Having looked carefully at the documentation of the BoE that discusses the policy of QE, I have been somewhat suprised to find that there is absolutely detail whatsoever on the policy. To give a flavour of the degree of lack of information, there is absolutely no discussion of how much money will actually be created (printed), which would seem to be an absolute minimum of information that might be expected.
As such, I sent some detailed questions to the BoE (see note 1) which were essentially asking them to explain exactly what they are doing. The full reply from the BoE is included in Note 2 at the end of this post. The reply completely fails to answer any of the questions that were asked. There is, however, a suggestion that there will be some kind of further policy disclosure in the future:
The Bank has not published any information on quantitative easing since the latest Minutes. An exchange of letters between the Bank's Governor and the Chancellor of the Exchequer containing further information on the subject is due to be published this week.At this stage, we have no idea what such a letter might include, but I suspect that the letters will not include answers to questions of the detail of the policy. Such details are not normally found in letters of this kind, but rather in policy documentation. It may be that the 'letters' mentioned in the BoE reply will include the answers to my questions, but I very much doubt it.
The central question remains as to why it is that the BoE is not publishing a full policy document that details exactly what it is about to undertake. It is perfectly normal practice for policy documents to be provided to explain and detail major shifts in policy. An equal concern is that the method of reporting the activities proposed by the BoE is to report through the minutes of the BoE MPC. This is not what the minutes are there for, and is an inadequate method of reporting such a radical policy with such potential for profound effects on the economy.
In one sense, I believe that we have made a small amount of progress in gaining this reply. It appears to confirm that the two documents that are referred to in the BoE reply (see notes) are the only explanation of the policy that the BoE is actually about to undertake. This is really quite extraordinary.
Overall, this is a profoundly disturbing situation. This is perhaps the most radical economic policy that has ever been undertaken in the UK, and there is absolutely no detail on the policy whatsoever available to either the public or the media. I might summarise the situation as being that the only people who know the economic policy of the the government and Bank of England's are the Bank of England and the government. I do not believe that this is in any way an acceptable situation, as this means that the current economic policy is not being subjected to any external oversight whatsoever.
In light of this, I have sent another letter to the BoE requesting that they answer the questions that were actually asked. The new letter can be found in note 4. As before, I will inform you of any answer that may be returned. I considered waiting for the publication of the letters between the Bank's Governor and the Chancellor of the Exchequer, but I do not want to delay on this when the BoE is so close to enacting the policy.
In a previous post I suggested that individuals might wish to write to their local MPs. I will repeat that suggestion, and a proposed letter and how to find your MP's contact details can be found in note 3. It might also be possible that some of the previous letters written to MPs have helped put pressure on the government and BoE to publish the letters (at least one MP responded by saying they would start to ask questions), and I suspect that is why my letter resulted in a reply from the BoE. As such, I hope that further pressure might help to bring some brighter light to bear on the subject.
Note 1: The questions I asked in my letter to the BoE:
- What quantity of money will the Bank of England be adding to base money in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
- In what form are you planning to add the money? This is the question of which assets the Bank of England will buy as part of the QE operations? Can you give a projected split / proportion of which type of assets will be purchased in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
- Can you give a clear description of how the split/proportion of assets to be purchased under QE has been determined?
- If you are unable to answer questions 1,2, & 3 can you confirm that this is because you have no firm plans for what you will be undertaking in relation to quantitative easing? If there are no plans, can you give a clear description of your criteria for the decision making that you will use in determining how much you will purchase of which kind of asset, under what circumstances?
- Can you give a clear description of the method you will use to purchase each asset class? In particular will you undertake any action to purchase gilts, or an other form of UK government bonds, directly through the UK Government Debt Office auction process or any other direct means?
- In a recent press conference Mervyn King suggested that the reporting of QE would be undertaken in the minutes of the MPC. Can you confirm in detail exactly what information will be provided in the minutes?
- The MPC minutes are not (I believe) intended as a reporting tool for activity such as QE. As such, why is the policy and action of QE not being reported in a formal publication dedicated to this policy? In particular, QE is widely seen as a radical policy, which Mervyn King describes as 'unconventional'. Under such circumstances, with significant implications for the operations of markets and the broader economy, why is no formal and transparent method of reporting being implemented?
