Apropos Mark Carney and politics

Mark Carney seems to have glossed over his remarks prior to the the referendum which attempted to scare the electorate into backing remain - furthermore, he has persistently refused to be held accountable for his comments or to explain them in the subsequent light of the facts

The real disgrace is that at the time he used his 'trusted' position in order to influence those undecided voters to his way of thinking

Friday 13 May 2016 - Bank of England Governor Mark Carney delivering the quarterly Inflation report in London

'.. Brexit, to my mind, would have a material impact on growth and inflation. It would be likely to have a negative impact in the short term ..'

'.. I certainly think that would increase the risk of recession ..'

In short Mark Carney has never to this day provided a satisfactory response to his interference in the referendum or the following charges over his comments on the referendum

He was accused of '.. being "politically involved" and of bargaining with Chancellor George Osborne on warnings over the economic impact of Brexit ..' and furthermore, '.. he refused to publicly release notes of his private conversations with Mr Osborne, stating that MPs could see them if they wished ..'

With all this in mind his latest outburst about political interference is really rather peculiar

There has been a lot in the press lately about Mark Carney and the Bank of England railing against political interference by politicians

‘.. We are not going to take instruction on our policies from the political side ..’ 

Independent - Bank of England Governor Mark Carney Theresa May

However, Mr Carney seems to have forgotten that he was rather a political appointment in the first place by George Osborne the then Chancellor, so perhaps he should reflect on this before ‘shouting the odds’ – furthermore, if he had been half competent at his job the issue would not have arisen in the first place – and today we hear that he intends to bail-out by possibly resigning

‘Good effort’ – if only the rest of us could bailout of his legacy so easily on the same (pension / historical remuneration) terms as he will undoubtedly receive

Mark Carney may not want advice from politicians but looking back at the performance over his tenure to date, he certainly needs advice from someone because his term in office has not proved to be a resounding success and in fact has only made the whole economic climate infinitely worse than when he took office

Central Bankers as a group, apart from one notable exception Elvira Nabiullina  - Nabiullina named Euromoney Central Bank Governor of the Year 2015 - from the Russian Central Bank, have proved to be THE PROBLEM AND NOT THE SOLUTION

They have made incredibly bad decisions and persistently interfered with the global economy in one form or another over the past 8 years (and before). As a result of the actions of these Central Bankers we have been brought to the brink of a potential global systemic collapse

Throughout, Mark Carney has run with the herd of other Central Bankers by constantly cutting interest rates and printing money, instead of thinking for himself and recognising the potential future problems associated with the BoE decisions – as the saying in the past went ‘nobody was ever blamed for buying IBM’;  although, look at how they were overtaken by others as a salutary lesson for Mr Carney

In fact, for all the performance of this indecisive individual (‘unreliable boyfriend’), with rumours of interest rate cuts which never came to fruition, Mr Carney has been an unmitigated disaster – but then again so has his peer group, but blame is never allocated provided one is part of the herd when there is a collective ‘foul up’

All these failures by Central Bankers, and more, have been outlined in the Bank of International Settlements report - Bank of International Settlements (BIS)

 

Bank of International Settlements:

“Rising debt, lower productivity growth and diminishing room for policy manoeuvre have contributed to a build-up of vulnerabilities that give rise to three threats: macroeconomic instability; the adverse effects of persistently low interest rates; and a loss of confidence in policymaking”

 

All in all, not a pretty scenario and all brought about by the abject failure of Central Bankers of which Mark Carney is one.

By now interest rates should have returned to their ‘norm’ and not sunk ever lower, punishing savers, crippling pension funds and building up huge issues for future generations. The fault of the Central Bankers, those ‘wonders of the universe’, who are not really affected themselves because of huge salaries and very impressive pensions courtesy of the populations they are in the process of bankrupting!

Unfortunately Central Bankers / Governments / SEC / etc. never seem to learn from history and whereas they should have long ago broken up the big banks (too big to fail – requiring bail outs) and banned derivatives (baskets of goodness know what rubbish); instead of introducing more transparency they allowed greater leverage, destroyed the Chinese wall between commercial / investment banks (Glass-Steagall) - Glass-Steagall: aftermath of repeal - and continued with a whole raft of other mistakes 

Therefore instead of shutting down the problems before they became out of hand, everyone (SEC / Governments / Central Bankers et al) just relaxed the rules and joined the party with less regulation, banks became hedge funds, more derivatives, greater exposure, crazy bank capital rules introducing greater risk … and so on … with nobody taking any heed of warnings

Furthermore, the ratings agencies have also played their part and it is remarkable that they still retain the credibility that they do - Questionable Credibility Of the Ratings Agencies- In Aftermath of 2008 Crisis

