I have already noted the incompetence of the Governor of the Bank of England once this morning, Let me do so again. As the Guardian reported yesterday:
Britain came close to effective insolvency at the onset of the coronavirus crisis as financial markets plunged into turmoil, the governor of the Bank of England has said.
Laying bare the scale of the national emergency at the early stages of the pandemic, Andrew Bailey said the government would have struggled to finance the running of the country without support from the central bank.
This is a quite staggering claim which shows the utmost stupidity in the part of Bailey.
What it seems that he has failed to notice is that the Bank of England is owned by the government. And its job is to provide the government with money on demand without limit so that the government can never go bust, which is what happened in March.
He's also failed to notice that he is not some superhero for graciously agreeing to do this. He's actually a civil servant who was doing exactly what was required of him. It's the part of his job that goes with being in charge of the lender of last resort in case he hadn't noticed. But apparently he hasn't.
Just as it also seems that the Governor is unaware of the basic rules he needs to learn that govern the size of the Bank's balance sheet. If we have inflation that balance sheet is too big. If we have unemployment it's too small. That's it. That's all he needs to know. And it's not hard. But right now we have unemployment and he wants to shrink the balance sheet.
So why is he doing that? Let's presume he has a reason.
Is it that he thinks he must uphold the failed neoliberal order?
Is it that he thinks central bank independence his priority because the Establishment cannot trust democracy?
Is it that he is unaware of the economy and unemployment to come?
Or does he really believe in a V shaped recovery that will deliver a complete bounce back when no one else does?
Or could it be that he does genuinely think the Bank is independent and really does do the government favours - for which he is to be personally thanked?
Is it that he does, then, think the money he creates is an exogenous variable when Bank of England money is / should be endogenous?
I genuinely don't know the answers to any of those questions, but amongst them must be the clues as to why he's done this if he is not incompetent (which the timing would anyway suggest, come what may) so he must hold some or all of these views.
And without exception they're worrying.
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:
The Sky report was jaw dropping.
The Sky economics correspondent and an ex Deutsche banker sitting in reverent awe whilst a pompous, self important public servant produced a string of obvious cliches.
What was so annoying was the absence of detailed explanation. What he said was so patronising and yet was broadcast as an ex cathedra proclamation. No questions asked by the attendant “economists”.
QE worked and MMT will work; the debt was repurchased without promoting inflation. It works in the USA and in Europe. There is no other tool in the box.
There may be reasoned arguments against MMT and QE but simply to say “we nearly went bust” was shocking in it’s simplicity.
What are they up to?
I wish I knew…
It’s war within the Tories as they jostle over who gets to milk us. One the one hand, an unwilling Sunak led by Cummings who wants and end to austerity, or so he says, and the camp on display here, the anti-Cummings camp of Javid/Bailey. Popcorn time!
As soon as I saw the news on Bailey’s pronouncement, I thought of this blog and came here for some informed discussion. My immediate take on what he said is “he’s bigging up his own (the BoE’s) role.”
i.e.’he is saying ‘without the BoE (me) it all goes belly up.’
At a guess the average Tory MP (who are the ones who “matter” at the moment), and even the average Cabinet Minister, in this cabinet, will think to themselves, ‘Gosh, we ARE close to the edge. What a good chap that Bailey is’
And also, ‘we must be very careful here in what we do. Time to stop being so profligate, The money’s gotto come from somewhere, etc. etc.’
How can the other lot win this? Because if they do not win this, we can presumably kiss goodbye to any hope of a serious Green New Deal
Oh – he’s a public servant is he? Are you kidding me?
Let’s get something straight right?
Andrew Bailey is NOT a public servant. He is a servant of an ideology – nothing more. He’s a plant, put there by powerful others to stop the right thing from being done for all sorts of bad reasons.
Make no mistake about that.
And this is how to grab and maintain power even when your chosen ideology is past its sell by date. You take command of the commanding heights of he economy.
