By how much should the Bank of England increase interest rates in a traditional monetarist economy

[Joe Hutch]

I have a horrible, sneaking suspicion that Ms Truss might, just possibly, be part of the solution. She wants 'growth', doesn't seem averse to throwing cash at the problem (eg the Northern bit of HS2) and waves aside talk of burdens on future generations.

I still think she's as mad as a box of frogs, but maybe, just maybe, she might be better than Sunak, who seems wedded to a hard-line monetarist/austerity (for other people) approach. The big question is whether Labour can come up with anything at all, or will they just hope that Truss proves to be so obviously mad that the electorate will kick the Tories out in a couple of years' time.

 

[TheDecameron]

Who is least likely to shrink people’s gelt piles? That must be what’s exercising the minds of Tories.

 

[Sue Pertwee-Tyr]

I have a horrible, sneaking suspicion that Ms Truss might, just possibly, be part of the solution. She wants 'growth', doesn't seem averse to throwing cash at the problem (eg the Northern bit of HS2) and waves aside talk of burdens on future generations.

I still think she's as mad as a box of frogs, but maybe, just maybe, she might be better than Sunak, who seems wedded to a hard-line monetarist/austerity (for other people) approach. The big question is whether Labour can come up with anything at all, or will they just hope that Truss proves to be so obviously mad that the electorate will kick the Tories out in a couple of years' time.

And if Truss does as you say, which I agree is more likely than Sunak, then would Labour feel the need to rubbish that spending as irresponsible, as part of any anti-Truss messaging?

 

[Seeker_UK]

And if Truss does as you say, which I agree is more likely than Sunak, then would Labour feel the need to rubbish that spending as irresponsible, as part of any anti-Truss messaging?

If it's saving the voter a few bob in their outgoings, it would be a bit of dumb move.

 

[lawrence001]

So much for independence (from the gov't) then. D'you mean that G.B.'s decision was in reality all smoke and mirrors?

Re. ISAs (I have a few). They used to be as competitive in rates as ordinary savings accounts. Then the £1000 tax threshold came in, reducing their advantage. Then, ISA rates were priced in at well below other savings acc'ts. About the only useful thing about ISAs, which have almost become a Cinderella product, is that they reduce the input and calc's when doing one's returns. Mind, you, if your interest on non ISA savings acc'ts exceeds £1K on an annual basis, the disparity of rates between ISAs and other vehicles becomes less of an issue and possibly even an advantage, as they automatically roll on annually.

With rising returns, ISAs may once again be a viable savings vehicle. Very naughty of institutions to offer lower rates on ISAs as they then cream off the difference under the guise of 'tax free'. ISAs are hardly more costly to implement for thee savings bodies.

I think the specific point about independence being an illusion was made as MMT theory relies on the govt having control of the money supply. If the money supply was set truly independently of the govt I don't think the assumptions that MMT rely on would work.

 

[Joe Hutch]

And if Truss does as you say, which I agree is more likely than Sunak, then would Labour feel the need to rubbish that spending as irresponsible, as part of any anti-Truss messaging?

I think they would be like a deer caught in the headlights, and would bluster, but I may be underestimating them. But the anti-Truss messaging will probably come from within the Tory party, if/when she's elected. In fact, bad blood between Tory factions will probably be the keynote of the next few months. Plenty of discontented ex-ministers, and an ex-PM, for the new leader to contend with.

 

[Super Bigote]

I think the specific point about independence being an illusion was made as MMT theory relies on the govt having control of the money supply. If the money supply was set truly independently of the govt I don't think the assumptions that MMT rely on would work.

Are so you are now bringing MMT into your thread. Fair enough but remember it was you that did so.

When the Budget is approved by Parliament it set outs the spending for the next period. It is the job of the bank to facilitate that spending. The bank is not allowed to restrict currency issuance to prevent government expenditure requirements. There would be a bit of an issue with democracy if they did, don't you think?

 

[ks.234]

I agree it's cost push rather than demand pull inflation which then means we could look at supply side reforms, I think Thatcher was big on those in the 80s. Alternatively lowering taxes faced by producers would reduce their total costs (ie cancel out input cost increases) and therefore reduce consumer price rises, the thing is both these are govt led rather than Bank led and the Bank has to act in isolation based on current govt policy when setting rates, and constrained by the economic target they have been set by the govt so until fiscal changes are enacted they have to act on that basis

I look forward to consumer prices coming down. All the prediction are that they will go up.

 

[Joe Hutch]

In years gone by, the boot was very much on the other foot. A book about the economic plight of Northern England recently reviewed in the LRB tells of how Philip Snowden, a Northerner by birth and the first Labour Chancellor of the Exchequer, was frightened by the Bank of England into abandoning many of his more radical ideas.

 

[lawrence001]

Are so you are now bringing MMT into your thread. Fair enough but remember it was you that did so.

