Thursday, Aug 28, 2008
Someone deport this guy
Telegraph: MPC dove Blanchflower to vote for rate cut
Blanchflower indicated he would be calling for interest rates to be cut by more than 25 basis points at next week's Monetary Policy Committee meeting.
Mr Blanchflower said his earlier forecast that house prices could fall by 30pc was looking optimistic and that the jobless total could soon touch two million as construction companies and banks lay off workers.
The US-based academic, who has called for lower interest rates for 10 months in a row, said the UK could learn from Federal Reserve's prompt action and interest rates should be much lower than 5pc as a matter of urgency.
"I've obviously voted on quite a number of occasions now for small cuts but we need to act and we probably need to act in larger amounts than that."
Posted by little professor @ 05:28 PM (1525 views) Add Comment
28 Comments
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1. nooneo said...
I seriously suspect that Danny boy is getting a backhander from someone or other !
Are there any financial circumstances in which he would actually vote for a rise? If not then the duffer shouldn't be on the committee in the first place. Why don't they just get rid of him, pocket his salary and just mark the member(!) down as a rate cut every month without the boring need to actually ask him as the answer is a foregone conclusion !
Pathetic - What's independent about saying "rate cute" once a month?
2. paranoia blue said...
Sorry if has been posted before!
Einstein dies and goes to heaven only to be informed that his room is not yet ready.
“I hope you will not mind waiting in a dormitory. We are very sorry, but it's the best we can do, and you will have to share the room with others.”
Einstein says that this is no problem at all and that there is no need to make such a great fuss. So Saint Peter leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants:
“See, here is your first room mate. He has an IQ of 180!”
“Why that's wonderful!” says Albert. “We can discuss literature!”
“And here is your second room mate. His IQ is 150!”
“Why that's wonderful!” says Albert, “We can discuss mathematics!”
“And here is your third room mate. His IQ is 100!”
“That's Wonderful! We can discuss the latest plays at the theatre!”
Just then another man moves out to capture Albert's hand and shake it.
“I'm your last room mate and I'm sorry, but my IQ is only 35.”
Albert smiles back at him and says, “So, what is your suggestion for the next interest rate change!”
3. little professor said...
With an IQ of 35 he would not be capable of any meaningful speech.
4. last_days_of_disco said...
I think the one thing you can say in response to him is, "Is it working for ya?".
I mean, it does not seem to be making one iota of difference to the US housing market.
How would it help here?
5. dave said...
Blanchflower is right. You're too focussed on housing to notice what else is happening to the economy - rates should be cut, despite this, hp's are going to crash anyway.
6. mytimeisnigh said...
An IQ of 35 would be that of a person with a moderate to severe learning disabilty, motor skills would be impaired, support needed for most basic tasks and communication would only be made via gestures, odd words and very simple sentences.
7. nooneo said...
dave @ 5 said...
"Blanchflower is right." - So you're not bothered about runaway inflation or trying to get people to save anything then?
Remember interest rate cuts help people buy things they have to BORROW money for.
People should remember there are 2 things going on here:
1. A House price crash
2. A recession
They are related but not the same thing.
If you properties value is taking a nosedive. Tough.
And recessions are an inevitable part of the economic cycle.
Now stop whinging and take the medicine....!
And by the way he's absolutely wrong dave, wrong, wrong, wrong, wrong!
8. Pundit said...
What sort of role model is the Fed - the US economy is rapidly falling off the cliff.
Perhaps the best learning here is to avoid the mistakes of the Fed.
Backhanders? To obvious - try political pressure, old boy network, ivy league, fraternity, calling in favours....
9. richc said...
The Fed has cut interest rates to 2% and what has been the effect in the US? House prices continue to fall, yet CPI is running at 5.6%. This means that every person working in the country has just taken a pay cut of 5.6%. The banks and Wall Street are doing quite nicely out of this situation, as the Fed subsidizes their balance sheets, but the average person in the street is the one paying for it. If you have your money in a savings account in the US, you're lucky to get 3% in interest per year. People are being robbed in order to shovel even more money to Wall Street. What the Federal Reserve is doing should be a criminal offense.
