How come the 1.5% interest rate cut?
November 6th, 2008Is it really credible that the Monetary Policy Committe which in September was even contemplating raising interest rates should just two months later decide on the biggest cut in interest rates for 25 years, bringing their level to the lowest since the 1950s? Either they suffered a change of mind so dramatic as to call into doubt any confidence in their judgement in future, or they were leaned on very heavily. The latter seems more likely, the more so since the simultaneous EDM calling on the Government to take drastic, even legislative, action to compel the banks to pass on the cut in full to hard-pressed small businesses and home-owners fits well the scenario of a carefully orchestrated move to kick the real economy into an earlier recovery whatever the resistance from the MPC or the banks.
If so, it is certainly the right policy, and should be pushed further in the next few months if necessary to a level of 1% or even lower. But it does raise rather starkly what is the point of having an independent Monetary Policy Committee created by Gordon Brown in 1997 and widely feted as New Labour’s greatest achievement, if it is such an impediment when it faces its first real test that it has to be overridden from above and foced to act obviously contrary to its own instincts? Sadly, the 1997 financial reforms are beginning to look a little ragged, with the Financial Services Authority, also created then, found to be ‘asleep on the job’ when it failed to see the Northern Rock collapse coming, and now the MPC treated as a mere political bauble when the going gets tough. So much for setting it free from political interference. Of course there is a good case for taking the power to enforce the popular will in matters of the highest strategic importance, as in this case, but it should be acclaimed for what it is – a return to democratic control over the nation’s key decisions – not undertaken by stealth to conceal the U-turn of which we should be proud.
November 7th, 2008 at 1:51 am
These are sensible points, but I think it’s important to remember that, during times of economic stability, the Bank’s independence represents a further stabilising influence, ebbing and flowing with the earning/spending cycle, rather than big politics. Under stability, independence contributes to a virtuous cycle.
Of course, now this is different. Can permanent rules be made to alter control of rates appropriately to the circumstances?
November 9th, 2008 at 11:25 am
The problem of course interest rates are low now, where will they be in the future. Lets wait and see how Banks are going to make those massive profits, and boy they will try, who will pay for it.
Money makes the world go around, if you have none then I suspect people will want to get off this world.
Hence Labour have asked to have people trained at job centers to see if they can spot potential suicide cases. what will they look out for the rope.
November 15th, 2008 at 3:45 pm
All the g8 central banks are all privately owned.
Including the Bank of England
The Federal Reserve Bank organisation is the centre of this cartel and controls the US money supply.
The US ‘government’ borrows the money off the Fedreal Reserve Bank at interest instantly creating debt.
Until true governments for and on behalf of the people take control of their own money supply we will all be at the mercy of the international banking cartels and their engineered crises.