大象传媒

"Second: if they hike interest rates very much right now it will tank consumer spending power" - it is not tanked enough through 5.1% inflation (RPI which is closer to most people's experience of inflation) when public sector wages are frozen and private sector pay is not doing much better. The coalition do not have a deficit reduction plan - it is however merely their intention.
Their plan is to sharply reduce public sector budgets and the phoney public spending cuts war is quickly coming to its end. In the absence of any dramatic recovery in the private sector the deficit is likely to show signs of intractability or even deteriorate. Paul's maverick prediction of the fall of the coalition may be worth a decent bet!

Inflation targeting is not a guarantee for financial stability. These charts show that you can have target inflation and still have high unemployment and/or negative growth.

The BOE Governor should be forced to hold monthly Press meetings where he is questioned by journos re interest rate decisions, inflation reports, etc, etc.

It is scandalous that in this day and age he is both unelected by the People and unaccountable to them.

MPs reading this should stop and think that he is not accountable in anywhere near the same way that they are. I bet his expenses bill is not even as closely examined either.

THE AGE OF PERVERSITY

Growth (the 'grawth', never off Boom Bust Brown's lips) cannot be open ended. As any rational being can appreciate that STASIS should be the aim, it follows that growth is only sought by the barmy - presumably to acquire illusory riches, or the unscrupulous, to mask criminal activity.

Welcome to the Age of Perversity - proprietors: Thatcher, Blair, Brown, Cameron, Clegg.

employment is the indicator. once that turns everything will start moving. the inflation target will come back into play.

the current 'inflation' is merely an oligarchs 'tax' who through driving up the price of commodities have extracted a premium from the public that protects their wealth. commodity prices are now falling. the energy/food/etc bills won't. the tax has been collected.

the only game in to town is going long the taxpayer.

..Bernanke鈥檚 goal to keep asset prices 鈥渉igher than they otherwise would be鈥� in an attempt to generate a self sustaining economic recovery through asset prices..

ACCOUNTABLE MPs (#3)

Hi Tawse - genuine puzzlement.

Can you expand on 'accountable MPs' please? Perhaps using the Iraq war vote, where all but a few Tory MPs - following the whim (backed by whip) of just one man (IDS) voted for a fiction-based war? I doubt the constituents of those MPs wanted such - but then THEY VOTED ROSETTE, so had to pay the price when the worm underneath turned.

I hold the view that MPs (rosette stands) are not voted for - only their rosettes aka parties. Hence I seek to

SPOILPARTYGAMES

The Bank were quick enough to act when inflation was briefly below target.

It's been clear for a long time that Mervyn King & Co have been trying to inflate away the value of our currency, as a means of bailing out debtors. But really, what is the point of money if it isn't a store of value?

Despite the Bank's clear efforts to create inflation, I remain sceptical that they have ever been in control of events. Certainly, they were quick enough to claim success against price inflation when the all those cheap Chinese goods started appearing --- conveniently ignoring the house price bubble that was happening at the same time. But I doubt that a rise in interest rates --- desirable though that is for other reasons --- would actually have much effect on imported inflation.

I would be surprised if anyone still thinks that the 2% inflation target has any bearing on events. It may have played a role when the main objective was to use interest rates to prevent the economy overheating: but things look very different if you're trying to stop it crashing.

It doesn't take Einstein to work out that reducing intersts rates to 0.5% (and keeping them there) and printing a couple of hundred billion 拢's will be inflationary. It is not a startling insight that this could be deliberate - the idea being to keep consumers spending while inflating away the debt.

This idea, however, contains an inherrent contradiction. Unless people start earning more (ie we see the wage claims of 5%) they will have no more to spend - and with inflation their money will buy less. Result? The same money chasing fewer goods - and a reduction in the level of real economic activity.

For the Bank's strategy to work there would have to be wage inflation - but, as soon as that starts there could be a run on the 拢 and pressure on Government bonds: which would force them to raise interest rates. Result, reduced consumer spending etc.