You recently contacted the Bank of England with regard to a number of questions concerning quantitative easing based around the degree to which the monetary base might be expanded under such a policy, and the types of assets that might be purchased. You also asked whether reporting of any use of quantitative easing in the United Kingdom would be recorded in the Minutes of the Monetary Policy Committee (MPC).
The most recent set of MPC Minutes, published 18 February and covering the meeting of 4 & 5 February, paragraphs 35 to 39, deal explicitly with the Committee’s most recent discussion of the potential use of quantitative easing. These paragraphs are set out below, but concluded with a unanimous request by the MPC "that the Governor should write on its behalf to the Chancellor to seek authority to conduct purchases of government and other securities, financed by the creation of central bank money using the APF."
http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2009/mpc0902.pdf
Monetary Policy Committee Meeting - 4 & 5 February 2009
35 To the extent that further cuts in Bank Rate could not inject sufficient stimulus, the Committee would need to use alternative policy instruments. The MPC’s ability to influence the value of nominal spending and inflation in the economy ultimately came from the Bank of England’s role as the monopoly supplier of sterling central bank money: banknotes and reserves held by the banking system at the Bank. The MPC had up until now influenced the economy by changing the interest rate – currently Bank Rate – at which those reserves were remunerated. The Bank had supplied the amount of central bank money demanded at that level of Bank Rate, mostly by purchasing and selling government securities.
36 But the MPC could also influence the economy by controlling the quantity of that central bank money directly. Increasing the supply of central bank money in the economy through additional purchases of government securities should raise private sector spending, both directly (through the increase in money holdings of private sector asset sellers) and indirectly (through an expansion by banks of the supply of credit).
37 In the present environment, where particular credit markets were not functioning normally, it was appropriate to consider increasing the supply of central bank money by more unconventional types of asset purchases. Buying private sector assets in such markets, including commercial paper and corporate bonds, would help to stimulate the economy further by improving liquidity in the markets for these securities. In turn, that would encourage the flow of credit to companies.
38 The Bank, rather than the MPC, had already been given the authority by the Chancellor to conduct such purchases, via the Asset Purchase Facility (APF), although in this case financed by the issuance of Treasury Bills. The APF was a specially created fund, indemnified by the Treasury. Those purchases were aimed at improving conditions in the specific credit markets rather than achieving the inflation target. Nevertheless, these measures might help to change banks’ behaviour and boost the broad supply of money, which could provide a material stimulus to nominal spending.
39 It seemed likely that the Committee would want to consider a range of asset purchases in due course. That would strengthen the Committee’s ability to meet the inflation target. Therefore the Committee unanimously agreed that the Governor should write on its behalf to the Chancellor to seek authority to conduct purchases of government and other securities, financed by the creation of central bank money using the APF. It would be crucial for the Chancellor to ensure that the Government’s debt management policy would be consistent with the monetary policy actions of the MPC. The Committee recognised that the impact of such operations was both uncertain and subject to time lags. In communicating the MPC’s actions, it would be important to stress that such measures were being considered in order to meet the inflation target. The publication of the February Inflation Report would provide an opportunity to emphasise this.
The Governor of the Bank also answered questions on the subject at February's Inflation Report press conference a week earlier - a transcript is available on the Bank's website:
http://www.bankofengland.co.uk/publications/inflationreport/conf090211.pdf
The Bank has not published any information on quantitative easing since the latest Minutes. An exchange of letters between the Bank's Governor and the Chancellor of the Exchequer containing further information on the subject is due to be published this week.
Note 3:Thanks to those who have already sent letters, and here is a suggested letter format for those who have not already done so. You can find the email address for your local MP here (click on the map for your constituency).
This is is my suggested letter which you can copy and paste, or alternatively write your own version:
-------------------
I am writing as I have very increasing concerns over the recent Bank of England policy to implement quantitative easing. In particular, I am worried about the following:
- There is no policy document that clearly outlines how this policy will operate, what quantity of money will be created, what assets the money will be used to purchase, and what method will be used for the purchases.