I doubt that Blanchflower's IQ is any higher than 35 because he clearly can't read. The mission of the Bank of England is to contain inflation. Only as a secondary mission should the Bank of England worry about fostering growth. According to the BoE's own forecasts, CPI will be above target for 5 years, at a minimum. The base rate is clearly too low to achieve the Bank's primary objective, and to argue that rates should be any lower contravenes the Bank's mission -- the guy should be removed from his post for dereliction of duty.
10. str 2007 said...
Got to go with Nooneo on this one.
An interest rate rise along time ago would have helped prevent some of this mess and give more room for manouver. That time has passed.
Business has borrowed at the rates it has and a reduction won't help business.
More borrowing is the very last thing we need now.
Far better to preserve the value of what we do have and in turn keep the cost of imports (almost everything) down.
By all means cut near the bottom of the cycle to speed a recovery (yes and hear people say look whats happened now you've cut rates) providing inflation is well under control.
The pound has been devalued by 20% recently, that is plenty for exporters to have an edge.
No further rate cuts should be made until they will have a positive effect.
11. mountain goat said...
dave @5 has a point. I am no economist so maybe this is simple minded, but it seems to me that dropping interest rates will cause the historically high GBP to fall. This makes imported goods more expensive and so supports local producers. This might help us move from importing everything to being more competitive at producing stuff for export. Being more competitive would help the economy create more jobs.
12. Mark Grindell said...
The low interest rates got us right to this point, and we would not have been here at all if not for people like Blanchflower, with far more influence than their experience merited. I'm not so sure that if interest rates go down that it will make any material positive difference to house prices - I suspect that it will most certainly NOT.
But I think that there is, accompanying this, an unreasonable expectation that commodity deflation will commence in step with house price falls. I see no reason for the assumption behind this coupling theory.
I also do not think that he ... is not competent for these kinds of decisions, most especially because of the culpability of people in this category, who did not see the overriding danger of bubble formation.
13. Pundit said...
Playing with interest rates (up or down) may actually be like fiddling whilst Rome burns. The economic meltdown has gone beyond the point of no return - changing interest rates is not going to save the US (or any other) economy in the long-term. One of the fundimental issues here is that service economies do not work - history will prove Ronald and Margaret got it very wrong! Real wealth and national prosperity are created by digging (or pumping) things out of the ground and manufacturing goods people want to buy - not by creating an ever expanding credit bubble to give the pretence of affluence. Part of the solution will be for the West to claim back from the Far East the means of wealth creation - ie becoming competitive again, albeit this will mean for many, living standards on a par with the average Chinese factory worker. This perhaps is the outcome of a truly global economy.
14. Icepick Tony said...
When will this idiot learn that it was interest rates that were too low for too long which created the mess the worlds economies are now in. Does he seriously believe that more of the same is the cure?
15. peter_2008 said...
Cutting rate from 5% to 0% didn't save Japan from a HPC and recession. In fact, it accelerated recession and led to a prolonged period of deflation, which seriously damaged Japanese economic power, as investors fled.
16. dave said...
Read the news? US GDP 'Rebounds' with 3.3% growth. We won't get that of course, no tax givaway possible. Inflation will be contained as commodity prices are falling and a slowing economy won't encourage inflation. Next move in UK base rates is down - watch this space. If I'm wrong, then it's pints all round on me.
17. ftb maybe one day said...
Do you really need to read the telegraph to know Blanchflower will vote for a rate cut??????
18. little professor said...
But now he's talking about 0.5 and 0.75% cuts, not just his usual quarter percent.
19. dave said...
I don't think that any UK recession will be that long or deep if interest rates are cut now. Anyone disagree?
20. nooneo said...
mountain goat @ 10 said...
"dropping interest rates will cause the historically high GBP to fall"
They are only historically high against the dollar. Against the euro it's been in steady decline.
15. dave said...
I personally think the recession will be longer if we lower rates dave. We import far more than we export for starters and the pound will fall if we reduce rates. Japanese Uncle will tell you the perils of stagflation.
I personally think they should stay at 5% until inflation starts to fall (next year maybe) too late to raise them now maybe. It's so much more advisable to be prudent now and then reap the rewards of vaguley encouraging people not to borrow. I agree with str 2007, the last thing we need now is to want people to borrow more. We already have the largest amount of personal debt per capita than almost anywhere else.
We really do need to swallow the nasty medicine, watch the HPC and sit out the recession. As Corporal Jones always reminded us "Don't panic! Don't panic!" - It's only a recession not the third world war.