Economists can huff and puff as much as they like: but there's no way out of this except either paying off our debts (by promoting economic growth), or writing them off (defaults, either directly or through real inflation as opposed to price inflation).

Paul,

If you can't get hold of any central bankers, you could instead speak with Peter Warburton:



He has to be one of the sharpest observers of central bank strategies and policies that I've ever come across.

#6 barriesingleton

Na, I don't actually think any of them are accountable.

I just posted that about King should be being held accountable in the vain hope that some MPs will read this, think it was a good idea for the economy and democracy if he was actually made to answer to the People and hence got the ball rolling for him to face journos monthly.

I know full well that we are moving into a new Age of History where the World is no longer countries or super-blocs... perhaps not even corporations... but one of a tiny elite of the super-rich, and the politicians who enable them, and the rest of us.

Freedom, democracy, it is being eroded. It comes to something when the last best hope for the British and American people are the freedom fighters on the streets of North Africa and the Middle East.

Did you read that link that I posted last night, in Paul's previous blog, to the suicide letter of Mark - a decent, average American who simply felt he could no longer go on living? He hit the nail on the head what is happening to America and to the World.

inflation was at 2% now it is 4% so what's the bet it goes to 5? With unemployment rising as well as inflation interest rates must go up and that will stifle growth and it will hit homeowners and that will be the death knell for the coalition.....

The 2% target was always an optimistic figure - it would have made much more sense to target 3% as an average or 4% as a maximum - historically these are more realistic figures.

But you confuse me slightly, Paul. Are you saying QE is "printing money"? But buying back bonds is just exchanging one government promissory piece of paper (the bond) for another (a pound note) [OK, their electrical equivalent these days]. You're just changing asset classes, there is no effective "money" change in the system. All this has done is to add some liquidity and propped up asset prices (as the money has to go somewhere if it's not in bonds). All very worthy - and probably necessary at the time of the crash. But not very meaningful now.

I've often wondered why reporters never 'doorstep' Mervyn King, after all if its good enough for politicians and Wayne Rooney then what makes him so special? Maybe he is 'off limits' and ordinarily that would be fair enough, everyone is entitled to their privacy.
These are not ordinary times though.
The decisions he takes have more of an impact on our lives than most government ministers yet he is completely unaccountable in any meaningful sense. Considering his increasingly vague remit it genuinely is in the public interest to get him on the record and answering a few questions.
If he does it, I bet he insists on seeing the questions in advance and that the interview is recorded, not live.

The whole point of QE both here and in the US was to encourage inflation. I don't see how loosening monetary policy and printing more money is going to do anything other than make a bad situation worse. Do they want to push people over the edge financially?
Don't forget we won't be able to rack up the levels of personal debt we did during the boom years, so the economy will be more dependent on us spending what we earn as opposed to what we borrow. You'd think, that being the case they would be mindful to preserve the level of people's wages compared to the cost of living.

And finally, interest rates are 0.5%, if they do start to rise it will only be 0.25% a time, we are not talking about them jumping from 7% to 10% are we. Are they saying that rates can never go up again? If as forecast inflation drops below target in 2 or 3 years are we living with a 0.5% base rate indefinitely?

Maybe this is why Mr King is shy when it comes to interviews. His increasingly contradictory forecasts and definitions of the word 'temporary' would be shot full of holes by any half decent journalist.

Great blog,Paul,except proper rugby has neither flank forwards nor puny centres

The last time I experienced real inflation wages and benefits went up at the same time so no-one really felt the impact for all was relative.

The fact that the country became uncompetitive so lost hundreds of thousands of jobs to more cost effective countries was not really widely understood by people at the time. To be told that inflation comes down is disingenous. It remains and is compounded by a further degree of increase year on year although it may be lower or higher.

This time the effect on a large proportion of society could be horrendous. It is the essentials that are rising fastest and the poorer people in society who will hurt the most.

From experience it is the long drawn out austerity which will affect older people with a small amount of savings and those on lower to moderate incomes whose big outlay is rising housing costs and food.

