lawrence001
Basic Member
Just saw this, the first part is good but I think monetarism is being misrepresented by the assumption that T (supposedly interchangable with Q) is fixed, I see it as just V being fixed but will expand on this later.
By how much should the Bank of England increase interest rates in a traditional monetarist economy
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Super Bigote
pfm Member
Yes it is worth getting to grips with it because it is a prime example of how monetarists (and neo-classicals) just ignore really basic failings in their models and just assume them away.
ks.234
Half way to Infinity
Yes, when I have spend all day getting to the bottom of a monetarist equation, it has always started from a presumption of a fact that turns out to be nothing but a presumption. Crap in = crap out.
Sue Pertwee-Tyr
Accuphase all the way down
Yes, that's definitely a better position to hold. Not 'all roads lead to stagflation' but perhaps 'all roads designed to manipulate the system to favour one party over another lead to stagflation'?
ks.234
Half way to Infinity
Just realised on second reading that I have come across this before, must look up my notes.
Super Bigote
pfm Member
There might be some YouTube videos that explain it better than I can but of course be aware of where they are coming from.
Mike Reed
pfm Member
Mike Reed
pfm Member
As far as I'm aware, she simply said that, after 25 or so years, it was time to re-evaluate the situation vis a vis current financial and monetary policies, or words to that effect.
I believe, having seen it twice before, that the only thing which will bring a property price crash is a massive surge in foreclosures which requires a recession (coming soon), higher unemployment across the board (commensurate with a recession) and a real hike in repayments and cost of living.
Well well, seems the ingredients are shaping up nicely and reinforced today by Bailey. Prop'y prices are, by all measures, vastly overvalued.
ks.234
Half way to Infinity
We have had one crash based on the collapse of the market based on personal debt we could be faced with another. The causes will be the same and the consequences will be the same. The causes are an economic ideology that diverts as much government spending as possible into private pockets, that sees any money going into grubby public hand as a sin.
We need an economic ideology that puts spending for public causes centre stage
We need an economic ideology that puts spending for public causes centre stage
Ponty
pfm Member
You are of course correct, although we won’t see anything like the early 90’s, I’d be amazed if we see rates go north of 5%, still historically very low. Demand levels are also very different from the early 90’s (look at population growth for a start). Any meaningful drop will see walls of cash enter the market seeking long term income IMHO.
ks.234
Half way to Infinity
OK, been doing some scribbling over a beer.
This means that Full Employment is critical to the model, and NAIRU is a devise to redefine FE in order to keep the model going?
Does that mean that the model itself is still valid, but that we need real actual FE to make it work?
klfrs
chill out
Back on topic, BoE setting of interest rate is a tricky balance. Not too high to cause a deep recession, but not too low to stoke inflation.
Todays rate increase combined with predicted inflation peaking at 13.1% doesn't bode well.
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Mike Reed
pfm Member
Can you elaborate/clarify; private pockets? Public hands? Public causes? I think that it'll be economic necessity than ideology that bails people out of penury this coming winter. I think we need two P.M.s in conjunction to deal with this. However, that's us, but the Eurozone looks to be in a potentially worse state than us. They might even escalate the Brexit payment schedule before we can't pay !!!
Super Bigote
pfm Member
Full employment is not critical to the equation but it is critical to the monetarist model. Yes, NAIRU does have that intended function but as we know it is not full employment and so the latter can be achieved without inflation.OK, been doing some scribbling over a beer.
This means that Full Employment is critical to the model, and NAIRU is a devise to redefine FE in order to keep the model going?
Does that mean that the model itself is still valid, but that we need real actual FE to make it work?
lawrence001
Basic Member
Just coming back to this, I'd be interested to understand the diagram more and I'll come back with a slightly different take on the quantity theory equation.OK, been doing some scribbling over a beer.
This means that Full Employment is critical to the model, and NAIRU is a devise to redefine FE in order to keep the model going?
Does that mean that the model itself is still valid, but that we need real actual FE to make it work?
ks.234
Half way to Infinity
The sketch is my way of getting a picture in my head from an equation. It was your MV=PT (or Q) you mentioned earlier which I had forgotten I had looked at some time ago.
MV=PT was from classical economics of people such as JS Mill when full employment was an assumption and involuntary unemployment wasn’t really recognised as a thing. The fact that involuntary unemployment does actually exist knocks the presumed balance between V and T (or Q) off balance. Friedman had to introduce his concept of “natural Unemployment” to make monetarism work, which was later replaced by the NAIRU, but the problem is that there is no evidence that such things exist.
Jim Audiomisc
pfm Member
Curious thread when it starts off by asking us what is the best way forwards when you assume reality is a fairyland tale place. I guess this is the UK beloved of the Daily Mail that gives us the brilliance of BloJo and then Truss as our Beloved Leaders...
If I were you, I'd start from somewhere else. As it is, I'm busy re-reading Galbraith and thinking of an earlier "New Deal". But I doubt our previous PM, or our next one have even heard of him. Kleptocracy Rulz as < 0.5% of the population choose which dim bulb we get to run the place as suits the wealthy few.
If I were you, I'd start from somewhere else. As it is, I'm busy re-reading Galbraith and thinking of an earlier "New Deal". But I doubt our previous PM, or our next one have even heard of him. Kleptocracy Rulz as < 0.5% of the population choose which dim bulb we get to run the place as suits the wealthy few.
Sue Pertwee-Tyr
Accuphase all the way down
We've kinda already covered this, Jim. It's more that our governments are wedded to this ideology, so looking at what tools do they have in their box, and what will they be likely to do with them?
lawrence001
Basic Member
I think you're asking the question you want to answer rather than the question I'm asking. So if you were going to predict what UK monetary and economic policy will look like in the next couple of years what would your prediction be? That the BoE and Govt will suddenly subscribe to MMT and do the things I suspect you think they should? I personally think that's unlikely.
A lot of our inflation is imported (and outside the direct control of the Bank). The rest is largely driven by domestic wages (hence comments from the BoE about minding your manners when you ask your employer for a salary increase). There's no right answer because the BoE is best guesstimating. I know this doesn't answer your question directly but whether the BoE increases IR by 0.25% or 1.25% is IMO largely inconsequential at this time as IRs are still low and because reducing inflation is best served by Putin dropping his games with Europe and getting out Ukraine. That said, any increase in IR should be gradual as there are some measures of inflation that are beginning to fall.