Thursday, March 05, 2009

A post on why I don't trust people in power to make sensible economic decisions

Listening to the PM programme on Radio 4 I heard the statement that printing of money as a stimulus 'had never been used before'.

It has, actually, and with dire consequences. It's one of the reasons that Henry VII was known as a miser, such was the state of the Treasury when he came to the throne in 1485. His son, alas, didn't learn either and the debasement of the coinage along with an influx of bullion and silver from the mines caused mass inflation and unrest.

Okay, we're in a different society now (although my experience at a bus stop in a dodgy part of London would lead me to say that it's not definitely better these days) but as one who is a supply side economist rather than a monetarist (tracking M3 didn't do us much good a few years ago) telling people you're going to inject money into the economy doesn't seem like a foolproof plan.

Back in the good old days before the hateful harbinger of doom was in No. 11 we were lucky enough to have gold reserves to back up our currency. Take a look at a note (It's going to be a £5 one for me) and it says 'I promise to pay the bearer the sum of £x'.

As unlikely as it is that someone popping into the Bank of England before Brown decided to flog the family Silver would be given a speck or two of gold, at least it was able to happen. Now we're on dwindling supplies of everything but hatred towards our esteemed MPs and, as much as I would like it to be otherwise, that isn't going to keep us in Chinooks and nurses.

The gold has been sold, our main export market is fucked and the threat of an EU financial regulator will have an even more devastating effect than the Nazis did on Coventry. And our M0 is going to be worth less. Surely?

I'm open to ideas here, chaps, except anyone telling me that either Labour or the EU is a good idea. Does one have to be a monetarist to see how this will work? Because I would like us to be out of this mess at some point soon.


Mark Wadsworth said...

1. The gold reserves had little to do with anything.

2. QE won't have any particular effect.

3. This whole financial crisis can easily be fixed by forcing banks to do debt-for-equity swaps or setting up new good banks and leaving the crap behind in old bad banks, the loss lies where it falls.

4. Abolish Monetary Policy Committee and allow markets to set interest rates.

5. Make it perfectly clear that the government is no longer interested in propping up house price bubble, promise to slash government spending and replace as many taxes as possible with Land Value Tax in two years' time.

7. It's spelled "licence".

8. Leave EU (obviously)

9. Sorted.

Trixy said...

I wouldn't be surprised if you wrote your comments in red pen.

The reference to gold reserves was actually made to highlight a very stupid decision made by our then Chancellor.
See, it's a post about how I don't trust our betters to make sensible economic decisions based on their track record.

Mark Wadsworth said...

Sure, when he was young and reckless he lost £2 billion on the gold reserves. But he also recouped £20 billion from the 3G auctions. I wouldn't mind the odd £2 billion foul up, it's the fact that they spend £2 billion PER DAY that upsets me.

The Great Simpleton said...

He was lucky with the 3G auctions. Some game theorist was brought in and tried a pet theory matched with a tech bubble and swinging dicks in the mobile operator world who had bigger egos than bankers did 3 years ago.

Flogging Gold when and how he did, despite warnings, was a concious decision.