BRITAIN’S Rotten Parliament has now closed down so that the politicians can seek re-election and add yet further confusion to the economic mess. The last thing the voters should expect is clarity.
Everybody’s doing the Pontius Pilate act – washing hands, blaming everyone else for the crucifixion of the Western economy.
Alan Greenspan, the ex-Fed Chairman, now says he could not have regulated the sub-prime scam because, by 2005, more than half of these mortgages were being originated by institutions outside the control of America’s central bank.
Gordon Brown blames it on US bankers and is fighting an election as if he made no contribution to the UK recession. Throughout his tenure as Chancellor of the Exchequer he repeatedly affirmed that a house price boom would jeopardise growth. We had the boom. And the bust. But apparently house prices are not part of his definition of “inflation” – so he’s not to blame, guv.
Consolidating the Depression
And so the Bank for International Settlements now signals the tragedy of compound interest rates pushing sovereign debts beyond the control of governments. In its latest report, the BIS singles out Britain as the worst of the bunch. Debt is forecast to reach 300% of GDP by 2040 under the moderate fiscal tightening policy countenanced by British politicians.
It is not correct to say that there is no escape route out of the debt predicament threatening Western nations. The blueprint is spelt out in the last chapter of 2010: The Inquest. But since the rational policy will not be adopted (although the Irish government is taking a peek at it), we can safely forecast a continuation of the crisis for the rest of this decade.
Art or Science?
In 1997, Gordon Brown made his first mistake when he hived off responsibility for economic stability to the Bank of England. He didn’t know what he was doing (despite my efforts to inform him), and the Bank of England didn’t know what it was doing, either, we now know.
To be fair to the Bank, monetary policy never was going to deliver the stability required by Brown. His litmus test: prevent house prices getting out of hand. Manipulating interest rates cannot stop the flaws in the economy from driving money into the land market where the largest capital gains are to be made over the property cycle.
On the other hand, the Bank should know a thing or two about the tools at its disposal. Its track record proves that it didn’t know then, and it doesn’t know now. In its latest paper co-authored by Governor Mervyn King, eight members of the Bank’s staff ruminate on whether it is dealing with an art or a science. If they don’t know now, what chance is there of Britain weathering the economic tsunami?
The Bank takes a sideswipe at what it calls the “quackery” of the non-experts in its field, but then concludes (and this is after 200 years of theorising) that “because the surrounding environment can affect economic decision-making, there are probably few genuinely ‘deep’ (and, therefore, stable) parameters or relationships in economics”.
This is special pleading by a Bank that failed in its duty of care and is now justifying itself by rubbishing its own tools. There is an old English saying: a bad workman blames his tools. That’s what we are now getting from the Bank of England. From now on, the ride gets rougher because the guardians of our welfare just don’t know what they are doing.