- In addition to this Mervyn King has suggested that the method of reporting for Quantitative Easing will be through the MPC minutes. This is not the purpose of the MPC minutes, and there is no requirement for full disclosure of activity in such a method of reporting.
I am very concerned at such opacity in consideration of the fact that the Bank of England will be using money creation to purchase gilts. In this situation the Bank of England will therefore be creating ('printing') money to purchase government debt. This might be seen as government operations being funded by printing money.
Under such circumstances, it would be reasonable to expect the Bank of England to offer a transparent and detailed discussion of the policy as a formal policy document, as well as a formal, full and transparent procedure for reporting their activity.
I would therefore be most grateful if you could, on my behalf, seek to clarify why this process is being undertaken in such an opaque manner, and clarify exactly what the policy will be. I would also be grateful if you could press for a proper method of reporting on the policy of quantitative easing.
------------
Note 4:
Thank you for your reply of 24 February 2009.
Unfortunately, it appears that you have sent me information without having read the questions contained in my last letter. Instead of answering my questions you have pointed me to sources of information that I have already seen, and which do not offer answers to any of my questions. I have written to you because there are no answers to my questions available in your existing documentation.
As such, I will repeat the questions and you will therefore have a second opportunity to answer them. They are as follows (QE = Quantitative Easing):
- What quantity of money will the Bank of England be adding to base money in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
- In what form are you planning to add the money? This is the question of which assets the Bank of England will buy as part of the QE operations? Can you give a projected split / proportion of which type of assets will be purchased in the period March-May, and the period June-August 2009? Please give totals or ranges under consideration, and any projected figures that you are using as the most likely scenario?
- Can you give a clear description of how the split/proportion of assets to be purchased under QE has been determined?
- If you are unable to answer questions 1,2, & 3 can you confirm that this is because you have no firm plans for what you will be undertaking in relation to quantitative easing? If there are no plans, can you give a clear description of your criteria for the decision making that you will use in determining how much you will purchase of which kind of asset, under what circumstances?
- Can you give a clear description of the method you will use to purchase each asset class? In particular will you undertake any action to purchase gilts, or an other form of UK government bonds, directly through the UK Government Debt Office auction process or any other direct means?
- In a recent press conference Mervyn King suggested that the reporting of QE would be undertaken in the minutes of the MPC. Can you confirm in detail exactly what information will be provided in the minutes?
- The MPC minutes are not (I believe) intended as a reporting tool for activity such as QE. As such, why is the policy and action of QE not being reported in a formal publication dedicated to this policy? In particular, QE is widely seen as a radical policy, which Mervyn King describes as 'unconventional'. Under such circumstances, with significant implications for the operations of markets and the broader economy, why is no formal and transparent method of reporting being implemented?
I believe that my questions are quite clear, and quite specific. In my previous letter I asked 'In any reply, please do not refer me to documents that do not answer the specific questions that are being asked.' This is exactly what you have done - you have referred me to documents that do not answer the specific questions.
It may be that you do not have sufficient knowledge to answer the questions that I have asked, but I would think that within your organisation there will be many people who are in a position to answer the questions. I would therefore be grateful if you could forward my questions to such a person who is able to give specific answers to my specific questions. I assume that all of the information to answer my questions will be readily available, as I would expect that a policy as radical as QE will have been fully documented and a clear policy will have been outlined. As such, you just need to direct my questions to a person who has been part of that policy formulation process, and I would expect that they will have all of the answers to hand.
I look forward to the receipt of a full reply, and would like to thank you in advance for your help in gaining answers to each of my specific questions.
Note 5:
Many thanks for all of your kind responses to my last post, which are very encouraging. I was also planning to respond to some of the very interesting comments on deflation, but found the BoE letter in my inbox, so will delay my replies for a little while.
On the Gold Standard/Inflexible Money Supplies versus Fiat Money/Keynesianism and Economic Growth
ReplyDeleteThis comment is on the last post, but I will post it here.
If we want to compare economic growth under the gold standard and a fiat money system, we can look at the figures.
