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Unlikely to achieve much. It's printing press time. But to make the printing press work, we'll need to manage inflationary expectations much better than at present and in a different way from recent years.

It's time for a price-level target. I know I keep saying this. And I'll keep on saying it until someone in the UK starts paying the blindest bit of attention.

What do they expect to achieve by this ?

My assumption is to make savers spend as their money is wiped out at negative real inflation rates.

I thought this would happen though I am of the Redwood school that says 2pc was more than enough.

I must say he has "had a good credit crunch". While recognising his limitations pr wise, I'd very much like him to go further - he would make an excellent Chancellor. He has a true and deep grasp of economics and would actually have made mincemeat of Brown who really understands little but is good at memorising stats and reproducing them so eveyrone thinks he MUST be clever.

Anyone else agree - Redwood for Chancellor?

Redwood or Andrew L that is!

Andrew, I must say, your pieces are excellently argued and have taught me a great deal.

Lilico and Redwood have both displayed excellent judgement during the Credit Crunch, being sceptical about the recapitalisation plan from day one when Cameron and Osborne were championing it, instead favouring large tax cuts.

Unfortunately both Labour and the Tories ignored them, and Britain will suffer the consequences for years to come no matter which of these two parties is in power.

Anyone remember the Heath/Barber “Dash for Growth”?

It all ended in tears and stagflation. That is where we are heading again now.

What would the Cameroons do instead? Answer came there none.

Alas our poor country!

I am beyond angry at this. Money I have been left by dead grandparents, put in the bank for whenever I leave University (incidentially with a huge debt thanks to the probable action which will result in the Tuition-fee cap being removed), could be reduced significantly because of the difference between the interest rates and potential for high levels of inflation.

Gordon Brown is ruining the people of this country who have be responsible in order to avoid the whole electorate finding out about his decade of irresponsibility - just to save a few lousy Labour seats. Does the man have to play Politics with everything? This is people's livelihood we are talking about. I'm more than disgusted. I thought he couldn't sink any lower.

Next step, negative interest. You pay the bank for the privilege of giving them your money. Are we all going mad, or is it just me?

This won't make much difference. Neither will the next cut(s).

Be prepared for the printing presses to roll.

Then be prepared for the destruction of the currency and the bankruptcy of the country.

Am I the only person who's becoming uneasy over the ro,e of the bank of England? They're supposed to be independent, but they've increasingly been influenced by the treasury on what to do.

If interest rates are at 315 year low, then presumably either the economy is in the best shape ever, or it's in the worst shape ever.

"It's time for a price-level target. I know I keep saying this. And I'll keep on saying it until someone in the UK starts paying the blindest bit of attention."

Please no more monetary manipulation. Especially as prices increases and decreases aren't universal. Introduce free banking and get the government out of the money supply. Government has caused this problem, it sure as Hell ain't gonna solve it.

We could also do with a gold currency. That would stop the clowns in charge from messing around with the value of the pound.

Is this really going to help? Obviously it will hurt savers and sterling may will take a beating as the interest differential with the Euro is now 1%. This will make imports more expensive adding to inflation.
But will it benefit borrowers? I've read so many reports of banks not passing these rate cuts on because of the growing differential between the base rate and the inter-bank lending rate who in the end will benefit?
As a general point it seems bank/treasury policy is to hurt the thrifty but not really benefit the over borrowed.

support the strivers at 12:08

"Anyone else agree - Redwood for Chancellor"?

Redwood's blogs for months now have put the official party spokesmen to shame; long ago, I seem to remember, he stated that Brown was correct in deciding to stimulate the economy but wrong to recapitilise them. He said they needed liquidity but it was up to the banks to perform properly and build up their balance sheets again over time.

Had he been shadow chancellor - or even just a member of the team - we might perhaps have heard a strong and coherent alternative message to the government's which I believe would have resonated with the public and built up confidence, which is now so important.


That's it - we're screwed.

Where's my passport ... and where do I buy gold?

As I'm worried I may lose my job I shall be increasing my savings. I suspect many people will be doing the same.

I for one will not be bullied into spending and borrowing at a time like this.

