10 November 2010

With central bankers like these ...

I was just listening to BBC’s Radio 4 interviewing Mervyn King, the UK’s central banker. I felt like I was listening to Pravda’s Radio Propaganda. There are three options: he was lying, he’s a moron, or he was answering a different question.

The Bank of England is predicting continued economic growth in the UK. Given the prediction of growth — King claimed that the UK has had growth of 4% in the last 2 quarters in-line with the rest of the world — and the recent recession, he said there are both strong inflationary and deflationary pressures at play, making it impossible to know which will dominate. He added that he was extremely concerned about the level of UK debt and approved the Conservatives efforts to cut the deficit.

This is the man in charge of the UK’s central bank! His analysis and implied advice in the situation is like having an alligator lunge out of the water at you and having Mervyn say, well, you should jog out of the way, but you don’t want to go too fast and tire yourself out and don’t worry, snapping turtles only run backwards.

Firstly, the UK’s economic growth has gone from -6% last year to about 3% in the 3rd quarter. It has not been 4% for the past 2 quarters. Historically, since the end of WWII, UK GDP growth has been 1.5% to 2.5% a year in line with the rest of Western Europe and North America, so 4% growth would be reason for dancing in the streets. In fact, it’s so good that deficits would mean nothing. The UK could grow its way out of the budget deficit in a few years. This is exactly what the US did to get rid of Regan’s massive deficit, growth made possible by the IT revolution.

Secondly, it appears that growth is slowing and may well start to decline again. Frankly, it is disingenuous at best and stupid at worst to predict growth when there a million job losses coming as a result of Tory policies and what should be the government-owned banks are still refusing to loan the government’s money to small and medium sized companies that could start expanding and hire some of the newly unemployed. In essence, the Tories by axing jobs and not forcing banks to operate as banks are turning the gainfully employed into the unemployable. Anecdotally, since I’m now a comedian and run a comedy club, I’ve noticed that business is down generally. People don’t seem to be going out as much as they did last year, back when, according to Mervy, they had less money. I took a look at pub trade figures and they too show a fall in sales across the country.

Thirdly, Conservative efforts to cut the deficit will have the perverse effect of slowing economic growth, which in turn lowers tax revenues. They are following the policies enacted by Ireland, which has led the Irish Republic over the precipice into the worst economic quagmire in the developed world. Someone should drum into the Conservatives collectively thick head that Ireland should be a cautionary tale, not a roadmap.

Fourthly, the only people that seem to be doing well out of the recent economic growth are banks who have taken a windfall of government money, used some of it to pay themselves and the rest to continue the risky practices that got us into this mess in the first place. As far as I can tell, if Merv isn’t lying or an idiot, he was only talking about bankers in the first place.

Finally, I’ll give Merv a little hint. There is both inflation and deflation. For the very wealthy who are in a windfall situation, there are inflationary pressures. For all of the schmucks like me that have to work for a living, there is deflation, except where government regulates, like public transport, taxes and housing. For the real economy of people making things that working people want to buy, there is deflation as working men and women have less money.

I’m guessing the question Mr King was answering was “What would be the most ridiculous lying, stupid thing for the UK’s central banker to say right now?”. Great answer Merv, great answer…

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Blogger Loraine Despres said...

Great blog. So true. It's happening in the US too.

11 November, 2010 03:48  
Anonymous Alex Despres said...

"there are both strong inflationary and deflationary pressures at play, making it impossible to know which will dominate."

It's always comforting when central bankers say, "I don't know what's going to happen, but trust me, I know what I am doing/talking about."

11 November, 2010 16:12  
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