This site has a graph that plots the annual increases in real per capita GDP in the United States over 200 years (the figures are in inflation adjusted 2004 dollars).
http://mjperry.blogspot.com/2009/01/due-to-economic-growth.html
The graph is at the top.
From 1800 to 1904, the average annual increase in US per capita GDP growth was at 1.5%.
From 1900 to 1950 the average rate is about the same (although it conceals the massive takeoff that happened from about 1940).
Again, between 1800 and 1904, real US GDP per capita grew at 1.5% per year. This figure can be called the 19th century benchmark. The growth rate of this period occurred under a gold standard, a largely unregulated banking system (there was even a period of “free banking” in the US, the ideal of modern libertarians), no central bank in the US for most of the period, but a money supply that was often constricted by inadequate growth to match economic activity (the most serious period of this occurred between 1873-1896).
When the US abandoned the gold standard, started using Keynesianism and fiat money, the average per capita growth rate in GDP shot up in the extraordinary economic boom of the post war generation (the author of the site is wholly ignorant of this fact, and attributes the change to “capitalism”). This was the most prosperous period in Western history with all income groups experiencing massive increases in the standard of living.
The graph bears this out.
From 1945 to 1973, US per capita GDP growth was 2.24%.
That is a 49% increase in the rate of per capita GDP growth itself from the 1.5% rate in the Gold Standard era.
And remember these figures are adjusted for inflation: they show real increases in per capita GDP, not nominal ones.
I note that it is a similar story in nearly all other Western economies: Western European per capita GDP grew at an average rate of 4% from 1950-1973. This can be compared with 1% from 1820-1870, and 1.3% from 1870-1913 (all figures from Barry J. Eichengreen, The European Economy Since 1945, p. 17)
In 2008, US per capita GDP was about $42000.
If growth had remained at the 19th century level, it would only have been about $24000.
This is empirical evidence of the superiority of fiat money and Keynesianism: it delivers better and faster growth.
Replies to comments on my post on deflation:
ReplyDeleteLord Keynes:
Thank you for some interesting comments on this post and my previous post on deflation. Regarding your comments against the original post, you make some interesting statements. For example, I think these statements are of particular note:
'An increase in productivity output often cannot happen if your money supply is inadequate'
and
'But what if the money supply is not growing and banks are unable to lend enough to businesses who want to increase productivity?'
What you are effectively saying is that printing money means there is more money to lend, which is true, but the value of that money is reduced so there is no net gain.
When you increase the money supply, you are simply transferring part of the value of the existing money supply onto the new money. As such, what exactly is it that is created when new units of money are added? Is it a greater output of value available for investment, or just a different number of units to measure that output of value available for investment?
In one sense the printing of money and expropriation of wealth might 'force' investment, as I outlined in my original post. However, if there are good investments, again as I pointed out, people will in any case invest. The best outcome of inflationary fiat money is to force people to take risks in investing in businesses that they would otherwise not think of as good risks. I am not sure that is a good foundation for economic growth, but rather a formula for mis-allocation of resource.
You also say:
'Without a growing money supply, credit will be more difficult to obtain.'
Why? - if actors within the economy are generating a surplus, as in the example of the wine glasses, then there will be money to invest.
You appear to be still persuaded that the value of money is not connected to the real world. Money is representational of value of labour, not value in itself. It is merely a means to transfer value from one economic actor to another.
You later say the following:
'This was the essence of why the gold standard failed: putting your money supply at the mercy of something arbitrary like new gold discoveries makes no economic sense'
I have always pointed out the problems inherent in the gold standard, though still prefer it to the unconstrained fiat system. However, that is why the fixed money system is proposed in my last post.
You give examples of the evils of deflation from history. However, what you identify is one single aspect of the entire economic situation and pin all the blame on that particular element.
I can not agree with this analysis. For example, in this blog, I have explained that the current economic crisis is resultant from the doubling of the world labour supply.
The root of the crisis is nothing at all to do with the system of money,but the fiat system allowed the imbalances from the increased supply of labour to become far greater and more devastating than should have been the case.
