Reply to: Merv

[Freamon]

Yes, so now we have it - low interbank rates that are completely independent of central banks have forced their hand to keep rates at current negative (with inflation taken into account) rates.

Since that does not depend on BoE, they might as well jack up their rates without any problems.

The only problem is that if the BoE did do as you suggest, they would lose any remaining credibility they have, and the "BoE controls rates" smokescreen would be well and truly blown. So they are forever condemned to follow the market, I'm afraid.

[AtW]

as opposed to the overnight interbank rate

Yes, so now we have it - low interbank rates that are completely independent of central banks have forced their hand to keep rates at current negative (with inflation taken into account) rates.

Since that does not depend on BoE, they might as well jack up their rates without any problems.

[Freamon]

They vote in MPC meeting and set BoE rates. Previously that was enough on its own, now they have to resort to money printing to actually buy gilts directly from Govt (and thus control interest rates paid by UK Govt on gilts and this has got effect on many other things linked to it), or indirectly via banks who'd buy gilts and then sell them back (at an immediate profit) to BoE.

There are other way such as using massive shareholding at banks that were nationalised and using other unwritten leverages on banks that did not (Barclays).

In a country that lives by unwritten constitution such things are to be expected.

In a way BoE put rates so far down that they no longer work as well as before - banks still need to make billions of profits to pay for all those bonuses, but you can bet that as soon as BoE raises rates (next century probably) then everyone will jack up their rates too, apart from savings accounts maybe.

HTH

Nope, sorry, doesn't help at all as you have completely omitted to mention the OMO system which is the BoE's primary method of supposedly "controlling" interest rates. The fact that you mention QE which can only affect long term gilt rates, as opposed to the overnight interbank rate that the BoE claims to "control", just demonstrates your lack of understanding. I even posted a link to the wikipedia page on OMO in my previous post, which you seem to have deliberately ignored.

There's no helping some people.

[d000hg]

Stay out of this kiddo.

Again, hilarious considering the source.

[AtW]

Beautifully tragically ironic.

Stay out of this kiddo.

[d000hg]

B0llox. Just most of other stuff on economics that you post.

Beautifully tragically ironic.

[AtW]

But none of this explains how the BoE (or government, if you prefer) controls rates.

They vote in MPC meeting and set BoE rates. Previously that was enough on its own, now they have to resort to money printing to actually buy gilts directly from Govt (and thus control interest rates paid by UK Govt on gilts and this has got effect on many other things linked to it), or indirectly via banks who'd buy gilts and then sell them back (at an immediate profit) to BoE.

There are other way such as using massive shareholding at banks that were nationalised and using other unwritten leverages on banks that did not (Barclays).

In a country that lives by unwritten constitution such things are to be expected.

In a way BoE put rates so far down that they no longer work as well as before - banks still need to make billions of profits to pay for all those bonuses, but you can bet that as soon as BoE raises rates (next century probably) then everyone will jack up their rates too, apart from savings accounts maybe.

HTH

[Freamon]

A better question would be how Govt who has made BoE "independent" manages to keep rates low to suit their own needs.

The answer to this is hidden in how Monetary Policy Committee (MPC) members who are technically setting the rates are appointed in the first place, don't take my words for it:

"The Bank's Monetary Policy Committee (MPC) is made up of nine members – the Governor, the two Deputy Governors, the Bank's Chief Economist, the Executive Director for Markets and four external members appointed directly by the Chancellor. The appointment of external members is designed to ensure that the MPC benefits from thinking and expertise in addition to that gained inside the Bank of England."

Source: Bank of England | Monetary Policy | Monetary Policy Committee (MPC)

I've seen more independent Soviet Parliament elected directly by the people

But none of this explains how the BoE (or government, if you prefer) controls rates.

Hint: Open market operations - Wikipedia, the free encyclopedia

[AtW]

Please explain the mechanism by which the BoE controls interest rates.

