The FT has reported:
The Bank of England will start to buy corporate bonds in large quantities within weeks, Mervyn King, its governor, said on Tuesday night as he explained the next steps to be taken to limit the severity of the recession.
Borrowing from Donald Rumsfeld, the former US defence secretary, he said such purchases would be "unconventional unconventional measures" designed to increase liquidity and trading and reduce the spread of corporate bond yields over government bonds.
These differed from "conventional unconventional" policy, in which the Bank created money to buy assets with the aim of increasing the stock of money in the economy and the availability of credit while also raising spending. Although the Bank's monetary policy committee was not ready to use this weapon yet, he said, if inflation was likely to remain too low the MPC "might wish to adopt these unconventional measures as an instrument of monetary policy".
Sorry - in this case this is just wrong.
I'm all in favour of reducing the long term interest rate. We need to do that.
But we also need to see that the crisis we have is not just a financial issue. We also have an energy crisis, a climate change crisis, a baby boom generation who want pensions and who miserably failed to deliver an infrastructure in fine fettle to the succeeding generations that will justify paying them for their past efforts, and more besides.
In the circumstances buying up corporate bonds really is a case of throwing good money after bad. Why inject money into the economy buying assets that people think of little worth when we could instead be piling money into real things.
As someone said yesterday:
We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise healthcare's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.
That's what this cash should be used for: real jobs for real people. By all means do quantitative easing. But do it with government bonds. It's government cash that is going to get this economy going, get our businesses going with the demand which only government can create right now, and which will deliver what people need right now.
When will the Bank of England and Treasury learn?
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The crux of the problem is that right now we can’t pay our way in the world. . For some time we have lived on “invisibles”, which turned out to be invisible in the same way as the emperor’s new clothes! What can we do? Fiddling about with bits of paper in the city is over. We don’t seem to be able to make things. The state of our griculture is dreadful. The one thing we still have is an academic infrastructure. Instead of “spending another billion propping up a lost empire”, lets spend it on science. It seems Gordon has no probs putting his hand on billions and billions. We are not going to be able to afford the shiny things for a while, but we could restore our place in the world this way. Pay the whacking great salaries to the scientists not to the wizards! We can then be the ones owning the technology to deal with the problems of the 21st century and in a position to sell it to China, India and Brazil.
I suspect that the most telling line was this:
‘if inflation was likely to remain too low the MPC “might wish to adopt these unconventional measures as an instrument of monetary policy” ‘
What does that mean? Inflation too low? It’s vague enough to mean fear of deflation but I believe it really represents the intention to stoke inflation by sparking a little anxiety over the value of the pound by printing money: ‘quantitative easing’.
The intention would be to inflate the government’s way out of debt demarcated in pounds. That would be the final betrayal of the financially responsible in order to prop up the finances of the irresponsible credit ridden.
“We will restore science to its rightful place,..”
Sadly this phrase will have gone over the heads of 99 per cent of UK civil servants who think that the economists and other ‘wizards’ are scientists.
James is spot on re: the Emperor’s New Clothes. Most civil servants and politicians simply go along with the prevailing ‘wisdom’ because they are frightened of looking silly if they admit that they do not understand it.
President Obama might be the little boy who actually asks why the Emperor is naked, I hope so because I cannot think of a single living British Parliamentarian who will.
Bill
I agree re the Emperor
But I think Vince Cable, John McDonnell and a few others have spotted his nakedness
The 99% or so are not willing to hear as yet though
Richard