The point I am making here is that the real driver of this crisis was something to do with output. This is not about how the value of that labour is represented, but a real change in the amount of labour within the economy. However, many other variables have come together to magnify the imbalances and problems.
The point I am making is that economics is not a system in which linear cause and effect can be traced, but is more akin to a chaotic system. There are too many variables interacting to propose linear cause and effect (you may want to read the introduction to 'Chaos Theory Tamed' by Williams for a fuller explanation).
For example, you link to a chart on GDP growth and suggest that this is evidence that GDP growth is greater under a fiat system.
However, I am unable to see any impact on the chart which correlates with the introduction of electricity, or the development of the Internet, or any other technology.
Surely these have had an effect on output? However, their effects are not evident in the chart, except that we can see a long term growth trend.
What exactly made the shape of the line on the chart is most certainly not just the system of money. To deny the impact of innovation would be highly improbable, but we see no **direct ** evidence of the impacts in this chart.
If you want to look at history, would you not agree that the introduction of the factory system in Britain was a critical part in raising output, or the railway system? However, even these would not be possible without the improvements in measurement of time, which preceded the factory system by a long period.
In other words improvements in technology in one area might lead to many other innovations that will improve output. These in turn create more innovations, which in turn generate more innovations, and so on...Might the chart that you are showing not represent these innovations rather than a system of printing money?
This is possibly a far simpler explanation than some 'magic' effect resultant from diluting the value of money. After all, we can see the productivity gains in electrification. We can measure the number of units going out of the door in comparison to the input of labour. We can see that electricity allowed for the computer, and that the computer has allowed rapid scientific advancement....
On the other hand, we can see no such linkage between long term growth in output and fiat money, excepting the assertions of economists whose models for these kinds of assertions have been shown to not conform to reality.
Which explanation would you choose as a better explanation for the chart between the two options? A vague connection between money supply and output based upon models that do not work, or measurement of the number of x additional products coming out of a factory door for x amount of labour, with the amount of improvement determined directly by innovation?
A long reply, but I hope that it helps clarify the point...increasing the money supply does not create more wealth, more output per unit of labour does this...
Paul:
Some interesting points. You mention about debtors losing out in deflation. I think it is the process of **change** from an inflationary system to a deflationary that causes pain for debtors. As such, a move **now** to a deflationary system would make the pain greater for debtors, but with long term benefits for stability. However, I am jumping feet first into a future post, so will stop there....
A very interesting point about Northern Rock as a conduit for the printed money. It appears that the government is going to try some reflation or steadying of the housing market with printed money.
Pocmloc: I agree that the problem of a fixed money supply will be the politicians wanting to interfere. I meant to cover this in the original post. The problem is that we have seen gold standards weakened, and then abolished. As such, the problem is one of the urge of governments to corrupt the systems. Sadly it seems that any system is subject to a government debasement ..
The only solution I can see is very, very strong constitutional restraints. Other ideas are welcomed...
Zed: And I thought I was a cynic? I think that many might agree that inflation is in the interests of the government, the point made by Adam Smith.
Cassandra: I will confess to being one of those who is unable to deal with calculus. However, I can grasp the point that you are making, in particular in regards to the point about marginal advantage.
General:
I am afraid I am out of time to comment further on the comments except to say a sincere thanks for the positive comments on my last post. I am a little embarrassed at such positive comments, as I am just trying to explain the world as I see it. However, they are greatly appreciated, and I will press on for a while yet.
Let us say there is a community of 100 people. 50 units of money work well for them. It is enough for their everyday purchases of goods and services, and some money is saved in banks that meet local investment needs.
ReplyDeleteSuddenly in the course of 6 months another 100 people decide to move into the community and set up shop creating new businesses; there is more demand for goods and services. Soon there is a chronic shortage on money. In particular, some new people want loans to create new industries (which will in fact increase out put and productivity in the community soon). Are you really saying that an expansion of the money supply to 100 units instead of 50 is not needed? Or at the very least in your fixed money supply model a smaller unit of exchange is necessary.
Population increase by itself is one factor that requires a greater amount of money in the society.
What exactly made the shape of the line on the chart is most certainly not just the system of money. To deny the impact of innovation would be highly improbable, but we see no direct evidence of the impacts in this chart.
