Andrew Bailey proved beyond a shadow of a doubt that he is the wrong Governor for the Bank of England at this (and maybe any other) moment yesterday. Writing in the Financial Times he said:
This is a time of great uncertainty. The Bank of England is doing all it can in this difficult environment to reduce the disruptive consequences for businesses and households and minimise longer-term damage to the economy.
He did not tell the truth when making that opening claim. At the end of his piece he qualified his statement, saying:
The BoE will not hesitate to take all necessary actions both to support British businesses and households through this period of uncertainty and to ensure inflation is consistent with the 2 per cent target in the medium term.
In other words, the Bank will help just so long as the neoliberal thinking that establishes the priority of stable money to preserve the value of debts owing to the wealthy is not prejudiced.
And as if to throw down a direct challenge to the government on who he thinks has control over management of this crisis, he said:
The crucial point is that the MPC remains in full control of how and when that expansion is ultimately unwound. The goal is to ensure that borrowing costs and spending are consistent with achieving the inflation target. If the recent expansion of bond buying appears to threaten that goal, the MPC can react.
In other words, let's ignore the fact that people, including fourteen health workers so far, are dying right now. And let's ignore the fact that it is likely that six million people in the UK will likely really be unemployed by this summer. And let's be wholly indifferent to the fact that getting employment going again is going to require unprecedented liquidity boosts for the economy, without which we face many years of slump. Instead let's worry about the credibility of the old order. And let's worry about the dogma of monetary economics that dictates bankers must be in control to fight an enemy so long ago defeated, which was inflation at something like full employment.
This is callous indifference. It reveals a mindset determined by privilege. It reveals blatant bias, not least when it is clear that bankers will get what they wish. Bailey noted the “recent provision of liquidity to the banking sector and purchase of commercial paper in the new Covid Corporate Financing Facility”. He is apparently entirely happy with this expansion of the Bank's role.
He did, however, make very clear his objection to direct monetary funding (DMF) of government spending by central banks. As he said:
The MPC controls the level of benchmark interest rates and can vary the quantity of central bank reserves. Central bank reserves are interest-bearing deposit accounts held at the BoE backed by the central bank's assets, mainly gilts.
Some MPC actions result in the creation of central bank reserves. But these reserves are not being created with the aim of paying for the government deficit, as under monetary financing. They are a consequence of independent central bank policy actions to deliver monetary and financial stability.
In saying this Bailey makes clear that he will not use the power of the Bank to create money to help the government tackle our current crisis.
What is the alternative? Presumably he would want the government to tackle the crisis by taxing more, which would suck money from the economy at the very time it was most needed, and just when deficits should be run, and when underpinning by the Bank is essential.
But he won't do that. As he put it, he will only go so far:
To that end, the Monetary Policy Committee voted last month to increase the bank's bond holdings by £200bn to support the needs of the British people. Some external commentators are linking this move to fears that it that it may be using “monetary financing”, a permanent expansion of the central bank balance sheet with the aim of funding the government.
This type of reserve creation has been linked in other countries to runaway inflation. That is because it could undermine a central bank's ability to control monetary conditions over the medium term. Using monetary financing would damage credibility on controlling inflation by eroding operational independence. It would also ultimately result in an unsustainable central bank balance sheet and is incompatible with the pursuit of an inflation target by an independent central bank.
So we have a choice, which is to maintain the credibility of theoretical monetary policy, which in the era of net-zero inflation rates that we have witnessed for the last decade, has been irrelevant in the UK and much of the rest of the world for the last decade, or we can a government in democratic control of getting us out if this mess. And he even resorts to hints of the Weimar Republic myth to make his supposed case.
Bailey has indicated dogma comes before people as far as he is concerned. By doing so he confirms he is made of the banking mindset that consigned this country, wholly unnecessarily, to the Great Depression of the 1930s.
This country can not afford the likes of Andrew Bailey at any time, but most especially at moments like this. He is a man as out of his depth as Sunak was on Budget Day, indicating by his words that he is dealing with a situation that is far beyond his ability to comprehend. I sincerely hope his tenure is short, or he will seek to impose untold harm on the country.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Its Hyperbole, and propaganda, carefully crafted to try to prevent the masses don’t cotton on to the fact the government is spending like a drunken sailor, with little inflation.
Whats the BoE going to do? Bounce treasury spending cheques?
Richard what will happen if 6 million + have no money, cannot go to food banks due to the lock downand, and wait for 5 weeks with no food, for universal credit? I have my thoughts but it will get very messy indeed.
The above is the establishment mind set, and it will continue even if 10 million + out of work. On sky news this morning Kay Burley said UK GDP has dropped by a staggering 31%. We are in for a very rough time indeed.
We don’t know if that GDP estimate is right
That millions are running out of cash is a fact, I am sure…
“what will happen if 6 million + have no money, cannot go to food banks due to the lock downand, and wait for 5 weeks with no food”
they have a choice, get together & take action to acquire food or starve. operative word: take.
If they do not do this – they are complicit in their own starvation.
