Yesterday’s dramatic Bank of England 1.5% rate cut was an extraordinary admission of analytical failure. The Monetary Policy Committee of orthodox economists (with Danny Blanchflower the honourable exception) is well behind the curve. While it is tiresome to beat one’s own drum, I am obliged to point out that on the 12th July I wrote a short piece for the Guardian beseeching the Bank of England not to “sacrifice the economy on the cross of inflation targeting”. Today’s numbers from the Insolvency Service reveal that more than 4,000 companies have been sacrificed. Company insolvencies have risen by 26.3% over a year ago, and by 10% over the last quarter. This represents the loss of a great deal of productive activity, and of thousands of jobs.
Archive for the ‘interest rates’ Category
The BoE has lost control
The dagger that burst the bubble
The graph below - courtesy of the International Herald Tribune - does not look like a dagger - but a dagger is what it is when pointed at a vast bubble of credit. Unfortunately there are central banks like the Bank of England and the Bank of Hungary that have not blunted their daggers, or indeed are still sharpening the dagger.
Keynes and taxpayers’ largesse
I wrote a piece on Keynes and monetary policy for the Standard, which appeared on Thursday, 23rd October, 2008. You can read it below. Today a group of monetarist economists , supported by a range of bankers, have written to the Telegraph objecting to a public works programme to help economic recovery. They are right that excessive liabilities on the government’s balance sheet could cause interest rates to rise, but government spending has a multiplier effect, and very quickly pays for itself. They seem unaware of this economic fact. There is some overlap between our views on monetary policy as an effective tool, but I disagree with their view that UK government spending has been excessive.
Central Bankers Add to the Economic Malaise…
22nd October, 2008.
I am dictating this piece down the phone from Budapest in Hungary where I have just arrived to deliver a lecture to the Ybl Club. My hosts were in a state of shock on arrival because the central bank of Hungary has just raised interest rates from 8.5% to 11.5%…
Chasing the money-changers from the temple
11th October, 2008
The sin of usury, diluted by Eck and the Fuggers banking family in the 1500s, ceased to be condemned as a sin after John Calvin (pictured) gave a license to the charging of interest. Usury as a sin should be brought back now, I argue in the columns of the Guardian today.
Blinded by Dogma… in the UK Guardian
9th October, 2008. Central banks’ obsession with inflation is stopping them from tackling a far more pressing threat.
Rates: the BoE is not independent - it has a political mandate
Both the British Chancellor, Alastair Darling and the shadow Chancellor, George Osborne, have been on the radio this morning, resisting the idea that interest rates are political. Instead they have argued, vehemently, that the Bank of England is independent, and that the Bank must decide whether or not to lower interest rates.
Interest rates, Keynes and the longevity of the rentier
The Prime Minister, Gordon Brown, speaking on Radio 4’s flagship current affairs programme this morning, repeated something he says regularly: that ‘interest rates are low’ and that his government, through the Bank of England, kept them low. The question the BBC should have asked is this: if interest rates are low, and have been so, why on earth are people/companies/banks having such a hard time paying debts? Surely the Credit Crunch crunched, because debts - of banks in particular - became both too large, too expensive, and unpayable? Do small businessmen/women pay low rates on investments? Mortgages? Credit Cards? Car loans? Does the PM live/work on another planet?
Ratcheting up the interest rate rack of torture.
In this big bad world of the Credit Crunch, powerful central bankers - civil servants all - have bent over backwards to help powerful and rich private bankers.
On one day, ‘debtonation day’, central bankers in Europe and the US pumped an eye-watering $150 billion into the financial system, to keep big banks afloat. According to Bloomberg, the US’s Federal reserve has ‘cycled $2.58 trillion through U.S. money markets since December’. (Bloomberg 8th August, 2008).
What have Putin, Hu & Greenspan in common?
Have been listening to debates about the conflict in Georgia over the week-end. There has been much wailing and gnashing of teeth about Putin’s disregard for democracy. In a similar vein, western commentary about President Hu Jintao’s Olympic Games is never complete without some tut-tutting about democracy and human rights in China.
Yet these leaders have in reality much in common with Alan Greenspan, former chairman of t he US Federal Reserve, who is held in the greatest esteem by western commentators. He came to London recently to promote his book, and I 
attended one of his sessions at Chatham House. The deference from the British political and media establishment was nauseating. The Prime Minister had already honoured him with a knighthood, so deferential is he. Yet this is Greenspan on democracy, as expounded in the columns of the Financial Times last week:
“It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of 
Adam Smith’s invisible hand) quietly displacing government control of economic affairs. Since early this decade, central banks have had to cede control of long-term interest rates to global market forces”
Ann Pettifor is a political economist and author of 'The Coming First World Debt Crisis' (Palgrave, 2006) and editor of 'The Real World Economic Outlook' (Palgrave, 2003). She is a fellow of the