…. In other words improvements in technology in one area might lead to many other innovations that will improve output. These in turn create more innovations, which in turn generate more innovations, and so on...Might the chart that you are showing not represent these innovations rather than a system of printing money?
I don’t for one second argue that increases in the money supply are the one and only factor in GDP growth rates. Of course technology had a major role. I agree completely. Productivity growth in many areas can be the result of new technologies. But it was a combination of these factors:
(1) Abandoning the inflexibilities of the gold standard
(2) A fiat money system that allowed governments to adopt monetary and fiscal policies that can stimulate the economy in a downturn
(3) the Bretton Woods system, which allowed fixed exchange rates and some capital account controls, which in turn gave states the freedom for greater economic role by governments
(4) Welfare states that prevented the kind of collapse in aggregate demand that could occur in pre-1933 economies
(5) the massive expansion of the state sector in education, research and development and funding of new technologies.
In fact, many technological innovations of the post-1945 era that certainly contributed to higher growth rates came out of the state sector. The higher government involvement in R&D in this era is yet another reason for higher growth rates.
The point is that the fiat money system was one factor in the economic policies of that era, which together produced a better economic system.
> Population increase by itself is one factor that requires a greater amount of money in the society.
ReplyDeleteAlthough in this specific case the increase of money supply is not due to the increase of population nor to the increase of production of goods.
When you have two cakes and two pounds then each cake costs one pounds. When you increase the money supply to four pounds but you leave cake production to two, then each cake costs two pounds. You might have more money (four pounds) but the value of your money is less. You have gained absolutely nothign and have devalued the currency.
I noticed that the comments assume that large, rapid growth of wealth/income is good.
ReplyDelete"Extraordinary economic boom" followed by extraordinary economic depression. It's a very bipolar economic structure that unfortunately doesn't result in real gain for the majority of the nation's population.
Maybe we should reevaluate the basic assumptions we make in determining how the economy should function. "I want it all. I want it now," or "high risk, high reward" are the first thoughts springing to mind when I think about the proponents of the status quo.
On Inflation and the Money Supply
ReplyDeleteIn 1950, the US money supply was $113 872 000 000. In 1973, it was $297 690 000 000. Therefore the US money supply increased by 161.4% from 1950 to 1973.
Using the CPI inflation calculator at US Bureau of Labor Statistics website (with data on changes in prices of all goods and services purchased for consumption by urban households before the US government started to manipulate the figures), a product that cost $1 in 1950 cost $1.84 in 1973.
So in 23 years there was a price inflation of about 84%.
Yet the money supply increased by a whopping 161.4%. So clearly there is no direct one-to-one relationship between the increase in money supply and inflation.
Of course, excessive and rapid increases in the money supply can cause inflation, but clearly money increases did not cause a direct and corresponding inflation rate in these years.
I'd like to ask a simple question about the BoE creating and removing money. I was intersted to see that the BoE was going to write to HM Gov to ask permission to create new money. Does this mean that currently the amount of GBP in the system is fixed? That it hasn't changed for a while? Or is the creation of new money and presumably the removal of it going on all the time but just in smaller quantities? I wonder how much money there is currently in the UK (GBP) system today. we need to know this if we are to figure out how much dilution of the value of each GBP is being brought about by this new QE policy.
ReplyDeleteThis reminds me of how shares in a company are diluted with new issues.
Many thanks for a brilliant blog.
Fermenting contrary behaviour - asking people to write letters local MP's... You are creating flies in the ointment my friend... You are tapping away at cracks in the dam... Do you want the dam to break? It will break without your help, in time...
ReplyDeleteA Fixed Money System
ReplyDeleteI am curious to know more about the fixed money system you propose.
If the system is not convertible into some commodity at a fixed rate, wouldn't it simply be another form of fiat money?
If so, you are admitting that there is no real reason to fix your monetary system to a commodity (like a gold or silver standard), the dream of libertarians.
Also, when and under what circumstances do you advocate the creation of smaller units of currency? (which is effectively increasing the money supply).
When the population grows and there is more demand for money which has, through deflation, increased in value?
