Sep 18 2007
The death of an “independent” Central Bank
Anyone who believed the perpetual Labout spin that they made the Bank of England independent in 1997 must be changing their mind today.
The Bank lost its role in regulating banks in 1997. It lost its function to manage state debt in 1997.
It was overruled on managing the foreign exchange reserves in the early Brown years.
It was given a much laxer inflation target to keep interest rates down before the last election.
This week the Chancellor has grabbed the microphone and announced emergency funds for a bank and announced a complete guarantee for all deposits in UK banks.
What is there left for the Central Bank to do on its own?
The truth is, in a democracy a Central Bank is only free to make the decisions the government (and ultimately the voters) think are acceptable. Germany enjoyed one of the longest runs with an apparently independent Central Bank. That Bank in the post war period did a good job controlling Germany’s money supply and inflation. At the end of its period running the DM the government overruled it on two fundamental issues. On the first the government required monetary union with East Germany on terms the Bank did not like. On the second the government destroyed the DM, the very currency the Bank had been established to protect from political interference.
In the UK today the government has decided they cannot let the Bank of England watch as a bank strives to catch up with demand from customers to withdraw their savings. The Chancellor has done a masisve U turn since last Thursday when we woke up to his interview in the Telegraph telling banks in general they had behaved badly and it was their fault if they got into trouble.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
The government’s public handling of the affairs at Northern Rock was lamentable. The interviews on radio and TV by Alistair Darling and Andy Burnham were so poor that they turned a move to re-assure lenders into a run on the bank, until last night’s guarantee statement from Darling. The message to Brown
(wherever he is hiding) is clear - the public does not trust this government after ten years of duplicity and deceit. It remains to be seen, however, if the Conservative Party can restore that public trust and confidence. Trust is easily lost but difficult to regain. I’m afraid that David Cameron has not made the best use of his two years as leader to earn that trust or offer an attractive set of policies to the electorate.
[Reply]
[...] their deposits. That people have so much faith in the state, when it was state interference (see John Redwood’s take on things) that laid the foundations for this [...]
You’re crying in the wilderness, John. Profligacy will win the election for Brown. Debtors outnumber creditors and debtors are more likely to vote Labour.
Reply: public sector profligacy is no longer an option for this government. They have wasted too much and are now having to rein in. I am saying interest rates are too high - not they are too low.
[Reply]
[...] I could
John, surely interest rates are too low and it is this which encourages reckless lending & reckless borrowing. King has been fatally undermined and has now been forced to bail out NR savers. Actually, the Government doesn’t give two figs for savers, as has already been demonstrated with the Pensions fiasco, because they are the minority and tend to be elderly and, crucially, natural Tories.
I think people are being naive if they think that the recent guarantee to savers was to protect savers. It was actually done to protect debtors, reckless ones and all.
Reply: I do not agree. The guarantee was to prevent a continuing run on the Northern Rock, and to reassure people about their savings in any other bank. Nor do I agree that interest rates are currently too low. They were far too low before the last election, but now they are high enough to create a serious squeeze.
[Reply]
I don’t want my savings guaranteed by the tax payer, thank you. No Government should be issuing such reckless guarantees. it was done to reassure borrowers that there will be money in the system for them to borrow and then they can show their appreciation by voting Labour.
Meanwhile Osborne says vote Tory because he’ll maintain Labour’s levels of spending. Well, my extended family will, I expect, dutifully cast their votes for Alan Duncan, again, out of a sense of loyalty, in spite of their contempt for such ridiculous guarantees.
We all remember who it was who said that you can’t buck the market, otherwise it will buck you.
Reply: Of course they should have taken action sooner to avoid these taxpayer guarantees, and should be working away now to replace tham as quickly as possible with a better system for managing the banks. Many people in this country want the government to spend our money more wisely and successfully, and want tax reductions as the government simply takes too much.
[Reply]
I realize that it was almost impossible for the Conservative Party in its present mood to say anything other than that they support the guarantee to savers in Northern Rock, given their fear of seeming harsh & uncaring. But they should have resisted the temptation and Cameron should have said, clearly and categorically, that if elected, no such guarantee would have been forthcoming from a Conservative Government.
The implication & interpretation of Osborne’s spending commitment is to say to Labour that you can be as irresponsible as you like with taxpayer’s money, you can nationalize the banks even, and the Tories will match it pound for pound.
Reply: Of course the Opposition had to accept the “guarantee” in the bad circumstances the government had placed itself in with a run on a bank. What the Opposition now has to do is to explain just how the crisis occurred, how it could have been avoided, and press to get rid of the guarantee as quickly as possible by regaining control of the money markets and returnign them to a more normal condition.
[Reply]
Here is why I shan’t bother voting:
http://trannyfattyacid.blogspot.com/2007/09/life-under-labour.html
[Reply]