The UK is a bit more of a mess.
I note that Rachel Reeves has come out and said she has full confidence in the BoE. Hardly a surprise given she used to work there. How bad do things have to get before someone in our political establishment questions whether our system of monetary/fiscal policy is fit for purpose?
The top of the Labour party is essentially Blairite and devolving monetary policy to the BoE was one of the first acts of the Blair regime; so pretty consistent
For those hoping for innovative, progressive or helpful fiscal and monetary policy out of the Labour Party between now and the election, forget it. They can see how the Tories are making a total mess of the economy all by themselves and the proven electoral strategy at this stage of the Parliamentary cycle is to stand by and watch, shake your head, say it wouldn't have happened under your guidance, and then trust the electorate to believe it can only be better with a change of government. Giving firm policy commitments will only leave them open to attack from the Tories (or theft of the idea before the election).
For those hoping for innovative, progressive or helpful fiscal and monetary policy out of the Labour Party between now and the election, forget it.
And then when they're in power they'll come up with some excuse as to why they can't do anything so my question still stands. How bad does it have to get before they consider changing a system which is clearly not fit for purpose?
Didn’t Liz truss try to do something different and was laughed out of no.10?
I don’t see much hope of anyone else trying to go against the established ways of working
How bad does it have to get before they consider changing a system which is clearly not fit for purpose?
The system will never change.
Over my lifetime (40+ years) we've always had a centre right Government, and that seems to be the following of the majority of voters in England. (Scotland/Wales tend to be a bit more on the left, and NI just need to sort themselves out)
In the highly probable scenario that Labour win the next election, they are going to continue on a very similar path. The electorate showed clearly at the last election that they didnt want a Corbin/left wing government.
The system will never change.
It's changed massively in our lifetimes. The move to liberalised markets in the 80s, the switch to QE-based govt intervention in markets in 2008-2020, not to mention various reforms such as making the BoE independent. There's loads of scope for further change. In fact it has to change, because the economy changes and things happen that need to be dealt with: The banking crisis, brexit, covid, Ukraine, and in future decarbonistion and mitigation of the impact of climate change. Any political party which doesn't grasp that doesn't deserve to be in govt.
Didn’t Liz truss try to do something different and was laughed out of no.10?
I don’t see much hope of anyone else trying to go against the established ways of working
Yes - but what happened shouldn't have happened on a democratic level- the government enables the market not the other way around.
Despite her clearly going in daft direction - she shouldn't have been defeated by what happens in the market. (And technically it was corrected with the BoE anyway. )
We've got the power struggle the wrong way around. Markets are tools - and just because some Pension system sits on the brink of silly amounts of leverage to basically make money for an institution - doesn't make it valid for the rest of us.
Also the system will have to change because a population with no spending power is no good in our economy. There is no money without government deficit spending. So if everyone is cool with a downward trajectory then let's carry on not doing a thing to correct disfunctional market behaviour.
This is what Sunak meant by 'holding our never' - that is holding our nerve that they know what they're doing is not a good thing but for the market.
Markets are simply engrained as the mechanism by which many voters assume the only way. But they're tools and they're failing all the time. More to come I think.
The system needs massive government intervention to correct.
The electorate showed clearly at the last election that they didnt want a Corbin/left wing government.
We are in a different universe now.
If they want their lives to improve there is no choice to push back against Neoliberalism, and its net is now getting wider.
I note that Rachel Reeves has come out and said she has full confidence in the BoE. Hardly a surprise given she used to work there. How bad do things have to get before someone in our political establishment questions whether our system of monetary/fiscal policy is fit for purpose?
Lol - she has confidence in the BoE but at the same time is suggesting tinkering with mortgage payments schedules.
She doesn't see the contradiciton in her brain.
I think next stage down - perhaps Winter - we will be on a sinking ship. I think either Labour or the Tories will have their hand forced eventually. It's a game of chicken within the capitalist shores of the UK.
I honestly thought the Pandemic would re-write the lansdscape but it didn't - given the level of state support.
It’s changed massively in our lifetimes
Only for the benefit of the super rich. Wealth inequality has only increased due to any of those policies.
If they want their lives to improve there is no choice to push back against Neoliberalism, and its net is now getting wider.
But what are the choices on the ballot box?
Either continue with what we currently have, or choose someone else who is very similar but a different colour?
Unless you have millions of people voting for someone like the Green party, theres unlikely to be any seismic change in my lifetime.
What you’re not factoring in is international money markets. If the ECB/Fed have their rates at 4-5% then all the liquidity would leave the UK seeing higher risk free returns overseas.
Then the value of the £ vs EUR/USD would also plummet, which would push inflation higher given we’re a net importer of goods.
Inflation is current being driven by policy anyway what's the difference?
The thing with currency - is it tends to move up and down in trends and simply gets bought back when it gets low or shorted when it gets high, within a range. It's another market that just does its own thing and occaisonally reflects strength.
Again, governments should concentrate on strengthening/investing their domestic affairs and currency strength follows. It shouldn't be used a guide for controlling domestic policy - and it isn't really anyway.
Admittedly this all assumes your country is working well!
But what are the choices on the ballot box?
Well that's why I'm a critic of Starmer. He's not read the room.
You could argue that if he gets elected then he has indeed read the room. People don't want left wing governments as they take all their money away remember.
Yes – but what happened shouldn’t have happened on a democratic level- the government enables the market not the other way around.
1) what was democratic about Liz Truss becoming PM and setting about doing things that the public were never consulted on?
2) fantasy politics often goes pop when it contacts the real, interconnected, world... see all the promises of Brexit
“1) what was democratic about Liz Truss becoming PM and setting about doing things that the public were never consulted on?”