But if so aren't you acknowledging that an increasing money supply is necessary when the economy grows by producing more goods and services?
@Red If the dam's going to break whatever you do, isn't it best to break it yourself when the water is so low it won't do much damage than waiting and doing nothing so that the deluge when it happens is overwhelming?
ReplyDeleteYou have a good metaphor, just extend it a little.
eh so according to Red/and anon we are on the other side of a dam thats going to break no matter what, so lets move somewhere else
ReplyDeleteFAST
Cynicus,
ReplyDeleteA couple of quick points:
1. Though I don't agree with everything you write (and intend to write something on my own blog in the future)your understanding of the issues and obvious gift for explaining them in a lucid and accessible way is obvious to a growing number. You can't stop now!
2. Your skills are continuing to attract an interesting crowd of so and sos. This community of which you are the genesis is becoming more and more valuable as it grows and becomes increasinly better informed. In the coming months and years, it will be communities of well informed citizens that will be necessary to dig us out from the collective hole we are in
For these reasons, I would second Steve Tierney's suggestion that you create a discussion forum (or take him up on the offer to create one on your behalf).
Under the current system those new to your blog wishing to comment or raise questions on ealier posts are likely to have these overlooked if they post them under the original article. If, however, they post under on your most recent offering (which may or may not be directly relevant to what they have to say) they risk distracting from whatever present debate you have stimulated.
The choice is, of course, yours. However, given your recent expression of uncertainty on the future of this blog, this appears to be the natural evolution of your work.
Regard,
T
I have followed the discussion on QE on this blog. The aim of this blog seems to be to jump on the bandwagon of fear mongering. It is extremely naive to suggest that hyperinflation would be the result of QE and that somehow Britain is akin to Zimbabwe. The conditions need to be far more severe for hyperinflation to occur - mainly production capacity falling apart, goods being in extreme short supply etc.
ReplyDeleteThe point is blogs like this one seem to be a support group for people who are angry with the government (rightly so) and are willing to believe that we are at the edge of total catastrophe.
Not so, things are pretty bad, worse than any other time than the Great Depression, but the armchair analysis of this blog need to be taken with a pinch of salt.
little typo in this sentence:
ReplyDeleteI have been somewhat suprised to find that there is absolutely detail whatsoever on the policy.
Cynicus, I wrote to my MP about quanitative easing and promptly received this rather uninspiring response. It looks suspiciously like a standard Conservative Party pro-forma letter. I take some comfort from the thought that there must be enough people writing to their MPs about this to make it worth their while to produce a standard response:
ReplyDelete"Many thanks for your message about quantitative easing.
"I share your concerns about the state of the economy and the prospect of
the Bank of England 'printing money'.
"As you say, 'Quantitative easing' is a policy not without risks because
the long-term implications of a programme of quantitative easing are
unclear and it may have a negative impact on confidence in sterling.
However, sustained deflation can be more damaging for the economy than
inflation.
"While Conservatives believe that quantitative easing should not be ruled
out, it should not be contemplated lightly. The fact that the Government
and Bank of England are considering it shows just how bad the crisis has
become.
"For many months George Osborne and his team have been making
constructive policy suggestions that would have got the banks lending
again. That the Bank of England is now on the verge of printing money is
a measure of the extent of failure of the Government's policies.
"Be assured that weI (sic) will continue to monitor the situation very
carefully and to keep under review the alternative strategies available
to combat the recession.
"Thank you for taking the time to write to me.
Using fiat money and fractional banking is like turbo charging your car engine. You get more performance, but at the risk you blow the engine up because you're forcing more fuel through it than it really should have.
ReplyDeleteWe have not only turboed our economies, we have removed the regulator as well, which as any mechanic will tell you is a very dangerous thing to do. The rev counter went off the scale and the economy exploded. The only solution is to start all over again with a new economic engine, and to be more careful in the future.
@anonymous at 9.10 26/02/09
ReplyDeleteYou won't like this then !
http://cluborlov.blogspot.com/2008/02/five-stages-of-collapse.html
Anon & Anon,
ReplyDeleteOf course, in theory it would be much better to let the dam break now - probably far less painful... But let me extend the metaphor, to give you a picture of the valley in which the dam sits and the culture of its people...