Interesting post on Guido's just now. Bit scary, though.

your favourite mole @ 11.34am

"...printing money is a smokescreen. Appropriation of assets during unprecedented global emergency to save the Nation is the "spin" being discussed. In fact it has gone beyond that and snotty is thrilled to bits at the control he has and can exercise. It is to be "sold" as the necessary expedition of totally managed wealth re-distribition"

Mole may be right. Reading this last sentence gave me a sickening sense of deja vu. Tom Bower (writer of the biog. of Brown which wasn't an hagiography)made it clear that the re-distribution of wealth has been an over-arching pre-occupation for Brown since the time of his first adoption of socialism when he was a mere nose-pickerette.

January 8, 2009 12:52 PM

Edward Huxley at 12:31
>>Next step, negative interest. You pay the bank for the privilege of giving them your money. Are we all going mad, or is it just me?<<

Actually, I don't think that IS mad. I think its common sense. (Not negative interest... which is insane... but paying a fee for a bank account.)

The problem with the banks is that everybody forgot they were making an *investment*. There is no such thing as risk-free investment. If you are getting interest, then you must also accept the chance of losing your investment. Banks have been so solid, for so long, it became considered the status quo. But that wasn't the reality of it and now everybody is finding out what stock marketeers always knew, there's no investment gain without risk.

In my opinion, banks should offer two sorts of account; lets call one "guaranteed" and the other "speculative".

The Guaranteed bank account offers no interest and charges you a monthly fee for keeping your money in it. Basically, its a 'vault' service. You get the use of your bank cards and online banking, because that's covered by the monthly payment you make. The money in a guaranteed bank account is then ring-fenced and kept as real capital, seperate and untouchable, protected by law and regulation.

The second sort of bank account, "speculative", is the more traditional type we use now. With interest and with associated risks. Regulation forces these accounts to be clear about the risk to those people choosing to operate this sort of bank account.

When people think that they can get "profit without risk" they are incorrect and sooner or later the truth makes itself known in a very uncomfortable way.

You may argue that some banks offer little or no 'interest' on current accounts, but even in those circumstances they are offering you the bank account service, which has a cost attached and must therefore be paid for by the bank "investing" your money in areas which carry risk.

Let's be honest. If somebody said to you "here's some money. Keep it safe for me. I'll be phoning and emailing you quite often to tell you what I want you to do with it," you'd probably expect some recompense for that, right? The recompense is either a regular payment, or the ability to invest the money for some gain. When you invest, you always have inherent risk.


Steve,

You don't need to go quite so far as vault accounts. Gilt participation accounts should be enough, as I spell out here: http://conservativehome.blogs.com/centreright/2008/10/on-deposit-insu.html

Steve makes some useful comments. On a slightly different tack,aren`t we all fed up with these politicians blaming one another when to be honest there is no sure way out of the fix we are in? All we get is point scoring.

Student loans still being charged interest at RPI - scandalous.

Councils that rely on investment income to fund ongoing costs will be putting up the Council tax or making more public sector workers redundant.
Lots of unintended consequences

Comments about harm to savers seem to me to be a bit wide of the mark (and for the same reason, which I shall come to in a moment, I'm not enamoured of our savings tax cut). To be sure, income on savings has been adversely affected by interest rate cuts. But that doesn't mean savings have become relatively less attractive, for shares have lost something like one third of their capital value, houses are down something like 20%, and many other investments have performed badly, also.

So, in come terms savings have suffered. But as investments (for that is what they are), savings have performed rather better than most over the recession so far. Savers have done relatively well, not relatively badly. (Hence, when we come to the savings tax cut, I'm not sure why those of us who have done worse - e.g. those of us with shares - should be subsidising those of us that have done better - e.g. those with deposit savings. What is the policy purpose of that?)

It's all a mystery to me. Why are Barclays apparently paying 12%+ to borrow money from the Middle East but only offering 1 or 2% to their own retail depositors?

Cheaper cocaine obviously wouldn’t reduce cocaine addiction. How, therefore, can George Osborne that cheaper debt will reduce debt addition? He is 180 degrees wrong about this.

...George Osborne imagine that cheaper...

"I'm not sure why those of us who have done worse - e.g. those of us with shares - should be subsidising those of us that have done better "

Those with shares knowingly took a gamble. Those with bank deposits were sold a product that has traditionally paid a reasonable return.