Now we are at a point where there are only two ways out of the global debt – either actual default or default by inflation. This is why today’s solution is encouraging inflation to try and reduce the debt by once again manipulating the system. It is almost getting to the farcical situation where they should try the Governments Epiphany Over Perpetual Bonds approach - because we are now in the realms of fantasy with global debt, which under normal circumstance can never be repaid

Which is where we are today – global debt has ballooned from the last financial crisis - and when the next meltdown arrives the Central Bankers will have already expended their armoury after being totally incompetent over the past few years by adopting reckless policies and never learning

The only difference next time around will be size of the problem, which will be far greater than in the past and reflect the magnitude of the oversight of Central Bankers / Governments / etc. in failing to address all these issues long ago when they had the opportunity

And what of the bankers / hedgies / politicians that brought about the problems – they will be long gone – but even if they are still here NOTHING WILL THEIR FAULT and they will once again be underwritten by the rest of us

 

Reference

Bank of International Settlements

 

Tags: | Categories: Bank of England | Economics

The trouble with Government & Central Bank interference in markets is the law of unexpected / unknown consequences and this has been a situation repeated over history

Recessions are the markets way of weeding out potential issues. Inevitably some businesses go to the wall but in theory a severe downturn does leave a stronger more vibrant market with more opportunities, for those who can weather the storm

However, once Central Banks get involved in their misguided attempts to influence markets, a short sharp recession can drag on for years or decades whilst ‘zombie’ businesses are propped up and can keep going despite the fact that they should have been wound up years before

This is where we are today – a global foul up by Central Bankers, who, for some reason, seem to believe they know better than anyone else and continue to implement damaging policies in attempts to bolster consumer spending and all manner of other remedies to avoid a recession. Most of which only make the situation worse by kicking the problem into the 'long grass' for the future

  • Unfortunately they never seem to take on board the resulting fall out
  • Why are houses so expensive that the UK younger generation cannot afford to get a foothold on the housing ladder? - could it be because the knock on effect of low interest rates is increased property prices 
  • Is it really a good thing to encourage consumer spending at all costs – and ignoring the individual debt cost - generally incurred by those who can least afford it?
  • What happens when pensioners who were able to live on the interest from their capital can no longer do this with zero interest rates - inevitably they will go to the State for support to supplement their non-existent interest receipts - so this backfires on the State. After all we are now being told that within 8 years 20% of the population will be over 65 year old - so how many of these have been let down by the BOE decisions & how are they to make up for their shortfall in their income as a direct result of Central Bankers?

Therefore, how does a race to the bottom by Central Bankers benefit anyone with ever lower interest rates, whilst each country tries to 'steal a march' on others by reducing their rates even further?

Furthermore, why is there such a disparity between Credit Card interest rates and the BOE rate? – and what, if anything, has been done about the usury rates charged by Credit Card providers. How about policies such as making Credit Card interest rates no greater than say the Bank Rate plus 10%

And now these 'Masters of the Universal' have hit upon negative interest rates, helicopter money and all sorts of ideas that will only exacerbate the current situation in an attempt to ensure short term fixes at the expense of future problems

Enter Perpetual Bonds – Wow, here is a winner! 

We all know that global debt is pretty much beyond counting so this could be the answer to Government dreams

Essentially Perpetual Bonds - aka Consols but potentially ex coupon - have no maturity date, and when one couples this with zero or negative interest rates, Governments around the world suddenly have an epiphany

Why don’t we issue ‘perps’ combined with zero/negative interest – which would solve the global debt problem. After all if one can get enough ‘suckers’ to buy these bonds then:

  • It is very cheap money (borrowing) – bond holders are paying you interest to hold your paper
  • Here is the kicker, you never have to pay the money back (perpetual bond) and over time the debt will erode to nothing anyway

So why not load up these bonds with the entire global debt and just move on - problem solved

OR SO THEY THINK!

Tags: | Categories: Bank of England | Economics | UK Government

Negative interest rates have been on the cards for sometime and seem to be one of the solutions of Central Banks - who are themselves fundamentally flawed by insisting on interfering with the markets

Why is it that the banking system seems to constantly get away with ridiculous practices that would not be permitted in any other industry - whilst at the same time lining their own pockets with disproportionate salaries?

If zero/negative interest rates are the order of the day then they should apply to everything across the board and not selective areas. Should the banks choose to impose negative rates on credit balances the they also ought be subject themselves to the same interest rates when they lend out money - resulting in the fact that they should pay borrowers interest rather than charge them interest.

