Eddie George (ex-boe Chief) Says....

[Tomas]

Taken from BBC Peston Blog reader comment.

What we have now was the plan

"The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom."

[christhpc]

Yep, was back in March this year but well worth re-posting for anyone that hasn't read it already:

http://news.independent.co.uk/business/new...icle2377729.ece

Thought it was published on the Sky news website of all places although I can't find it there anymore.

Ah yes, here it is:

http://news.sky.com/skynews/article/0,,30400-1256664,00.html

[Realistbear]

Fing is, the consequences of the foolishness have not yet been felt.

I think Dr. Bubb is right--we are lagging the US by as much as 18 months.

[FernandoMorientes]

I wasn't actually aware of this, given the circumstance you have to feel some empathy for Merv.

That said he took on the poisoned chalice with the full knowledge of what went on before, so you have to look at the whole sorry mess as a debt fueled binge encouraged by crooks (Brown and the politicians) administered by incompetent numb nuts (BoE), who should have known that delaying the inevitable could have far worse consequences in the future.

GB is FUBAR!

[yellerkat]

GB is FUBAR!

I hope you mean the politician and not the country.

[OnlyMe]

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said.

Obvious deaf of hearing, didn't understand what Unsteady Eddie meant or he forgot to tell them.

Next meeting......

King obviously started in the manner in which he wanted to contiue - flushing the system with cheap debt and speculation.

http://www.businessweek.com/magazine/conte...43045_mz010.htm

Britain: Will Lower Rates Give Manufacturing a Boost?

The Bank of England's quarter-point rate cut on July 10, to a 48-year low of 3.5%, was surprising on two accounts. First, analysts expected the BOE's Monetary Policy Committee to wait until August, when its key inflation report is due. Second, the meeting was the first headed by new BOE Governor Mervyn King, whose reputation as an inflation hawk has earned him the moniker "Unswervin' Mervyn."

[Tomas]

Why is recession such a dirty, never to be allowed thing.

Jeez you'd think they'd have acknowledged that capitalist markets are inherently cyclical and that recessions, although unwanted, are necessary and unavoidable.

Its not as if they are not expected at least once a decade or so.

Chasing the rainbow at all costs will lead to exhaustion, heart failure and collapse of the runner, as opposed to jogging after it and pausing for breath if you get a bit of a stitch.

Why have they tried to ban recessions?????

Edited September 21, 2007 by Tomas

[Moo]

<rant>

Whilst I'm normally very relaxed of a Friday, this has got me spitting feathers!

All I can say is, Lord George, will you please accompany on a visit to the pub with a number of my friends and acquaintances who utterly rubbished any suggestion that you and the MPC were doing what you did at the time you were doing it. I've been treated as a bloody crank for years as a result, and I just like you to explain that I was right.

Do I now wish I'd stuck a signed and sealed statement somewhere secure* with my opinions on it at the time? Too bloody right.

* Alliteration not intentional.

</rant>

Woo! It's Friday! I feel a bottle o' red coming on.

[gravity always wins]

Why is recession such a dirty, never to be allowed thing.

Why have they tried to ban recessions?????

DEBT gotta keep the economy expanding to keep up the repayments

[Methinkshe]

Why is recession such a dirty, never to be allowed thing.

Jeez you'd think they'd have acknowledged that capitalist markets are inherently cyclical and that recessions, although unwanted, are necessary and unavoidable.

Its not as if they are not expected at least once a decade or so.

Chasing the rainbow at all costs will lead to exhaustion, heart failure and collapse of the runner, as opposed to jogging after it and pausing for breath if you get a bit of a stitch.

Why have they tried to ban recessions?????

Even in the Bible the concept of boom and bust was known. It was revealed to Joseph in a dream that seven good years would be followed by seven bad years and that therefore he should store up the fat from the good years so as to tide over the bad years. Boom and bust is a natural cycle and anyone who thinks they have cracked it - eg Gordon Brown - has been trying to convince you that there is only ever spring and he has, by diktak, cancelled autumn and thus winter, and henceforth no-one will die.

[Savo]

Fing is, the consequences of the foolishness have not yet been felt.

I think Dr. Bubb is right--we are lagging the US by as much as 18 months.

RB, while that may be true on a economic front, in terms of a HPC I'd be very surprised if we'll be 18 months behind. Look at how stubborn the US was in actually realising it was happening. We've been primed, acceptance and resignation will come quicker here.

[wsn03]

I'll never forget seeing the arrogant f*cker on tv saying "a little house price inflation never hurt anyone" at the time the bubble was running out of control. I despised him then, but I too was seen as an outcast for rubbishing the fool.

[Tomas]

In previous times i.e. before 2001, recessions were not described in such fraught end-of-times terms.

I am beginning to believe that this has all developed as a reaction to 9/11, terrorism and Bin Laden's attempt to destablise the Capitalist/Christian West.

Greenspan understood this to a point and inflated to stop sudden recession/destabilisation (Surely an Al Queda goal if they were savvy), overcooked it, the West followed the policies and now the 'West' have created an even bigger chance of catastrophe and will have destroyed themselves. Oh the irony.