🙂
I could be wrong but I think he is an employee of a nationalised entity, which would make him a public servant.
If you are saying that some public servants are intent upon preserving a particular form of economic control then I could not agree more. I am aware that revolving doors must be continually oiled.
The point of referring to his employment status was to stress that he is not elected even though, it would appear, that we have given him immense power over our lives.
I would not dream of trying to kid you.
I am in total disbelief that a Governor of the Bank of England should say such things. Besides anything else, it is detrimental to the UK’s global standing. Even with his own tiny mind’s logic, this will be taken that the UK is an economic basket case, what the hell is he thinking?
I have not heard one other nations central bank say anything like this.
He should be sacked.
if, as you say, he is a civil servant and the Bank belongs to the government then surely his reason is to promote the austerity agenda of the government.
Seems like he’s doing a grand job as far as the punter in the street is concerned.
Probably…
Freelancing for what’s to come
His job is to push up the interest rate to benefit his private sector banker chums. Given compound interest, 80% of bank profits from house mortgage loans, and a UK housing market in the doldrums because of the Corbid-19 pandemic what else is he corruptly expected to do than attempt to keep his chums balance sheets in the black! Banks bailed out yet again after only fourteen years and some families struggling to afford food!
That is the issue
Starkly – capital v labour and I am not a Marxist
He’s either conveniently forgotten or never knew what the Bank of England was for. That’s some failure when you are supposed to be running it….
It is clearly a hefalump trap for a very willing hefalump to walk into and claim they are so trapped and can’t now reach the fruits of the money tree!
Watch as the great Sir Heffalump shrugs his shoulders and obliges and climbs back into Maggies Handbag.
Richard, I find this all very troubling. I’ve asked on here before why MMT is not more mainstream, and the answer was that it is not often taught in economics studies. That said, when things happen that do not match your understanding, most would be curious as to why.
On that basis, I believe that it is being suppressed deliberately, and that these comments from the BoE govenor are not simply errors, but are designed to mislead, to support a particular political aim. That this aim may lead to misery for thousands, is unforgivable.
I am sure that the suppression is deliberate – but it is going on right across the spectrum of economists – including on the left
Don’t think there is any doubt it is being suppressed as already acknowledged. It is suppressed because even at the most basic description of achieving full employment whilst maintaining price stability is a radical proposition in direct contradiction of ‘capitalist’ philosophies adhered to by most western economies.
The very idea of full employment supported by job guarantees hits at the basis of driving down wages, threatening higher profits. Without any involuntary unemployment, there is no labour market to pit one worker against another who through no circumstances of their own are driven to accept lower wages.
If discussed on a wider scale their fear is that the general public will start to realise the misinformation and lies used to justify current economic policy and force them to ask a simple question of, “what is government actually for”?
I think you are being very generous giving him some benefit of the doubt with so many possible reasons whereas only one would be enough to confirm his incompetence. And, if not incompetence it is an example of the ulterior and underlying motivations inherent in current political and economic policymaking.
Worse still as Bob Dylan wrote in the early sixties:-
“But he can’t be blamed
He’s only a pawn in their game”
It’s disappointing to realise that even with all the changes we have seen since very little has actually changed.
Would Bailey really make such a statement unilaterally?
I don’t think the Governor of BoE is officially a Civil Servant, or he’d be risking being in breach of the Civil Service Code with this.
Or is he making some sort of signal on behalf of the Treasury that ministers need to start reopening the economy.
It would have been interesting to see how long the fabled Central Bank independence would have lasted if he had refused to step in as he apparently implies he could have.
On a technical matter I note that the BoE 1946 Nationalisation Act was revised in 2017 to rule out government having any involvement in monetary policy:-
http://www.legislation.gov.uk/ukpga/Geo6/9-10/27/section/4/2017-03-01
Does this mean Andrew Bailey is “doing his own thing” at Threadneedle Street?