This would apply in paying interest to those who hold mortgages or overdrafts and the biggest disgrace of all are the interest rates charged by credit card companies which is bordering on usury at 25% plus, when the Bank of England rate is so low

Yet nothing seems to be done about credit card interest rates by the Government - why not?

However, at the same time nobody seems interested in putting a stop to the banking systems use of 'fractional reserve banking' - unless digital currency puts an end to this practice

All this would seem to be a push to do away with cash and replace it with a digital currency such as bitcoin and if this came to pass the current banking system as we know it would become superfluous. After all why would anyone hold money in the current system with the potential of a run on the banks or RBS scenario when it would be held in a new (revamped) style central bank

Unfortunately once this 'demise of cash' occurs, consumers could be 'forced' to spend a certain amount or otherwise incur penalties and far too much control then passes over to the Central Banks - to abuse their position at will

In the meantime, how do the Central Banks propose to deal with any future recessions under their current policies? After all, the present problem is too much global debt in one form or another and the Central Banks will have used up one of the tools in their armament by forcing down interest rates from sensible levels to levels that bear no relation to risk and will eventually become the new norm for a whole generation 

Making the 'fallout' from even a modest interest rate rise very considerable

Furthermore, what do Governments do when their entire ageing population comes knocking on their door because they cannot afford to live with 0% interest on their savings, which have become worthless?

And as for the farcical 'stress testing' for residual capital on the banks balance sheets after an 'adverse scenario' - whose money is it anyway on their balance sheets and if it were not for the bankers slight of hand, claiming clients money as their own would they even be in this situation in the first place? What about ring fencing client money in the first place rather than claiming it as their own?

Tags: , | Categories: Bank of England | UK Government | US Government

Let’s keep the issue simple so that it does not become too involved

The Bank of England is making a great mistake in clamping down on borrowing so late in the economic cycle when it should really have been addressed far earlier. Their proposal for mortgage ‘stress testing’ is badly thought out and will inevitably be subject to the law of unforeseen consequences by penalising buyers in poorer areas of the country

Firstly the BOE dropped interest rates to artificially unrealistic levels and held them in this depressed state for a number of years, whilst ignoring the impact on savers, who were held out to dry

Secondly the BOE imposed no controls (stress testing) early on at the start of the economic cycle on mortgage affordability and took no account of interest rates inevitably returning to their mean. They now seem surprised that anyone who could, took out unaffordable mortgages, at unrealistic long term interest rates, on unrestricted multiples of income. What did the BOE really think would happen with the introduction of cheap money – one doesn’t really need a crystal ball to predict the outcome?

Now both the BOE and politicians are caught in a dichotomy between economic and social considerations, because interest rates cannot be raised without the inevitable social fallout when mortgage repayments rise and existing home owners cannot afford their repayments. We are told that a 0.5% rise in rates will cause problems for 750k mortgagees and no politician likes the prospect of political suicide such as this

Nevertheless this is the present reality, so what is to be done?

The simple facts are

  • Any housing bubble will be driven by London and the South East in the main, although there are other pockets throughout the country as well
  • Other areas in the county are either stagnant or have falling house prices

The question therefore is how to curb one without affecting the other.

With this in mind, we need to ask what element under state control affects housing irrespective of location and remains pliable. Surely the answer is the rating system and by controlling the rates it is surely remarkably simple to influence the housing market, as well as raising money from wealthy areas to support those that are less fortunate

The current rates system has a cap at the highest band H, which equated to a house price of £320k as at April 1991 (or approximately an average of £1.05m today)

Therefore by definition anyone with a house valued at more than band H is getting a ‘free ride’ by not paying the same proportion of their house value as those lower down the scale; furthermore, the greater the house value the more inequitable the whole situation becomes

Possible Solution

Adopting the following simple approach would allow the weighting to be in favour of those areas in the country where house process have stagnated whilst potentially curbing possible housing bubbles in areas such as London

Change the rating system to be a single percentage for all domestic properties (say – 0.3%) over the entire country and use the latest Land Registry purchase as the base value of the property

  • Easy to implement & collect
  • Simple to change the percentage if necessary
  • Automatic adjustment every year according to Land Registry records – no challenge to RV possible
  • Accommodates asset rich/cash poor who have owned their house for many years
  • Everyone pays the same percentage on the last purchase price of their house

Naturally there will be objections but on balance this is probbaly the simplest and fairest solution to a difficult issue. After all if one can afford to purchase an expensive house then you should be able to cover the running costs; alternatively don't buy the property, it really is very simple

Reference

Mansion Tax Acceptable Idea With Shambolic Presentation

Tags: , | Categories: Bank of England | UK Government