But that’s our electoral system - a party with a majority (or coalition) forms the government.
Within that system we don’t elect a PM or get to be consulted on policy - the MPs of the Government can withdraw support for the PM or force a change.
Another example of this is when Brown took over from Blair - again… the public weren’t consulted either on the change in PM or changes in policy - remember Blair’s repeated promise to give the public a free vote on closer integration with Europe? Brown went ahead and took the decision without a public say.
Having said that it’s increasingly looking like Truss’ policies may have been correct (lowering tax).
The perceived wisdom from people who said they were the “grown ups” was to raise taxes in order to control inflation - Joe Biden was particularly bullish on this and went to some lengths to trash Truss.
As it now turns out, inflation is not only still around but the tax rises haven’t don’t anything to reduce it - pointing to further tax rises to cover the rapidly increasing costs of servicing government debt.
Likewise the sideshow of LDI Gilts debacle can now be see for what it actually was - a systemic risk known about by the Bank of England years before, one which it failed to act on, and one which treasury officials / ministers had little or no visibility of.
As it now turns out, inflation is not only still around but the tax rises haven’t don’t anything to reduce it
Sorry but you have this completely the wrong way round. Truss didn't cut taxes, they never came into effect, so they didn't rise to reduce inflation they stayed the same. Assuming interest rates remain the same, then to reduce inflation we need to raise taxes, but only in the areas of the economy that are inflating (eg energy prices), rather than everything, and then use that extra money to reduce the burden on those who can't afford the higher prices. If Truss's bonkers tax cuts for the wealthy had gone through, these would have amplified the inflation we're seeing now.
1) what was democratic about Liz Truss becoming PM and setting about doing things that the public were never consulted on?”
That's the way government works, for better or for worse.
Far worse is the BoE choosing pain for us - which both Labour and Tories support.
There's nothing democratic about that.
Tax cuts would exacerbate inflation at the high end for sure.
Interest rate rises have the same affect. Paying money out to people with money.
That's why it's important that the government funnels money into areas that can absorb the slack with resources and labour.
It's really not that complex. It's markets that have made a hash of things pretending they know better.
Truth is these markets can only operate because policy let's them.
Having said that it’s increasingly looking like Truss’ policies may have been correct
🤣
Beyond parody.
There’s nothing democratic about that.
The BofE is entirely democratically controlled. They act based on goals set them by the government. If the government pursues aims that when put into effect as Treasury policy are at odds with the goals they have given the BofE, that's on them. Sort your policies out. Joined up policy is required. Tell the BofE what those policies mean as regards their goals and the measures they can take. Truss thought that she could act as if working for a policy think tank... government is much harder than that, and you are responsible for making things work. Step one is to include the people in your departments paid to understand how to implement all this stuff when making your plans.
Tax cuts would exacerbate inflation at the high end for sure.
Interest rate rises have the same affect. Paying money out to people with money.
This. And this.
The BofE is entirely democratically controlled.
Does Andrew Bailey look or sound like a man who is democratically accountable? The govt uses BoE independence as a convenient excuse to shirk their responsibility to protect the economy in the interests of the vast majority. They've essentially outsourced one of the most important and impactful areas of policy to a group of people who have spent their entire lives working in the most well-paid, exclusive and out of touch sectors of the economy. And then we wonder why bankers pay is through the roof and why working people are being screwed while the top 1% get ever richer.
Does Andrew Bailey look or sound like a man who is democratically accountable?
He looks like exactly the kind of man who his political masters would choose (Johnson & Javid).
Sunak and Hunt can remove him, or change his remit. If they don't have faith in him, they can act. It's all down to them in the end.
The BofE is independent in the same way many other civil servants are... they're given a set task.. they get on with it*.. the government can at any time tell them to change course, or move them on. They work for the government doing its biding, but only their general direction is set by ministers, day to day decisions are left to them** until the government decides otherwise.
[ *in this case, very badly in my opinion; he's the wrong man doing the wrong job... but most alternative candidates weren't seen as nearly Brexity enough at the time of his appointment... **but back to interest rate changes, he doesn't make that call alone ]
Radio 4’s More or Less programme did a small piece about mortgage rates last week. Well worth a listen.
I got my first house in 87, (it was actually a static caravan, as we coudlnt afford a house), it was stated that 1988 was the worst year for affordability, along with 2007. 2023 is getting there, but not as bad as some people believe. IIRC, the current increases have added a 5% cost to the average borrowers mortgage fees. They also said if rates got above double figures, the economy would virtually collapse,(reading between the lines) as there will be so many that cannot afford to pay their debts, the Banks will fail, so the BoE will definitely keep the rates below 10%. Listen here:
https://www.bbc.co.uk/programmes/m001n1nl
I'm not sure all the people who voted against Corbyn did so because of his economic policies, I think they were much more concerned about some of his crazier ideas on national security and maybe even anti Semitism. McDonald his shadow chancellor actually had some pretty coherent ideas on economy.
So interest rises so far adding to inflation, the exact opposite of what the monetarists/central bankers expect -Adding to the price level of money.
Of course there are distributional effects (I.e more wealthy people have savings. ) And eventually interest rates will reach a tipping point but:
https://twitter.com/BenChu_/status/1676177321269637120?t=X--V7Njv_nlcuEN2-p6y_Q&s=19
When fixed rates expire there might be a different picture.
that only considers mortgages vs savings. What about un-secured debt. There's £300bn of that, and a lot of it will be on variable interest rates (fixed are less common in un-secured market) - the average interest rate on all those loans would only have had to of risen by ~3% to wipe out the gap between those 2 lines.
