Wednesday, 27 February 2013

Policy makers in the UK have created arbitrary winners and losers

Economist Ewen Stewart writes today in the Spectator on the monetary policy of BoE and government spending in the UK (my bold),
By international standards British monetary and fiscal policy has been extreme. Interest rates, at 0.5 per cent, are already at their lowest rate in the 300 plus year history of the Bank. The fiscal deficit, at over 8 per cent of GDP, is far worse than during the 1970s crisis and much greater than the Euro problem children of Spain, France and Italy. The euphemistically named ‘Asset Purchase Programme,’ or money printing in plain English, now exceeds £350bn and is proportionately much greater than that of either the US Fed, or the ECB. You would have thought that the economy would be jumping out of its sickbed with such medicine. Actually Britain’s GDP performance is the worst of any G20 country, bar Italy.
This well intentioned policy, designed to prop up fundamental fault lines in the British economy, has failed to deliver on almost every metric it was designed for. Despite this, all the Bank of England can suggest is an even more extreme version of past policy. It is like the old Socialist mantra- ‘well, of course Socialism has not worked, because we haven’t had the real thing yet!’
The reality is that policy makers are trying to keep an overheated bubble on the road, rather than tackle the underlying malaise of a public sector accounting for virtually 50 per cent of GDP (up from 36 per cent of GDP in 2000/01 under Blair and representing over half of the economy in seven out of 12 British regions), a desperately poor productivity performance, and an overdependence on finance and property related sectors which are now inevitably in decline.
Worse, this policy has created arbitrary winners and losers. Funnily enough, the winners include the Government, as artificially low interest rates insulate HMG from the imperative of reducing spending, which continues to rise despite George Osborne’s austerity rhetoric; and the indebted, through negative real interest rates. If the problem was too much debt, it seems bizarre to encourage piling yet more on. 
 For more on money printing in the UK go here. Here is the full article.

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