Seeing what little spending power you have being squeezed away gradually over a period of years could force those who are just about totally independent of the state being pushed down that road.

That is what inflation will do when there is no interest on savings to pay for essentials and emergencies that pensions do not cover and the rainy day money cannot fill the gap for it never stops raining.

We have already had over two years of this and it is really starting to take its toll. That was before the level of inflation really took off.
Those new specs you need will have to be put off and a visit to the dentist is a crisis. What happens if the central heating boiler goes on the blink doesn't bear thinking about.

This is what the less well off are experiencing now but it will only be when it creeps up to the middle classes who've never experienced austerity and inflation together that we will really hear the howls of protest.

High inflation is the straw that could break the camels back.

@13
Don't forget we won't be able to rack up the levels of personal debt we did during the boom years, so the economy will be more dependent on us spending what we earn as opposed to what we borrow.

The whole modern neo-liberal economy is based around bringing forward future profits, and is therefore unsustainable.

Personal debt is about spending future income now. Rising house prices was about removing equity from the value of your house that will have to be paid by your children. Financialisation in the City has led to practices such as the securitisation of future income flows - in order to release those future income flows as profits today.

This led to further bubble practices like selling mortgages to those who could never pay for it - releasing commission payments that are another form of transferring tomorrow's income to today.

None of this is or will be sustainable, so the question is - what happens to our own neo-liberal economy as this unwinds?

Yet house prices are still more or less at their bubble levels... with tame 大象传媒 presenters towing the line of estate agents and the council of mortgage lenders that it is all the fault of the banks.

No, it is the fault of greedy sellers and estate agents wanting ludicrous bubble prices for a house. Hence why the average age of a first-time buyer in the UK is now a staggering 37 years of age. 37!!!

This country is simply too expensive to live in. I suspect that the vast majority of the million and a half houses for sale today in the UK will still be for sale 3 or 4 years from now.

People can't afford to pay such asking prices and with the cost of food, fuel, etc, rising rapidly week by week there appears to be a denial amongst the house sellers and co.

What a pathetic country we have become.

The great irony in all this is that if housing costs had been included in the CPI from the begining the deflationary effect of cheaper consumer goods from China in the boom would have been offset by the massive rising costs in the purchase of housing assets. This would have caused higher interest rates at the time when they were needed.

Similarly the reverse would now be happening as house price values shrink in the absence of people prepared to buy.

This just goes to show that there is no future in deceit.

The thing which concerns me the most at the moment is the rising value of sterling against the US dollar. We are now around US$1.60 which is ten cents above where it needs to be. I am not seeing any price reductions to do with this situation but I do know that if this becomes a trend you can forget all about an export led recovery.

My belief is that the markets have priced an interest rate rise into sterling. We just need to get on with it.

I can appreciate that we are between a rock and a hard place but to do nothing is not a strategy.

If you think the 4% looks bad just wait until the next growth figures come out.

The same manipulative dynamic applies.

It has taken a while since 2008 but one does get the feeling that market forces and social forces as well this time are converging and the resultant storm cloud is now becomming visible and is somewhat menacing looking in appearance.

@tawse57
Hence why the average age of a first-time buyer in the UK is now a staggering 37 years of age. 37!!!

Isn't this more or less normal for 30 years ago? Aren't we just on our way back to normality? (Still a bit of a way to go yet)

The idea that it's a right for everybody to be able to buy a house in your early twenties was never going to be sustainable. On the radio at lunchtime today there was a quote that there were n million people who had the aspiration to buy a house but couldn't. Well I have an aspiration to buy a gold-plated Bentley, but that doesn't mean that the financial system should be fixed to enable me to do it. Not actually true, of course but you see what I mean, as did one commentator who pointed out the same in a less flamboyant way.

'What's the point of a target?

A target, as the NHS 'whoops' aspect of the subsequent posting and 'topic for tonight' clearly highlights, is a mechanism by which unaccountable market rate failures can accrue even more money above their already vast pay, perks and pensions if they do what they are supposed to do anyway and it all by some quirk of fate works out.

