Guido Fawkes, in a break from his usual occupation of digging up scandals on our political class, instead focuses a bit more on the underlying policies of the UK government and the opposition. He rightly notes that sterling’s falls against the dollar undermine Gordon Brown’s attempt to frame the crisis as something that has hit Britain from afar, like the impact of a meteorite or SARS virus. Many of Britain’s problems are home-grown. Guido also reminds us of that little-noticed adjustment to the Bank of England’s inflation target back in the early ‘Noughties. Brown removed housing prices from the index of inflation that the BoE targets. Result: house prices no longer figured as a reason for setting interest rates. Brown, in a word, helped make the property price bubble worse than it might otherwise have been.
Now, I know some of us hardline defenders of free market banking will say that this is a quibble about how to run state monopoly money, and they have a strong point about that. But clearly, even the supposed wondrous Brownite creation of an independent central bank turned out to be an illusion. No wonder sterling is falling against the dollar and the euro. As I work for an export business, I guess I should be grateful.
Brown, in his current efforts to create a narrative as “Gordon the statesman who fixed the crisis” reminds me rather of the late Lord Louis Mountbatten, the UK Royal Family member and disastrous military commander and Indian Viceroy who managed, at least for many years, to create the idea of him being some kind of hero. Sooner or later, Brown is going to get, and deserve, the Andrew Roberts treatment. (Roberts helped to annihilate Mountbatten’s reputation).
“that little-noticed adjustment to the Bank of England’s inflation target ”
??? Everyone has been complaining about that more or less constantly ever since it was introduced.
Oh yeah? Outside the narrow fields of hardline inflation hawks, I haven’t heard people complain about it much.
“Oh yeah? Outside the narrow fields of hardline inflation hawks, I haven’t heard people complain about it much.”
Read comments in the clogs when inflation is brought up,most say the government figures are bollox and not a few mention house prices. Where it doesn’t get an airing is the BBC.
The problem was that when Brown made the Bank of England independent, he also made it powerless and spineless.
http://www.lettersfromatory.com
To be fair to our rulers .,….. (not words I would expect myself to use).
They are frightened of “debt deflation” – which means a credit-money bubble collapse with bank credit (loans …..) shrinking back to the Monetary Base (the notes and coins) rather than being wildly higher than the Monetary Base (as “broad money” bank credit is – due to various “legal” frauds).
Even Murry Rothbard accepted that such a sudden deflation would have nasty effects – and proposed that the government GIVE (as a gift) money (notes and coins) to the banks so that their loans were covered with real (physical) money.
Of course he insisted that such a gift should only be given on agreement that the whole fraud of “fractional reserve banking” (and so on) no longer be practiced.
Sadly our rulers are giving money to the banks and demanding that it be lent out – thus trying to prop up the credit bubble rather than bring it to an orderly end.
This is because they see the credit bubble as a good thing rather than a bad thing.
To them, having a “boom” based on lending being greater than real savings is something to be welcomed – rather than a sign of certain bust.
To be fair to our rulers .,….. (not words I would expect myself to use).
They are frightened of “debt deflation” – which means a credit-money bubble collapse with bank credit (loans …..) shrinking back to the Monetary Base (the notes and coins) rather than being wildly higher than the Monetary Base (as “broad money” bank credit is – due to various “legal” frauds).
Even Murry Rothbard accepted that such a sudden deflation would have nasty effects – and proposed that the government GIVE (as a gift) money (notes and coins) to the banks so that their loans were covered with real (physical) money.
Of course he insisted that such a gift should only be given on agreement that the whole fraud of “fractional reserve banking” (and so on) no longer be practiced.
Sadly our rulers are giving money to the banks and demanding that it be lent out – thus trying to prop up the credit bubble rather than bring it to an orderly end.
This is because they see the credit bubble as a good thing rather than a bad thing.
To them, having a “boom” based on lending being greater than real savings is something to be welcomed – rather than a sign of certain bust.
In a sane economy such things as M3 (a measure of the Monetary Base plus various forms of bank credit) could not be greater than the Monetary Base.
This is because lending out money should NOT “increase the money supply” – it should simply transfer money from the lender to the borrower.
Anything else defies the basic laws of reason – even if it does not defy that statutes of government.
What Rothbard suggested (at times) was to give physical money to the banks in order tha their balance sheets be brought in line with reality (rather than I.O.U.s being treated as money and so on), but that this only done once – with any return to fractional reserve tricks being punished as the fraud it is.
Actually hostility to fractional reserve ism (and so on) is one point on which the mainstream of the Austrian School and the Chicago School do NOT disagree.
The “old Chicago School” of the 1930’s were in favour of public works projects (which the Austrian School people oppose) but they were against fractional reserve banking.
And even young Milton Friedman wrote (even in the quiet 1950’s) against banks being allowed to play these games.
“But this is statism” – no, laws against lending out money that does not exist are not statism.
And even if they were statism – how is endless “discount windows”, “lenders of last resort” and now open bailouts, the “free market”?
This is no more the “free market” than the disgusting fraud of the gold “standard” is gold-as-money.