When the Budget is approved by Parliament it set outs the spending for the next period. It is the job of the bank to facilitate that spending. The bank is not allowed to restrict currency issuance to prevent government expenditure requirements. There would be a bit of an issue with democracy if they did, don't you think?

I think the post questioning Bank independence was with implicit reference to MMT but you're right that should be the subject of another thread,I was just pointing out that others shouldn't take that opinion at face value as there are reasons some want others to think it's true.

I'm not sure if it is or not myself but if a theory relies on it, then again by deduction I'm not sure if that theory is true or not.

 

[Super Bigote]

In years gone by, the boot was very much on the other foot. A book about the economic plight of Northern England recently reviewed in the LRB tells of how Philip Snowden, a Northerner by birth and the first Labour Chancellor of the Exchequer, was frightened by the Bank of England into abandoning many of his more radical ideas.

Yes that is a good point and it is still a problem faced today, mostly exemplified by the Troika bullying the likes of Greece into retaining the Euro, selling off national assets and running austerity programmes in order to service debt interest.

It is a terrible thing for sure.

 

[ks.234]

So do you think they should keep interest rates where they are? Reduce them? Increase them? By how much?

Or maybe put it another way, if we assume a trade off between unemployment and inflation, which is the lesser of two evils?

You constrain the conversation in a way that is false. I do not accept your presumptions.

It is exactly those constraints that you insist on keeping , and insist on not looking at alternatives that present us with a choice between two evils. Other options are available that actually use real full employment as a buffer stock against inflation, but you have said you are not interested.

The two evils you speak of are a product of your monetarist assumptions, they are ideological choices, not economic ones.

 

[Super Bigote]

I think the post questioning Bank independence was with implicit reference to MMT but you're right that should be the subject of another thread,I was just pointing out that others shouldn't take that opinion at face value as there are reasons some want others to think it's true.

I'm not sure if it is it not myself but if a theory relies on it, then again by deduction I'm not sure if that theory is true or not.

Okay so you are still discussing MMT. What happens when the government's Budget is passed by Parliament and the Bank of England do not issue the currency needed to meet the government's spending requirements? I'd like you to tell me how that works.

 

[lawrence001]

I look forward to consumer prices coming down. All the prediction are that they will go up.

I said reduce their rises, but agree I'd be very happy if they fell, I'm not a fan of price rises in general. Some think they help the economy grow in real terms but I think that's just through debt leveraged investment as recommended by "efficient corporate balance sheet management" whereas I think investment should primarily be driven through equity capital as debt capital is unstable for the wider economy in large amounts and, while it creates larger peaks in output it also increases volatility.

 

[ks.234]

Great thanks these are the sort of views I'm seeking. So keep rates low, but what needs doing to reduce the pain on the average citizen?

What needs doing cannot be done with the constraints of monetarism.

 

[Sue Pertwee-Tyr]

I think they would be like a deer caught in the headlights, and would bluster, but I may be underestimating them. But the anti-Truss messaging will probably come from within the Tory party, if/when she's elected. In fact, bad blood between Tory factions will probably be the keynote of the next few months. Plenty of discontented ex-ministers, and an ex-PM, for the new leader to contend with.

I think/hope you are right. I'd like to see Tory infighting continue to the point the electorate is heartily sick of them. A disaffected Johnson who considers himself wronged, under-appreciated and maligned, might well be a driving force for that. I don't like popcorn, but might need to lay in some stock.

 

[Super Bigote]

It is just about keeping those who are unable to contribute alive but not transferring any more than necessary from the productive sector in case it encourages indolence.

 

[lawrence001]

Okay so you are still discussing MMT. What happens when the government's Budget is passed by Parliament and the Bank of England do not issue the currency needed to meet the government's spending requirements? I'd like you to tell me how that works.

I don't know how all that works, maybe another thread on BoE independence can get to the bottom of it.

 

[Joe Hutch]

It will be interesting to see which way the Tory tabloids jump. They seem to have accepted that Truss will become PM, but will they let her 'do her thing' and judge her on the results, or will they keep pushing for particular policies? And maybe in different directions, depending on the paper. She's run the risk of irking the Express by saying she'd allow more immigrant labour to help with crop-picking.

One thing is for certain; if mortgage rates rise sufficiently to trigger a house price crash, they will all pile in on her. Which, I guess, is precisely why Truss won't allow that to happen, and has already talked about bringing the BofE back under Government control.

 

[Super Bigote]

I don't know how all that works, maybe another thread on BoE independence can get to the bottom of it.

So you are rejecting a view of the economy which provides the basis for full employment, prosperity and low inflation based upon an issue that you 'don't know how all that works' and instead prefer to talk about a system which uses unemployment, poverty, despair, alcoholism, depression etc etc to keep inflation down.