21. alan said...
Rates were kept too low in 2002, 2003, 2004, 2005. That's why we have a problem now. Money was too readily available, that's why we had an asset bubble.
I hope I'm not upsetting anyone but I can't see that a 0.25% rate change either way will make a big difference to the economy right now.
22. quiet guy said...
"I don't think that any UK recession will be that long or deep if interest rates are cut now. Anyone disagree?"
Here's somebody who has somethings to say about the subject:
"Jim Rogers, FED cuts will hurt Dollar, Yuan Up - Feb. 2008"
http://www.youtube.com/watch?v=LjLMAQiIRyU&feature=related
The video from about 01:10 to 04:10 covers Roger's main point: cutting interest rates damaged America's and Janapn's economy needlessly. I find Roger's basic argument quite strong - we should let the recession run its course rather than interfere with (futile) rate cuts to permit future economic regeneration.
23. Ianbe said...
It's a global race to the bottom and Blanchflower has been sent over here to cut our brake cables.
24. Marvin said...
Surely it is in the interest of all our high street banks to have interest rates that attract liquidity
ie the prudent saver, by having interest rates set at a level through which returns are greater than the underlying rate inflation (this is greater than 5% as we all know, despite the CPI BS) and provide less risk than the bull pit that is our roller coaster stock exchange. The central banks should be trying to tempt liquidity their way not visa versa. Reducing rates only seems to serve the less prudent, by putting off the day of reckoning.
Make saving popular enough and you may break even in five -ten or so which is better than going to the wall.
The BOE has passed up the opportunity of building flex into the setting of interest by which reducing rates would have any effect on HPC anyway, and they should certainly NOT FOLLOW THE FED INTO THE VOID.
I don't believe we are at a point of no return indeed raising rates now might actually help turn the juggernaut, you can bet your bottom dollar (which is probably not far off) the Fed won't appreciate it because it will drive more debt their way via carry trade and liquidity ours. Whats the betting that raising interest rates here will be followed sharply by everyone else.
Also raising rates now would be a statement of intent( the Age of Cheap credit is over - buy only that which you can afford and pay for it!!) and could claim back some of the BOEs credibility.
I agree with Noone at 20 it is "nasty medicine" but it needs taking.
If your driving a super tanker, any effective movement of the helm needs to be done over a long period and well in advance.
If however, you are asleep (p155ed) in your cabin, no matter how big the ocean you are in - you will eventually crash and leave a nasty mess everywhere!
25. denzil said...
I don't agree with Blanchflower but the next movement in rates will be down, sooner than people may think. The cut may not be much initially and will be more of a token gesture.
26. Marvin said...
....and another thing. Should we not be hearing Mr Blanchflowers views expressed as part of the MPC minutes or at least after it has been held, rather than a clarion call from today's Telegraph.
Why not just phone his vote in, as suggested yesterday
" House Prices are rising, quick cut interest rates!!!".
" House Prices are crashing, quick cut interest rates!!!".
Do we really need to pay someone do to this once a month
27. new user 2007 said...
Blanchflower calling for a rate cut? Hold the press!:) He was calling for a rate cut before there was any evidence for a slowdown a year ago!
As for those saying we need a rate cut...monetary policy is ultimately about imapcting liquidity conditions. The Fed has shown that cutting interest rates will do nothing for house prices or the broader economy, if the issue is a contraction in credit that should not have existed to begin with because the so-called innovation was 99% alchemy aimed at nothing more than commissions.
Back to Blanchidiot and liquidity...REAL interest rates are now close to zero as consumer price inflation is so high. At the same time, stirling has fallen a lot on a trade-weighted basis in the last six months. All this is adding massively to liquidity, yet the media seems to be strangely silent on REAL rates i.e. the rate that counts. Silence certainly helps to contain inflation expectations.
The BoE's inflation report over a year ago said that inflation in September 2008 would be back to target if rates remained at the level they were at the time. Blanchidiot screamed it. Inflation is now twice the allowed level. Why should we take the same people and the same forecast i.e. prices will fall if rates remain at 5% seriously, this time around.
28. Verymeanreversion said...
Government wants to issue a record £100bn in Gilts. I dont see much chance of an interest rate fall if they want to sell them