If it doesn't, they just don't get the bonus. Or do. Anyway (see box-ticking compo clauses).

The house price multiples is what is screwed. For 100 years the price of an average house in the UK was 3.5 times the average wage.

The multiple now in many parts of the country is 7, 8, 9 and even 10 times the average salary.

House prices need to come down. This house price madness so damages the UK economy.

@JunkkMale
I presume you would agree that everyone is entitled to a home. All homes belong to someone. If you don't own your home then you are paying rent to someone else. The value of a house is a multiple (the discount rate) of the annual rental value. Therefore if you can afford the rent you should be able to afford to buy. The only reason to own land and capital goods should be use them for living and working. The rest is exploitation.

gastrogeorge:

"On the radio at lunchtime today there was a quote that there were n million people who had the aspiration to buy a house but couldn't. Well I have an aspiration to buy a gold-plated Bentley, but that doesn't mean that the financial system should be fixed to enable me to do it"

I can see your point, but I don't think it's that simple. Imagine you are 20. Everyone who is 40 or above has been allowed to buy a car because more than enough cars were made. Then someone says "there are too many cars (NIMBY), we must regulate their production, thus making the existing stock far more expensive and only allowing the production of new cars from bits of old cars (brownfield)". So you are 20, you start earning a wage but cannot afford a car, so rent from 40+ for years. All the while they are nearing retirement having as a generation made woeful provision and you will have to pay for that too.

I don't think that sounds fair. Let's build more houses. Policy isn't symmetric. We've had years of encouraging smaller living units (women into work, easier divorce etc). That's fine, but you have to have a house building policy that mirrors this, and with it stop people gaming the system with buy-to-let.

@Ben

If I remember correctly it was the economist Kate Barker who had a similar policy - house prices are rising because there is an imbalance between supply and demand, so we must supply more houses. The problem is that this was a bubble. People wanted to buy houses because it was a one-way bet - it was the lower-middle class pension, prices would inexorably rise - feeding more demand for what people saw as free money.

This is unsustainable. It was these people who were gaming the system, not the buy-to-letters.

Normality has to be restored, which is what we are tending towards right now. It's disappointing for a lot of people, but people have to be realistic.

Big society bank ... beef it up ... give it plenty of powers
British capital ... is it used in the best interests of the UK economy by UK and other banks in the UK?
Time for a 'strategic UK command economy'?
Time to introduce the judicious application of 'selective modern protectionism'
We need leadership ... we need an extraordinarily radical and bold UK budget next month.
BOE type failure is not now an option ... this is all very serious indeed!

26 Sure "we" "need" this that and a bit of the other nautonier...so it`s shame we don`t own or run UKplc...and that the global financiers who do own us don`t give a stuff about us!

#14 camembert: Yes RL was proper rugby once, and I played it, but it is now a flat battering match with no complexity and meanwhile those namby pamby RU ppl discovered weight training and how to tackle. I am sorry to say it but I can barely watch RL at the highest level now - yet RU internationals are poetry in motion. Sorry for not saying "union" though - as it used to infuriate me when the Guardian had a RUGBY and a RUGBY LEAGUE section.

@gastrogeorge

"People wanted to buy houses because it was a one-way bet - it was the lower-middle class pension, prices would inexorably rise - feeding more demand for what people saw as free money."

The speculators may have been making the capital gains but it was the banks who collect most of the rent via interest on mortgages.

Kate Barker's analysis was all wrong on the causes of house price inflation just as she was wrong on trying to push forward the ill-fated Planning Gain Supplement. The US, Spain and Ireland experienced similar house/land price bubbles without any (building) supply constraints. It's the availability of credit and the absence of tax on land values which causes the bubbles.

How about asking the central bankers to explain economic crises?

Without a clear understanding of how the capitalist economy works & why there are crises, how can they know what action, if any, to take?

'23. At 8:45pm on 15 Feb 2011, Carol Wilcox'

Accepting, as I do, that I (as have, do and will many others, less po-faced than some) drifted a tad more into 'related' territory to use the title as a means of questioning the reward structure in many sectors, public and private, for (near never) accurate forecasting, I am not sure what the point is in your response to what I wrote.