It’s all PR as the 1998 Act allows the Chancellor to over-rule if they see fit – and the Bank will therefore always do as they’re told
Not so sure about that:-
“4. Treasury directions to the Bank and relations of the Bank with other banks.
(1)The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest [F1, except in relation to monetary policy].”
http://www.legislation.gov.uk/ukpga/Geo6/9-10/27/section/4/1998-06-01
Or does confusion reign both in government and the BoE as to who has power to do what?
Some obfuscation helps everyone deny responsibility
I read it & thought
(a) it’s a coded message to his friends in the financial services sector — everything will be the same as ever- no need to worry, &
(b) a warning to the rest of us — get ready for austerity with a spin.
I think you’ll find that Phillip Hammond gave Andrew Bailey extra power in 2017 when the BoE 1946 Nationalisation Act was altered to prevent government interference in “monetary” policy. Now define what this means – altering the rate of interest paid on reserves or when and how much for QE?
http://www.legislation.gov.uk/ukpga/Geo6/9-10/27/section/4/2017-03-01
See note posted previously
The 1998 Act includes a Treasury veto and that is intact
Bank of England Act 1998. Part II, 19 provides the feature that makes everything of real substance null and void. There is always a Reserve Power. See especially Para (1).
http://www.legislation.gov.uk/ukpga/1998/11/section/19
19 Reserve powers.
(1)The Treasury, after consultation with the Governor of the Bank, may by order give the Bank directions with respect to monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances.
(2)An order under this section may include such consequential modifications of the provisions of this Part relating to the Monetary Policy Committee as the Treasury think fit.
(3)A statutory instrument containing an order under this section shall be laid before Parliament after being made.
(4)Unless an order under this section is approved by resolution of each House of Parliament before the end of the period of 28 days beginning with the day on which it is made, it shall cease to have effect at the end of that period.
(5)In reckoning the period of 28 days for the purposes of subsection (4), no account shall be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than 4 days.
(6)An order under this section which does not cease to have effect before the end of the period of 3 months beginning with the day on which it is made shall cease to have effect at the end of that period.
(7)While an order under this section has effect, section 11 shall not have effect.
NB., in Britspeak officialese “consultation” actually means instructed.
Ask the Scottish Government what it means in the case of Reserved matters. ‘Reserved’ in Britspeak means ‘mind your own business’, even if it is your own business. Then it means, ‘mind the rest of your business’.
That’s what I was referring to….but I am utterly whacked by this morning’s very early start
Thanks for information John. What you reference appears to be pretty solid boilerplate in determining where the power lies. The mainstream media unfortunately mostly sing from a different hymn sheet!
There’s an alternative to the assumption that Andrew Bailey is ignorant or incompetent. And it accords with the nauseous Machiavellian behaviour of the government over the last ten years. It is that Bailey is indeed a civil servant directed by the government and he has been directed to perpetuate the myth that the Bank of England sets limits on government spending. This allows the government to justify its politically motivated austerity policies whilst at the same time spend freely on policies it wishes to pursue (HS2 etc). Maybe Bailey is neither ignorant or incompetent, merely another victim of an autocratic, contemptuous and contemptible government.
Entirely plausible, I agree
Richard,
I could be missing something but I can’t immediately find anything to support your suggestion that Andrew Bailey “wants to shrink the balance sheet”. Maybe you are referring to this quote https://www.telegraph.co.uk/business/2020/06/22/andrew-bailey-warns-markets-bank-england-will-reverse-money/ from 22nd June where he says “When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis,”. The first few words of this suggest the time to withdraw stimulus is not now and has not yet arrived but might happen in the future. Is there something else you are referring to? Or do you think that there will never be such a time as requires the reduction of the balance sheet in the future?
Those words have been considered to refer to shrinking the size of the BoE balance sheet by reversing QE by all commentators who understand the process that I have seen
If you disagree, why?
Reversing QE will adjust the level of reserves….
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]