Bin Laden may have won this battle one way or another.

For dramatic understatement - nincompoops

Edited September 21, 2007 by Tomas

[Mr Jib Fingers]

I've been looking for this quote and can't seem to find it from a reliable source anymore. I'm sure it used to be on the BBC website.

Anyone got a link to this these days?

[juvenal]

I've been looking for this quote and can't seem to find it from a reliable source anymore. I'm sure it used to be on the BBC website.

Anyone got a link to this these days?

Can't get an actual link but here from the Business News section( with my bold) is the complete article:

The Independent

Ex-Governor George says Bank deliberately fuelled consumer boom

By Jane Padgham

Wednesday, 21 March 2007

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee "did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

In a wide-ranging discussion on the first 10 years of the MPC, Lord George also rejected suggestions that the MPC should target specific concerns such as soaring house prices, arguing that it was vital to take the broader picture of the economy.

Meanwhile, Kate Barker, a current MPC member, said in a speech last night that interest rate changes might become more frequent as the committee tackles volatile energy prices, rising inflation expectations and increasing pricing power. "This is a different kind of uncertainty from worries about demand which have been more usual during my time on the MPC, and I suggest that this may prompt a change in observed behaviour towards more frequent interest rate changes," she told the CBI North East dinner.

End

Edited April 12, 2013 by juvenal

[Parkwell]

http://www.dailymail.co.uk/news/article-443540/Bank-England-deliberately-fostered-person-debt-avert-recession.html

http://www.belfasttelegraph.co.uk/business/exgovernor-george-says-bank-deliberately-fuelled-consumer-boom-28524833.html

[The Masked Tulip]

So they are doing the Einstein thing and repeating the house boom plan?

[zugzwang]

Even in the Bible the concept of boom and bust was known. It was revealed to Joseph in a dream that seven good years would be followed by seven bad years and that therefore he should store up the fat from the good years so as to tide over the bad years. Boom and bust is a natural cycle and anyone who thinks they have cracked it - eg Gordon Brown - has been trying to convince you that there is only ever spring and he has, by diktak, cancelled autumn and thus winter, and henceforth no-one will die.

It's older than the Bible. The concept of natural cycles was familiar to the ancient Egyptians through the flooding cycle of the Nile, the mystery of which was ultimately solved by a young British hydrologist called Harold Edwin Hurst who determined that the Nile's floods and droughts were not random at all but correlated in a long-range dependence. Years later, Benoit Mandelbrot discovered a similar pattern of clustering and dependence in the movement of cotton prices - at once refuting the central tenet of modern finance that prices obey a random walk. An inconvenient truth that has been more or less ignored ever since.

[tinker]

If politicians weren't such short-termist, positive PR chasing tossers, we would be able to have an adult conversation about the ups and downs economic cycles. So instead of allowing the froth to blow away and the economy reset we have fantasy economics built on sand - kicking the can, whilst pretending there is no such thing as 'boom and bust.'

Unbelievable that we have such cretins in charge who will do people over (especially the young and unborn) to save face and achieve a short-term boost.

[The Masked Tulip]

Yes, this is what Carnage has been brought in to do ... print, inflate property prices to 'increase' GDP ... all looks great for a couple of years before the whole thing falls apart. See Canada for a preview.

Sadly, Carnage is not good for us. Even if a HPC is ut off for 5 years the price rises between then and now will be so great that any subsequent crash will probably only bring prices back down to where they are now - at best.

Estate agents have won - I can't believe the anger I now feel towards EAs who have such power over house prices in my area and who, by and large, seem to do very little for their rewards IMPO. Seems the easiest way to make money in the UK to me.

[tinker]

Just to add, I think there should be a law:

Reckless endangerment of the economy.

Something to stop politicians and officials engaging in these short-term prestidigitations of pretence whilst leaving the problems for those that follow.

And keep the Tower of London open and prepared!

[juvenal]

http://www.dailymail.co.uk/news/article-443540/Bank-England-deliberately-fostered-person-debt-avert-recession.html

http://www.belfasttelegraph.co.uk/business/exgovernor-george-says-bank-deliberately-fuelled-consumer-boom-28524833.html

Thanks for these, but where did the original Independent article go. I've referred to it several times over the years - but now no trace..

Who would have removed it, and why?

[Killer Bunny]

If politicians weren't such short-termist, positive PR chasing tossers, we would be able to have an adult conversation about the ups and downs economic cycles. So instead of allowing the froth to blow away and the economy reset we have fantasy economics built on sand - kicking the can, whilst pretending there is no such thing as 'boom and bust.'

Unbelievable that we have such cretins in charge who will do people over (especially the young and unborn) to save face and achieve a short-term boost.

We didn't between 1979 and 1991.

[R K]

We didn't between 1979 and 1991.

Household debt doubled.

Lawson knew a thing or two about how to create a housing/debt bubble.

[wonderpup]

Yes, this is what Carnage has been brought in to do ... print, inflate property prices to 'increase' GDP ... all looks great for a couple of years before the whole thing falls apart. See Canada for a preview.

Things are about to implode in Canada- luckily Carney got out just in time to bring his wisdom and insight to us here in the UK.