If the source of inflation is rising world commodity prices, there is nothing we can do about it with interest rates. High interest rates only combat inflation by removing excess liquidity from the economy, and at the moment we are still in liquidity trap territory, which higher interest rates would worsen. The government spending cuts will make that even worse of course.

Of course, lower interest rates are allowing the banks do do very well out of the rest of society. Here's a good little propaganda film for mobey reform:

@29, @32

Exactly.

Listening to DeAnne Julius on Newsnight last night spouting orthodox nostrums was expected but still disappointing. The orthodox hawks seem to want to raise interest rates not even because we need to, but to pre-empt the possibility that we might need to.

OT. Paul- were you listening to Peston interviewing Pickles on the Today program this morning. He introduced his piece describing Pickles as a former Marxist who might therefore believe in "creative destruction". The implication (at least to the uninformed) being that Marxism = loony leftism = destruction. But Marx used the term "creative destruction" to describe the capitalist system, not his view of a socialist system.

Does Peston know this? And in any case, why did he attempt this misleading analogy?

Stating that they cannot raise rates for fear of quashing the fragile economy is pure FUD.

The people benefitting from QE are saying this as the printing of the funny money is a like winning the lotto every day.

It is just another example of how the banksters and their cronies in the central banks are still playing and manipulating the population for their own ends.

@30 I quite agree with you. There are different kinds of economic crisis, and this one is strictly financial. I also think that Mervyn King understands its cause perfectly well.

/blogs/thereporters/robertpeston/2010/10/mervyn_king_says_banking_must.html

/blogs/newsnight/paulmason/2010/10/post_1.html

The trouble is that the public and politicians aren't economically literate enough to understand the issues. (Most people prefer to think in sound-bites, or perhaps thought-bites.)

My last MP sat on the parliamentary finance/banking committee and (at my own exoense) I sent him a copy of Galbraith's "Short History of Financial Euphoria". Here are some reviews:



Galbrath's work in general is very good at describing and explaining different strands of economic thinking in non-technical language and a non-ideological way. He had a rather modest farming background, but also was part of FDR's wartime administration. This means that he was always much more aware of the practical effects of policy than those who spent their lives theorising in academia or elsewhere.

Modern fractional reserve banking has accentuated a trend in crises which goes back for hundreds of years if not longer.

In the modern economy, asset prices have had a very weak connection to the value of goods and services produced, but a strong connection to the ability of the banking and finance sector to create money from nowhere as debt secured upon the self-same assets and their inflating prices. To quote Galbraith: "All financial innovation involves the creation of debt.......All crises have involved debt that ... has become dangerously out of scale in relation to the underlying means of payment."

#28

Agree, you only have to look at 'uncontested scrums' in RL...what is all that about?

However, the game aside as a general spectator spectacle and snap shot of something good that is increasingly being eroded in this country (average attendance 791 at cougar park), a trip to watch 2nd div keighley Cougars take on 'Rochdale' or similar in the 'Northern Rail Cup' is still poetry in social cohesion motion in an increasingly surreal kind of way. Those 791 fans look increasingly lonely in a stadium built for 26,000.

If you do go I suggest you dont mention RU though (will need to include that on the 大象传媒 risk assessment form)

33 George...in the USA they think Soros is a marxist...and as every barmy economic political and social idea (that has been inflicted on us since we went bankrupt in the Second World War)comes from the USA...it`s not entirely surprising that Pickles was asked that stupid question.

Pickles is a bailiff/asset stripper for global capitalism/Wall Street...and if that`s marxism then perhaps Soros IS a a marxist!?

Sorry if that was too much of an "oop an under" for you Paul....I will retire to my early bath and lick my wounds!

@34 No and yes. Raising interest rates would make the economy worse, but the big banks, all rescued at public expense, are benefiting from low rates. They are being allowed to levy a large private tax on much economic activity. Only proper money and banking reform, preferably bypassing the existing banks will change this. And that won't happen under the present government.