This may sound like a hard note to strike – but it is realistic – wait for the gov’ of clowns to get organise (whilst starving) or take action.
It boils down to this. & if 6 million got organised there us nothing the “authorities” can do to stop them.
I hope they do get organised – take what they need.
What is so bad about what he has said is that it completely ignores the fact that the BoE is nationalised – MPC or no MPC.
The BoE is a creature of Government and it is they who decide what gets issued or not. Not the Governor who is an appointed individual and not democratically elected to his post. He’s ultra vires to me.
Bailey is just doing his real job – looking after his mates in the private sector like he did when he got the so-called -regulator to closed its eyes all too often in last job.
Andrew Bailey is a sleeper agent for the unaccountable financial sector – that is all he is in my opinion.
The reality is that he is also ignoring that the Banking Act 1998 lets him be over-ruled if the Chancellor so desires
And that all QE has been done on government instruction
There is no idepdendence at the Bank of England
Pilgrim is right today and was fight yesterday. We need wholesale formal nationalisation of all the major industries and sectors. That will leave is in doubt where we stand.
I see the case fo some nationalisation
But by no means in all cases
There is no reason for clause 4 style socialism – there are better ways of solving the issues
When for risk weighted bank capital requirements BoE kept mum on 0% risk weight of sovereigns and 100% British citizens, as if bureaucrats know better what to do with bank credit they’re not personally responsible for than for instance entrepreneurs, it lost its independence
I confess that you’re going to need to translate that for it to make sense
[…] I have already noted this morning, the new Governor of the Bank of England has been throwing down the gauntlet to the government this […]
Perhaps a short term fix is to get income into the hands of people to avoid no money, no food, rent etc? In this sense, at some point this government, along with many others, will need to consider a universal income before they face how the economy can be reconstructed at some post-crisis point. They’ve put money into some businesses, but not into the hands of all people. This has to be a consideration, surely?
I have discussed this serval times in recent weeks…
He should go and read Lords of Finance – 1929, the Great Depression and the Bankers who Broke the World by Liaquat Ahamed so he can see just what a mess his predecessors at the BoE, Fed, Bank of France and the Reichsbank made of the 1920s and 1930s with Neoclassical policies such as he is advocating. To quote the inauguration address of FDR in March 1933: “Only a foolish optimist can deny the dark realities of the moment … The rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence … Faced by failure of credit they have proposed only the lending of more money … They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.”
Agreed
Wise words…
[…] And we have a Governor of the Bank of England who is terrified of expanding his balance sheet. […]
It’s also instructive that despite being involved in financial services regulation Andrew Bailey doesn’t appear to understood that Walter Bagehot’s Responsibility Doctrine is out of date with derivatives playing an important role in causing the 2007/2008 Great Financial Crash and central banks can no longer pretend they can automatically play the moral hazard card. “Protecting the BoE’s balance sheet” what does Andrew Bailey think he’s in charge of a private bank?
https://media.hoover.org/sites/default/files/documents/2014BordoLOLR-revised.pdf
🙂
Andrew Bailey’s fundamental problem which makes him the wrong man for the times is that he’s never worked out that with a sovereign currency issuing country the central banks are usually used as issuers of reserves not users. This means when gilts are paid off as “future” or “inactive” reserves the central bank has no use for them and simply junks or destroys them. It certainly doesn’t need to keep them on a balance sheet for future use as Andrew Bailey thinks with his private banker mentality! This is a central point in J.D. Alt’s recent series of MMT simplified explanation articles:-
http://neweconomicperspectives.org/2019/10/the-peoples-money-part-2.html
I’ve just tried listening to Part 1 of Fallout, which is a 4 part series on Radio 4. I was led to believe Part 1 would be a discussion by economists of how states can recover after the Covid-19 crisis is over. I recommend you don’t listen to it, but for masochists –
Fallout: The Role of the State: https://www.bbc.co.uk/programmes/m000gztl
Mary Ann Sieghart lead the discussion with a panel consisting of Danny Finkelstein, Helle Thorning-Schmidt, Anne Appelbaum and Paul Mason. Three non-economists fretting about how to restore a smaller state and keep the markets happy, and Paul Mason wasn’t much help!
Mary Ann Sieghart tried to leaven the discussion, but the two women on the panel (especially the ex-PM of Denmark) appeared to be very far right of the Fink. It was just awful.
Andrew Bailey would probably have enjoyed it.
You sell it well
But candidly, all I hear all across the left now is ‘how are we going to pay for this?’ and ‘shouldn’t we be balancing the books?’
It’s desperate
[…] the risk in new DMF is not really messaging, which they think was Andrew Bailey’s concern in his bizarre article that I noted yesterday. Rather, they think that the risk might be inflation. As they […]
Oh dear. Andrew, what WERE you thinking when you wrote this article for the FT?
Perhaps the only bright spot was that the BTL comments in the FT were virtually unanimous in condemning it or laughing at it. The most charitable I could find was…. “Being a central banker is tricky. They must say one thing, even if they know the truth is different. Even if we know they know the truth is different. And yes, even if they know that we know that they know the truth is different!”.
🙂