as long as the interest rates didn’t rise.

    I’m probably wrong, but that was my understanding and experience of it from my parents and myself dealing with house purchases.

  5. Ducky Mcduckface / John Galt

    That sounds plausible. His entire philosophy seems stuck in the 70s (witness his Pygmy like attack on Thatcher in another post) so definitely probable

  6. Ducky, Hong Kong tried to put a cap on mortgage lending, borrowers simply topped up with their credits cards.

    (Hey! I’ve heard the cake shop is running out of sponges! Quick, buy sponges!)

  7. Could have sworn the other day he was ranting that raising taxes was bad – people dying from starvation, blah de blah. and yet today it’s back to MOAR TAX!

  8. Bloke in North Dorset

    “ Probably a more sensible approach was to keep the 3 x earnings (3.5 x earnings if wifey worked) which meant there was a strong tie between wages and house prices.”

    It was 2.5x + 0x when I go my first mortgage in ‘76. I also had to save the equivalent of the mortgage for 6 moths and they wouldn’t take in to account I had a guaranteed promotion coming up in that period.

    And then capital controls meant restricting how much you could take on your foreign holiday, it was stamped in the back of your passport.

  9. Moquifen. He wants to tax the Evil Rich and the Dastardly Corporations to death.
    People couldn’t die of starvation in his world, because they’d be happy with their daily allotment of Spud-approved gruel while singing hymn to his Greatness.

  10. Who knows? – but the capital controls might be to stop evil foreign oligarchs from buying British houses.

    This might restrain house prices in Belgravia, but not so much elsewhere.

    What it would do is hold down the value of the pound – intensifying inflation in the prices of oil, food and other stuff that most people actually buy.

    How the Potato’s certainty about everything coexists with his stupidity about everything is a wonder of our age.

  11. Ducky McDuckface

    JG – “you opened a savings account and were polite to your bank manager and that got you into an informal queue for a mortgage”.

    Never been entirely sure what went on at that local branch->national bank interface. I think credit controls meant that local branches had hard limits on mortgage lending each period, so if someone bowled up with a higher income, wanting/able to borrow more than other customers, then someone else in the queue had to lose out that period.

    Dunno.

  12. Never been entirely sure what went on at that local branch->national bank interface. I think credit controls meant that local branches had hard limits on mortgage lending each period, so if someone bowled up with a higher income, wanting/able to borrow more than other customers, then someone else in the queue had to lose out that period.

    Yes. My understanding is that each bank had a specific amount set aside per quarter with this being spread disproportionately in favour of London and the South East (where the most expensive housing was, because that’s where the people with the higher incomes were).

    It’s very informality leads it to be open to abuse in the form of management intervention, so if a wealthy customer turned up and said he needed a mortgage ASAP or he would take his business elsewhere then the bottom end of this quarters list would get trimmed to make this happen and the peons would get bumped to next quarters list (if they were lucky).

    As there was no transparency beyond the internal bureaucracy of the bank there was little real possibility of genuine oversight, provided things didn’t become too incestuous (i.e. peons getting bumped when a member of the bank managers lodge needed a mortgage) and intervention was mostly around securing (and preferably increasing) the bottom line, individual branch managers were probably left to their own devices.

    The representation of Captain Mainwaring, manager of Martins Bank, Walmington-on-Sea in Dad’s Army is a caricature certainly, but one developed from the general impression of bank managers of the period and that didn’t really change radically until the banking and capital reforms of the 1970’s and after.

  13. This was when Bank Managers operated the 3/6/3 system: pay 3% on deposits; charge 6% on loans; on the golf course by 3pm.

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