The two mains towns that are situated in the upper part of Westopia Valley were responsible for building of the dam - the rationale being that the whole valley would benefit from an increased standard of living as there would be a guaranteed supply of water year round, and hydro-electricity would power machines to do work that man had previously laboured to do. It was hoped that other valleys nearby would see the benefits of this, and that they too would build dams and advance their own technologies which might then be traded along with other goods and services to the benefit of all peoples on the island.
...And the other valleys were indeed impressed and decided to build dams of their own, and the population of the island grew as technologies improved and life became easier. But the wise old men of Westopia - the ones that remembered life before the dams worried. Their wisdom was the cause of this worry, for they recognised the paradox of unlimited, unregulated growth within the closed system of their valley and their island. But how could they get the people of Westopia to understand this when they had been seduced by the lifestyle that the dam had enabled? The wise men could see that the problem wasn't free trade or enterprise but accounting - the people who made the dam hadn't thought too much about the cost... Not just the financial bottom line including maintenance over time, but the cost to the valley of the dam breaking, or the damage done to the part of the valley from which the materials were extracted to construct the dam, or the impact of increased population on the carrying capacity of the ecosystem... In fact they hadn't done any accounting at all... And so the culture of unfettered enterprise that fed the peoples desire to consume more of the things that made their lives easier or momentarily more interesting continued and the wise old men continued worrying...
Until one day a crack appeared in the dam wall.
Word was sent to the makers of the dam who now lived on a wonderful estate in the beautiful uplands above the dam that they had bought with the profits they had made from the contract to build it. The problem, as the contractor saw it was that the dam wasn't his idea he'd just been paid to build it, and the contract certainly didn't extend to ongoing maintenance and therefore he couldn't get involved as he was not liable for contingencies such as cracks... And anyway, he was far too busy building a dam in Eastfactory Valley.
So the crack grew and grew. And every day (after dark so as not to alarm the villagers of Westopia) an engineer & councillor of Westopia went to have a look at the crack in the dam that they had commissioned. Afterwards the party of three democratically elected councillors would meet at an undisclosed location to try and decide what to do...
The engineer's diagnosis was that the integrity of the dam's construction had been irreparably compromised as a result of negligence... In his opinion, there were things he could do to keep the dam from breaking, but they would not be permanent fixes - eventually the dam would break. So the council were left with a seemingly impossible quandry. To let the dam break now in summer, when the dam was three quarters full and unleash a humanitarian disaster of an unimaginable scale upon the unprepared, unknowing towns and villages of Westopia and beyond, or get the engineer to do what he could to hold the dam together, even though they knew the winter rains would put more pressure on the dam walls and increase the potential for greater devastation.
The conversation at the undisclosed location went like this...
Councillor 1 - "But we have to let the dam break! Lets deal with the consequences as they happen - it will be less painful now than if it happens in winter"
Councillor 2 - "I'm not sure I agree with the diagnosis. I have it on good authority that it is a good strong dam. I believe the engineer can get us through this"
Councillor 3 - "All I know is that I am a human being. There are 10,000 more human beings in this Valley, and the consequences of letting the dam break now are unimaginable. I have to hope we can get through this... I cannot stand by and watch the dam break - I am with councillor number 2."
I hope that extends the metphor enough for you... A little crude in places but illustrative enough I hope.
@Red thank you for expanding it further to explain your line of thought. I see what you are meaning with regard to the water representing the lake of debt, fraud, speculative instruments etc. And in that respect the water is already too high.
ReplyDeleteI however was using the water to represent the growing spectre of inflation, and as there is a metaphorical storm coming in the form of QE we know the dam is going to overflow unless we do something, hence my saying break the dam now.
This is why metaphors can break down - we were using them in similar ways to talk about different things.
In any case, in the real world, wouldn't break the dam, just open the water gates wide and lessen the amount of water so less pressure on the system. So putting pressure on the MP's letting news out is akin to that.
Hope that explains better my thoughts - lets leave this Dam thing behind :)