3 thoughts on “Carney could rescue UK monetary policy but not with more stimulus”

  1. Posted 30/05/2013 at 14:18 | Permalink

    As Prof Minford rightly suggests, it is worse than useless to have undergone QE whilst simultaneously preventing lending via regulatory barriers. On this point, is it possible for Carney to reduce the capital adequacy ratios? Is that not determined via the Basle accords?
    However, even if he could, would this be wise? Those of us who doubted the wisdom of QE did not doubt it simply because it would have the effect it did (which he outlines), but also because of the potential impact which it could have if it had worked as ‘intended’ (what was intended? was the Bank really ignorant of what the consequences would be – or were they simply attempting to provide exactly such a ‘liquidity lake’?). Whilst it is clear that we do not want any additional QE, do we really want the funds from QE to flow into the wider economy anyway? Even if the funds were lent to SMEs, would that really be desirable? From an Austrian perspective, most certainly not, as we will surely see the classic situation of malinvestment owing to the apparent expansion of loanable funds.
    Broadly, the issue with QE is less that it did not work as its proponents suggested it would, but more that it was even tried in the first place. Malinvestment via expansion of the money supply is malinvestment, no matter where it occurs.

  2. Posted 30/05/2013 at 17:28 | Permalink

    “The Bank is pursuing its loosest monetary policy of all time”… and yet “..total (“broad”) money supply has barely grown…”, so what do you mean by “loose”?

    “..dangerously expansionary monetary policy has had little or no effect on credit…” so why is it dangerously expansionary?

  3. Posted 31/05/2013 at 07:33 | Permalink

    The article only leads to more questions.

    How do you think QE is going to be reversed ?
    Would it be an attempt to move up the yield curve to try and change the average maturity to something shorter than present ? (What is the estimate of the duration of the BoEs £375bn Gilts ?), and just let this debt eventually be retired as it matures ?

    Or if the Gilts are sold back

    How would / will the BoE / Treasury account for Gilt sales ?
    If £375bn created and spent on buying Gilts and say the stock is sold back for £275bn
    (Is that a reasonable estimate of the loss potentially ?)
    Then as the money was created is this seen as £275bn credit or £100bn loss ?

    And on whose books will this debit / credit fall ?

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