A better question would be how Govt who has made BoE "independent" manages to keep rates low to suit their own needs.

The answer to this is hidden in how Monetary Policy Committee (MPC) members who are technically setting the rates are appointed in the first place, don't take my words for it:

"The Bank's Monetary Policy Committee (MPC) is made up of nine members – the Governor, the two Deputy Governors, the Bank's Chief Economist, the Executive Director for Markets and four external members appointed directly by the Chancellor. The appointment of external members is designed to ensure that the MPC benefits from thinking and expertise in addition to that gained inside the Bank of England."

Source: Bank of England | Monetary Policy | Monetary Policy Committee (MPC)

I've seen more independent Soviet Parliament elected directly by the people

[Freamon]

No - rates are low because BoE keeps them low _AND_ prepared to print money to back it up.

How, pray tell, does the BoE keep them low? Do they have a magic wand? Please explain the mechanism by which the BoE controls interest rates.

[AtW]

Another example of Merv acting on behalf of his Govt puppetmasters (that's my opinion anyway):

Bank of England governor Mervyn King 'out of touch' , says City - Telegraph

[AtW]

Rates aren't low because the BoE is keeping them low.

No - rates are low because BoE keeps them low _AND_ prepared to print money to back it up.

[Freamon]

BoE's job is to ensure inflation is in check - they've got very specific target in this respect. The tools that are available to them is interest rates: even if you accept that prior to crisis they could not technically raise rates because Govt excluded cost of rent/mortgages from inflation figures, but later when even official inflation gone through the roof they MUST have done their job: raise rates instead of dropping them.

Now that would certainly be against Govts wishes - both old Labour and new Conservative. I don't think Merv is incompetent - he is just obeying orders (who cares if they are unwritten - this country lives by unwritten constitution) and his actions speak louder than his words.

The whole interest rate setting MPC "inflation" targeting process is a massive smokescreen. Rates aren't low because the BoE is keeping them low. Rates are low because there is no demand from businesses to borrow money, because businesses are not expanding. This isn't what the govt wants, as benign economic growth is contrary to their aims of staying in power. So if the BoE had any influence here, and was in the govt's pocket, you can bet they would prefer rates to go higher. Low rates, on the other hand, suits the banks very nicely as it allows them to recapitalise.

0.5% base rates are a symptom of a sick economy, and this is entirely against the govt's wishes. They'd much rather have rates at 5% and have a good economic recovery - govts are much more popular in those circumstances.

Meanwhile, the BoE continues a massive power-grab in the form of QE, and now owns 25% of the uk govt debt market. Think for a second about the power this gives them over the idiots in Westminster.

And behind the scenes, they continue to lobby on behalf of the banks and the corporation of London.

[AtW]

Any evidence to support this at all? Thought not.

BoE's job is to ensure inflation is in check - they've got very specific target in this respect. The tools that are available to them is interest rates: even if you accept that prior to crisis they could not technically raise rates because Govt excluded cost of rent/mortgages from inflation figures, but later when even official inflation gone through the roof they MUST have done their job: raise rates instead of dropping them.

Now that would certainly be against Govts wishes - both old Labour and new Conservative. I don't think Merv is incompetent - he is just obeying orders (who cares if they are unwritten - this country lives by unwritten constitution) and his actions speak louder than his words.

[Freamon]

B0llox. Just most of other stuff on economics that you post.

BoE has got exclusive rights to print money, so what? That's common in most countries.

What's more important is who calls the shots, ie who really makes decision whether to change rates, or to print money - until some time recently there was an illusion that BoE was doing it because it was supposedly "independent", I always thought it was a steaming pile of bulltulip - it is obvious now even to andyW that BoE is anything but independent: they are a puppet of the Govt like they used to be before their supposed "independence".

Why? Because nobody gives independence just like this - it has to be earned in blood just like Americans did, only after that freedom is truly valued.

HTH

Any evidence to support this at all? Thought not.