Posts Tagged ‘Bank of England’

Bank of England lowers interest rates

August 4, 2016

The Bank of England has lowered interest rates from 0.5% to 0.25%. This is a historic low, historic in that interest rates has never been this low in the 300 year history of the Bank of England.

Conventional wisdom has it that this will stimulate the economy.  Conventional wisdom is wrong.

I can forecast the weather. The weather will do whatever the weather desires to do. If I get it badly wrong, I am made to look a fool.

If the Chairman of the Fed makes s crass remark, markets will go into free fall.

During the EU referendum, we had economists talking down the economy, idiot Chancellor of the Exchequer  doing the same, the Treasury publishing a dodgy dossier, the IMF, they were all at it.  No surprise then, businesses  confidence low.

When a business decides to invest, they do so on the basis the economy is growing, in effect, they are guessing other businesses are thinking the same way, that they too think the economy will grow, in other words, they are all second guessing each other.

These decisions are not predicated on interest rates being low, or wages being low, these are secondary benefits, if a decision to invest is made, then the cheaper the money borrowed the better, the cheaper the wages the better.

If the Bank of England drops interest rates, this sends a signal that the economy does not look too good. If wages are kept low, less money to spend.

Thus the exact opposite impact to that desired.

A game.  Three people. Each can put ten pounds in a pot. If all put ten pounds in the pot, win one hundred pounds. If one does not put ten pound in the pot, all lose their stake.

If I put ten pounds in I have to be sure the other players will do the same. If I have doubt, then I play safe, and do not put ten pounds in the pot. The other two players in turn are are reliant upon my decisions and each other.

For a successful outcome, each player has to be certain of what the other players intend to do.

There is no correct answer or logical solution.There is no way of knowing what the other player will do.  It simply illustrates how the economy functions.  Each layer is dependent upon every other player.

The Bank of England has now backed itself into a corner. It is like a gunman with one round of ammunition left. The Bank of England has no room for manoeuvre. It has only one shot left, drop interest  rates to zero. What then?

There is also to be more discredited quantitative easing. Good for property bubbles, inflating stock markets, bonuses for greedy bankers, but very little leaks down into the real economy.

Far better, hand money to people on benefits. They go out and spend in the real economy because they are desperate.

Try removing the discredited Bedroom Tax.

But at least UK has a Central Bank. Countries in the eurozone do not even have that room to manoeuvre.

John McDonnell has correctly called for infrastructure investment. But it has to be appropriate spending. That excludes expansion of London City Airport, additional runways at Heathrow and Gatwick, Hinkley Point C and HS2 gravy train.

It has to be investment in green infrastructure, investment in publicly owned railways creation of community owned and controlled local energy grids, high sped internet.

We need to create community owned local area grids. Into which feed renewables guaranteed a fair price. Consumers would pay a  fair price. Any surplus energy would be fed to other local are grids via a publicly owned National Grid.  Any monetary surplus would either be fed back into the local grid or used to finance community projects, watering of the collaborative commons.

At a stroke, these local grids would put out of businesses the Big Six.

In parallel, the local energy grid, could create a local high speed Gbit per second network.

This high speed network used for smart metering, load shedding to match the variable outputs from  renewables, sun does not shine at night, wind does not always blow.

To put these high speeds in context, attempting to download Bowie Prom to tablet over wifi, connection speed 65 Mb/second and estimated hour for 1.3 Gbytes. On a 10 Gbit per second network somewhere around 10 to 15 seconds. An 8 GB game downloads in two minutes.

These infrastructure programmes are long term, do not lead to immediate injection of money into the economy, but what they do do, is change the perception of where the economy is heading.  And thus change the perception of the players of our game.

 

Occupy were right says senior Bank of England banker

October 31, 2012

Anyone who thinks the occupation outside St Paul’s had no impact should think again. Occupy were morally and intellectually right says Andrew Haldane, a member of the Bank of England financial policy committee.

Capitalism is Crisis

Capitalism is Crisis

Andrew Haldane, a member of the Bank’s financial policy committee, said the Occupy movement was correct in its attack on the international financial system.

The Occupy movement sprang up last year and staged significant demonstrations in both the City of London and New York, protesting about the unequal distribution of wealth and the influence of the financial services industry. Members of the movement occupied the grounds of St Paul’s and remained camped there for more than three months until police evicted them in February last year.

“Occupy has been successful in its efforts to popularise the problems of the global financial system for one very simple reason; they are right,” Mr Haldane said last night. Mr Haldane, the Bank’s executive director for financial stability, was speaking to Occupy Economics, an offshoot of the Occupy movement, at an event in central London.
In a speech entitled Socially Useful Banking, he said the protesters had helped bring about a “reformation” in financial services and the way they are regulated.

Partly because of the protests, he suggested, both bank executives and policymakers were persuaded that banks must behave in a more moral way, and take greater account of inequality in wider society.

“Occupy’s voice has been both loud and persuasive and policymakers have listened and are acting,” he said. “In fact, I want to argue that we are in the early stages of a reformation of finance, a reformation which Occupy has helped stir.”

The protesters had been right about bankers’ behaviour and the consequences of extremely high salaries and bonuses in the financial sector and other industries, he said.

“I do not just mean right in a moral sense,” he added.

“It is the analytical, every bit as much as the moral, ground that Occupy has taken. For the hard-headed facts suggest that, at the heart of the global financial crisis, were — and are — problems of deep and rising inequality.”

Mr Haldane concluded by telling the activists that they had helped bring about nothing less than a new financial order.

“If I am right and a new leaf is being turned, then Occupy will have played a key role in this fledgling financial reformation,” he said.

“You have put the arguments. You have helped win the debate.”

In the text of his speech distributed by the Bank last night, Mr Haldane made no reference to the techniques employed by the Occupy protesters.

The occupation of St Paul’s last year was controversial, and led to claims that the protesters were despoiling the cathedral’s grounds.

The protest ended after the Corporation of London won a legal order allowing the activists to be evicted.

Earlier this month, members of the group marked the first anniversary of the St Paul’s protest by entering the cathedral during a service and chaining themselves to the pulpit.

First published in The Telegraph.