Mark Carney was before the House of Commons Treasury Select Committee yesterday. When asked about People's QE he said:
The issue would be imperilling potentially the achievement of price stability. The consequence of that of course would be inflationary.
The people who tend to get hurt the most by inflation are the poor, the elderly, those that can’t hedge themselves – that’s been the experience throughout history and I’m sure that will be the experience in the future if the Bank of England were not to conduct policy not consistent with achieving its mandate from parliament.
I think there are some things Mr Carney (who I have never met) should note.
The first is that his job is to deliver inflation. Two per cent inflation. The figure decided upon by HM Treasury. And right now he seems unable to do so. We have zero per cent inflation.
So, the second thing he needs to note is that policies that deliver inflation (modest, controlled inflation) should be on his agenda. PQE is that: he says it will work. So why is he not asking fro it when nothing else available to him seems to do so?
And third, Mr Carney should not be presuming that any future parliament will change the Bank of England mandate, as he did in a blatantly polutcial way. He should instead explain how he will do the job he has been given when it appears that he and the MPC don't know how to do it right now.
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“Mr Carney should not be presuming that any future parliament will change the Bank of England mandate”
Given that the Shadow Chancellor, John McDonnell, has already said he will end the BoE’s operational independence, this was not a presumption but a statement of fact.
We’re not there yet
So it was politics
Yet? If you think McDonnell will get anywhere near the Chancellorship, you need to seriously consider the evidence.
Alas, the Bank cannot deliver anything, any more than the government can for certain. Because there is no certainty and never has been. It can only try to steer a course through unending stormy seas. The job of steersman (Governor) is more Der Fliegende Hollander than container shipping schedules.
When those who know better deliberately distort your position, the motivation is always political.
It isn’t inevitable that the poor will get hit most by inflation as Carney claims.
They are more likely to have financial debts which are eroded by inflation and have few savings to lose. Inflation can also stimulate interest rates leading to more affordable property values. However, the poor often lose from inflation because the government refuse to raise benefits and pensions in line with inflation and they are more likely to accept wage increases lower than inflation which is exacerbated by ignorance and weak collective bargaining power.
Agreed
Spot on.
Hear Hear; I really enjoyed reading this.
Carney looks forward and makes a judgement on inflation. He takes into account future pressures and the effect they will have, so even though inflation may be 0% now, it will increase to close to 2% given time.
His judgement must also take into account the risk of over reacting and pushing the inflation rate beyond 2% – he predicts that the 2% target will be hit after 2 years, as slack capacity is used up. There is some evidence of this with respect to the rate of pay increases having risen significantly.
Adding inflation from QE would obviously take inflation well past the 2% target in the next 2 years.
My main point is this. Corbyn’s QE plans is to create an investment plan to build houses and infrastructure. Surely it needs to be analysed on that basis, rather than the fact that it produces inflation? If, a few years from now, inflation is at 2%+, you would seriously damage your case for QE as you’ve already admitted that it creates inflation.
But all QE is designed to produce inflation
Aren’t you aware of that?
And the case for building is independent of it
Aren’t you aware of that too?
And of course if the government does decide to spend on much needed investment, which will be well signalled after all since it has to go through parliament and be approved, it is the job of the Court of the Bank of England – under its current mandate – to make space in the Private Sector for that parliamentary approved investment to happen.
So if there is excess inflation from government investment spending, then that is entirely down to Carney & Co failing to do their job properly.