Comments on: US unemployment should have been expected http://www.johnredwoodsdiary.com/2007/09/08/us-unemployment-should-have-been-expected/ Conservative Party Member of Parliament for Wokingham Mon, 06 Oct 2008 14:29:58 +0000 http://wordpress.org/?v=2.6.2 By: Tony Makara http://www.johnredwoodsdiary.com/2007/09/08/us-unemployment-should-have-been-expected/#comment-5751 Tony Makara Sat, 08 Sep 2007 09:28:09 +0000 http://www.johnredwoodsdiary.com/2007/09/08/us-unemployment-should-have-been-expected/#comment-5751 Let us hope that the sub-prime crisis will serve as a 'Case-Study' for future students of finance. Ben Bernanke has been overwhelmed by events to a large extent. He gave signals to the market that a rate cut was on the way but then it didn't come creating all manner of uncertainty. The entire cashflow question needs to be studied and understood by all political leaders. I recently saw John McCain being interviewed and saying that he didn't fully understand all aspects of the sub-prime crisis and that he had financial experts to advise him. While Mr McCains honesty was certainly refreshing it goes to show that political leaders needs to try to understand market mechanisms beyond the macro level. Reply: Indeed they do.. The current centre of the crisis is in the three month borrowing market. Banks are having to make room for lending that the market is no longer willing to roll over. Let us hope that the sub-prime crisis will serve as a ‘Case-Study’ for future students of finance. Ben Bernanke has been overwhelmed by events to a large extent. He gave signals to the market that a rate cut was on the way but then it didn’t come creating all manner of uncertainty. The entire cashflow question needs to be studied and understood by all political leaders. I recently saw John McCain being interviewed and saying that he didn’t fully understand all aspects of the sub-prime crisis and that he had financial experts to advise him. While Mr McCains honesty was certainly refreshing it goes to show that political leaders needs to try to understand market mechanisms beyond the macro level.

Reply: Indeed they do.. The current centre of the crisis is in the three month borrowing market. Banks are having to make room for lending that the market is no longer willing to roll over.

]]> By: Brian Tomkinson http://www.johnredwoodsdiary.com/2007/09/08/us-unemployment-should-have-been-expected/#comment-5750 Brian Tomkinson Sat, 08 Sep 2007 08:49:56 +0000 http://www.johnredwoodsdiary.com/2007/09/08/us-unemployment-should-have-been-expected/#comment-5750 Whilst agreeing with the broad thrust of your argument, is it not the case that, in the UK, the Bank of England sets interest rates based on its responsibility to keep inflation at a target set by a certain G. Brown? During the past ten years Brown has manipulated the basis and content of this target so much that few people can recognise its current significance to their own experience. It can be further argued that if a lower inflation target had been set then interest rates in the UKwould not have dropped to the previously low levels. Criticise the banks by all means but don't let Brown off the hook. Reply: Very good point. I usually do point out that Gordon Brown changed from the RPI target to the CPI target, which meant lower interest rates beforte the last election. The CPI does not relate to most people's experience of the cost of living, and has been as much as 1.5% below the rise in the RPI. Whilst agreeing with the broad thrust of your argument, is it not the case that, in the UK, the Bank of England sets interest rates based on its responsibility to keep inflation at a target set by a certain G. Brown? During the past ten years Brown has manipulated the basis and content of this target so much that few people can recognise its current significance to their own experience. It can be further argued that if a lower inflation target had been set then interest rates in the UKwould not have dropped to the previously low levels. Criticise the banks by all means but don’t let Brown off the hook.

Reply: Very good point. I usually do point out that Gordon Brown changed from the RPI target to the CPI target, which meant lower interest rates beforte the last election. The CPI does not relate to most people’s experience of the cost of living, and has been as much as 1.5% below the rise in the RPI.

]]>