"What would the Cameroons do instead? Answer came there none."

Alas our poor country!


Posted by: David_at_Home | January 08, 2009 at 12:26

Finally I have come to the conclusion that Dave_at_home is a Labour troll. After reading an article with Osborne talking about Tory policies relevent to credit availability he says they "do nothing". Or, perhaps, David you can't read.

"Am I the only person who's becoming uneasy over the role of the bank of England? They're supposed to be independent, but they've increasingly been influenced by the treasury on what to do.

Posted by: Will S | January 08, 2009 at 12:39"

Is not this yet another of Gordon Brown's little deceptions? He did not give independence to the BoE, he gave it to the Monetary Policy Committee with the remit to restrict inflation to a pre-determined band (Andrew L - please confirm/correct).



Mr Osborne said [on Sky News] the cut in interest rates to 1.5% was necessary


Why?

Cutting from 5.75% to 2.00% hasnt worked, what will a further 0.5% do.

The cuts in rates are necessary, said Clueless of Tatton.

This is farcical. The B of E cuts interest rates to levels noone can borrow at because noone is lending.

Noone is lending because they overloaned in the past and lack reserves or collateral for bad debts

Just why is making banks vulnerable to savers queuing up to withdraw cash balances a good idea ? Images of depositors withdrawing cash to bury in the garden will do little to encourage investors to buy Gilts. Germany just had a second Bund auction bomb and if Germany cannot fund itself how can the offshore banana republic ?


Osborne is devoid of any economic nous and frankly the Tories are not a party of economic competence but of spin and PR. Labour should be destroyed at the next election and below 100 seats but the Conservatives are working hard to save them - no doubt we will get a Grand Coalition as in Germany with Cameron as Home Secretary and Vince Cable as Chancellor under Prime Minister Jack Straw

The cut in interest rates is utterly pointless. It is confidence that has been destroyed and that is not improved by penalising the thrifty to subsidise the feckless.

Thinking of David @ 15.03 there is one way in which government borrowings could be improved and the lot of savers at the the same time. HMG could simply pass on their shares at par (or whatever they paid) giving savers a 12% return and relieving borrowings; I imagine quite a few pension funds would also take a guaranteed 12%!

Conservative Homer, I agree, why was the cut necessary, if the economy wasn't sorted by a 2% cut then it isn't going to be fixed by a 0.5% cut, or with rates at a nominal 1.5%. In fact I don't think this cut will be passed on to the borrowers, but savers will feel the pain, so this cut is likely to worsen the situation, as savers income is going to be hit, but we aren't going to see the benefit from the other side.

Somebody was asking on a thread a couple of days ago, if anybody knew what the ratio of borrowers to savers was, I don't think they got an answer.

Well according to an article in the Mail today - which I presume is accurate - savers outnumber borrowers by seven to one!!

If that is the case, Brown must be aware of that, and if he isn't he should be.

So Brown is very well aware that his latest manoeuvres, will hurt the large number of savers, while having NO effect on borrowers, because the banks are not passing on the interest rate drop.

Mr. Brown is not interested in prudent people, he was only interested in the political effect of the word 'prudent' when HE said it - for that effect, a political effect. As has become completely obvious recently.

As Iain Martin said in the last paragraph of his article in the Telegraph of 6.1.09: -
'Throughout his career the PM has relied on the idea that in the moral dimension he has an advantage denied to lesser mortals, framing his arguments constantly in terms of their innate goodness..........'

So as Mr. Brown whizzes around the country today (but probably NOT down in the South here!), 'meeting the people', with journalists of course, somebody has advised him to SMILE, probably to reassure people that he meets, but he only succeeds in looking inappropriate!

We have no children and no mortgage or loans, only some savings.
2.5% VAT reduction is a joke during 50-70% sales discounts.
Lower savings rates down from 6% to 2.8% at B'ham Midshires will reduce income and therefore we will pay the rates, water, gas, electricity etc and not buy for no reason.

People who became and may still be rich did so by watching the outgoings, not by splashing out on any whim.
Saving, cutting mortgages and credit cards owed come first.

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