In fact, whenever an organisation or individual, be it a bank, estate agent, lawyer or whoever, is in a position to levy a percentage, rather than charge a fee, that is a private tax. The rates are rarely competitive but usually fixed by cartel or oligopoly. Many of the people who are vociferously opposed to government taxation do very well out of these private levies.

Surely 'creative destruction' although originating from Marx is more generally associated with Schumpeter. I thought Peston was being far too cosy with Pickles who will surely turn out to be one of the biggest hate figures, rivalling Blair and Thatcher.

gastrogeorge - agreed it was lax credit that sowed the seeds of the crisis and Ireland built lots of houses. However, we need more houses available. This can be achieved by building more and making buy to let very unattractive. Plus reform banking etc.

It might not have stopped the crisis but if we started building now it would sure help out a lot of young people who don't want to sign up to a lifetime of debt for a hovel. If nothing else it will accelerate the inevitable drop in house prices so we can hit bottom and get on with life. And create jobs in the meantime that have a lasting legacy, unlike lots of public sector desk jobs.

@Ben

However, we need more houses available.

I'm open to argument, but can you justify that statement in non-aspirational terms?

We certainly need more social housing, because the only place where there is measurably a waiting list is for council housing.

#35 Sasha Clarkson

"There are different kinds of economic crisis, and this one is strictly financial."

Although I very much disagree with this statement, I at least recognise that you have a genuine interest in searching for an economic explanation for the economic crises - as opposed to much of the superfluous nonsense that gets posted.

Put simply, the Marxist perspective looks at the whole circuit of capital - M C M' - and although crises can take different forms finance cannot be divorced from production.

If the true productive rate of profit was high, capital would be put to productive uses (real investment).
But because the true rate of profit is low (or even negative), profits have been artifically inflated by asset prices (e.g. share, property).
This has been going on for a long time & probably dates back to the dollar being decoupled from gold.

But ever-increasing asset prices cannot actually go on for ever - people can't afford their mortgages for one thing - hence the crash of 2008 which has been patched-up by more token money being printed.

The point is the origin lies in the low rate of productive profit.

Sam William's blog provides a good Marxist critique of Keynesians:

@42 duvinrouge

In this crisis it has also been notable that the economy has become more based on bringing future spending (and profits) forwards to today.

Private debt = tomorrow's spending today
Housing bubble and equity release = stealing money form our children
Financialisation in the City has led to, for example, securitisation of future income flows = releasing tomorrow's profits today

As we have found, this is unsustainable.

As you say, companies are sitting on vast piles of cash and don't wish to invest (so much for the public sector "crowding out" investment). For them it has been easier to extract tomorrow's profits today than to invest in today.

@gastrogeorge: "Housing bubble and equity release = stealing money form our children"

Can you explain that one? Are you saying that children should expect to inherit landed property free from encumbrence when the uplift in value was not earned by their parents, let alone themselves.

@gastrogeorge, would you expect the new car your father bought before he died and you inherited to be worth more than what he paid for it?

#43 gastrogeorge

Agreed.
It's called fictitious capital.
Capital put to no productive use but artifically inflates reported profit rates & hides the true low/negative rate of profit.

Loren Goldner has a good understanding of fictitious capital:

@44 Carol

Are you saying that children should expect to inherit landed property free from encumbrence when the uplift in value was not earned by their parents, let alone themselves.

No absolutely not. I mean children metaphorically, not literally.

In an ideal world there is no reason why house price values should rise more than inflation. However history has taught the middle classes that house prices have done better than that - which was one reason for the start of our national obsession with house owning.

In the recent housing bubble, prices rose even more. This favours existing owners - who have used their house as a bank in order to "release" what they see as free money. But this is at the expense of future buyers ("our children"). They (unless house prices crash) will be paying more than they should need to until house prices revert to the historical trend.

This is a money transfer from the future to now.

@gastrogeorge, most of the value of houses is land value (location). Extract all land rent for public benefit and the capital price of landed property would sink to the value of the bricks and mortar.