There’s a very, very old joke about a man in a hot air balloon who runs out of fuel and suddenly has to ditch in the middle of a farm.  Unhurt, he brushes himself off and calls out to a passing rambler asking if he can enlighten him as to his whereabouts.  The rambler thinks for a few seconds and then replies, “you are situated on arable land characterised by cereal growth and  livestock husbandry which is itself located in the  countryside close to the south coast of England”.

Rolling his eyes, the balloonist asks if the man might not by any chance be an economist.  “I am”, says the rambler, “how on earth did you know?”.  “Simple”, replies the man, “what you have just told me is completely accurate and totally, bloody useless”. Read more »

   Filed under: Economics, Financial crisis, Monetary policy, Public services, Public spending | 5 Comments »

One day we might get a proper public debate about why the UK economy remains so anemic after six quarters of shrinkage.  And, more worryingly, is  now starting to lag badly behind some other equivalent economies.  For me there were four big mistakes made which need close investigation and which we need to work out ways of avoiding in the future.  We clearly also need to take further remedial action to address the damage done. Read more »

   Filed under: Financial crisis, Labour market, Monetary policy, Recession | 3 Comments »

There seems to be a consensus (amazing how these things can emerge in the space of minutes!) that Mervyn King will be weeping with fear at the sight of today’s unexpectedly high inflation figures.  I can’t honestly say what the Governor’s immediate reaction will be but if there is any sense of panic on the Monetary Policy Committee, it would be utterly misplaced. Read more »

   Filed under: Monetary policy | 1 Comment »

A while back I wrote about the threat to the economy that might arise from the poor judgement calls of the Bank of England on interest rates. I admit this year it will be exceptionally hard to decide what to do with interest rates but that uneasy feeling I had during 2008 (when the Bank made a series of duff decisions) began to return as I read Andrew Sentance’s comments to The Guardian.  Read more »

   Filed under: Monetary policy, Recession | Comments Off

David Blanchflower spent most of 2008 being ridiculed for arguing that interest rates needed to be cut vigorously to prevent the coming recession.  When nearly everyone else was squealing about rising inflation, he was predicting that inflation would drop below the Bank of England’s 2% target in 2009 due to recessionary pressures.  How everyone laughed. Read more »

   Filed under: Economics, Labour market, Monetary policy, Recession | 2 Comments »

Maybe someone can solve this for me.  Which one of these is more likely to thrust the UK into further economic turmoil in the next two years: another massive bubble and crash in the City or the Monetary Policy Committee making some duff decisions on interest rates?  Read more »

   Filed under: Economics, Monetary policy, Recession | 2 Comments »

Stephanie Flanders (BBC Economics Editor) has posted a worrying entry on her blog arguing that the Great Depression was caused by a collapse in global demand not by protectionism.  Flanders is clear she is not a protectionist, she just wants to set the historical record straight.   She argues that it was attempts by nations to shrink domestic demand for imports in order to protect their gold reserves that really caused the Depression rather than US tariff barriers.  But I think this is to draw a very narrow definition of protectionism.  Any unilateral action by a government to protect its own economic or financial position at the expense of others can be protectionist, or can at least amount to a “beggar-thy-neighbour” policy. Such policies presents a very high risk of global economic decline if everyone pursues the same approach. So to argue that protectionism did not cause the Depression because the evidence suggests that US tariff barriers did not cause the Depression is misleading. Read more »

   Filed under: Economics, Financial crisis, Monetary policy, Recession | 12 Comments »

David “Danny” Blanchflower will be stepping down from the Monetary Policy Committee next year.  I have sung his praises elsewhere and, of course, since the crash he has taken on the aura of a latter day prophet.  It’s a shame that the MPC will be losing the one member who saw it all coming.  But it’s also a pity, should one be fond of mischief, to miss the squirming that would have occurred over his reappointment to the MPC.  Blanchflower may have got it right but he wasn’t exactly coy about his view that everyone else was getting it wrong.  The Bank would almost certainly have had to accept his reappointment but through teeth gritted to the point of breaking.

   Filed under: Economics, Financial crisis, Monetary policy | Comments Off

The banks are coming in for intense criticism again.  In the Pre-Budget Report, the Chancellor warned he would take “whatever action is necessary” to ensure banks treat business customers “fairly and decently”. This follows briefings to the press that the Chancellor is considering legislation to force banks to lend.  And last week, the Chair of the Commons Treasury Select Committee  said that full nationalisation may be the only option if the banks do not start lending.

I’ve no doubt that there is a complex equation of factors contributing to the lending crisis which may in the end only be solved by major state intervention. However, there is one possible element in that equation which is currently overlooked: the way Libor (London interbank offered rate – the interest rate at which banks lend to each other) is set. Read more »

   Filed under: Economics, Financial crisis, Monetary policy, Recession | 4 Comments »

There is already a growing debate about why the Bank of England are acting so late on interest rates given the rapidly deteriorating economic situation.  Read more »

   Filed under: Economics, Financial crisis, Monetary policy | 2 Comments »