Monetary madness

Allister Heath has a good article on Bank of England proposals for negative interest rates:

We already have negative real interest rates at the moment, with the interest far lower than the rate of inflation. But negative nominal rates would represent a complete break with the status quo: depositors would have to pay their bank, rather than the other way around.
...
negative interest rates would decimate savers. They would be the sort of policy that is almost designed to undermine the middle classes, especially those with relatively modest assets and savings. They would chip away at a key foundation of capitalism and a demographic with a vested interest in its preservation; down that road lies Italian or French style poujadisme and middle England rage.

The Centre for Policy Studies provides useful context. QE has already been larger, relative to GDP, in the UK (22 per cent) than in either the US (13 per cent) or the Eurozone (4 per cent). It has helped mop up 46 per cent of the massive issuance of UK sovereign bonds over the past five years – the volume of outstanding gilts has increased by two and a half times in just five years, by £832bn, the equivalent of £33,000 for every UK household, much of which has been monetised. QE has crippled savers, who are losing an estimated £65bn a year in interest forgone, according to Ewan Stewart, author of the research. Between January 2008 and December 2012, sterling lost 17.2 per cent of its purchasing power thanks to inflation. Why are we still so obsessed with loosening monetary policy yet further?

I recommend the whole article.

Also worth reading is the latest from Westminster's most promising MP, who recently made an appearance on Newsnight:

Having mostly failed to see this crisis coming before failing to predict even the general pattern of events, senior economists now want more of the medicine which already nearly killed the patient. This may look like madness or stupidity to those of us without a high level of formal education in economics. It is neither. Contemporary economists are trapped in an intellectual prison founded on now-old errors of method and epistemology: the knowledge and simplifications necessary to make their mathematical models work are unavailable and invalid respectively.
...
We have been on a merry-go-round of deficit spending, excruciating taxes, heavy borrowing and easy money for most of 40 years. That merry-go-round is now running down and will stop. Attempts to spin it up through monetary policy are extremely dangerous: they will store up worse trouble for later.

If the Government does not act to end expansionist policy in time by a return to balanced budgets, by ending government borrowing from the commercial banks, by stopping quantitative easing and by letting the market determine the height of interest rates, then it will have chosen the German way of 1923.

It will be extremely difficult to convince those clasping the levers of power - at the Treasury and the Bank of England - to give up their absurd attempts at monetary central planning, but it is reassuring that some in positions of influence recognise the madness of current policy.

Schlichter: bubble trouble

The minutes of a recent meeting at The Fed have been upsetting markets:

many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behaviour that could undermine financial stability.

In his latest article, Detlev Schlichter offers a handy translation:

Guys, let’s face it: All this money printing is not without costs and risks. Three problems present themselves:

1. The bigger our balance sheet gets (currently, $3trillion and counting), the more difficult it will be to ever offload some of these assets in the future. When we start liquidating, markets will panic. We might end up having absolutely no maneuvering space whatsoever.
2. All this money printing will one day feed into higher headline inflation that no statistical gimmickry will manage to hide. Then some folks may expect us to tighten policy, which we won’t be able to do because of 1).
3. We are persistently manipulating quite a few major asset markets here. Against this backdrop, market participants are not able to price risk properly. We are encouraging financial risk taking and the type of behaviour that has led to the financial crisis in the first place.

Schlichter's verdict?

All these points are, of course, valid and excellent reasons for stopping ‘quantitative easing’ right away. Readers of this site will not be surprised that I would advocate the immediate end to ‘quantitative easing’ and any other central bank measures to artificially ‘stimulate’ the economy. In fact, the whole idea that a bunch of bureaucrats in Washington scans lots of data plus some anecdotal ‘evidence’ every month (with the help of 200 or so economists) and then ‘sets’ interest rates, astutely manipulates bank refunding rates and cleverly guides various market prices so that the overall economy comes out creating more new jobs while the debasement of money unfolds at the officially sanctioned because allegedly harmless pace of 2 percent, must appear entirely preposterous to any student of capitalism. There should be no monetary policy in a free market just as there should be no policy of setting food prices, or wage rates, or of centrally adjusting the number of hours in a day.

Superb. I recommend the whole article.

Right wing extremists

I caught a few seconds of BBC Breakfast this morning. The presenter was describing an attack on football supporters in France as the work of "right wing extremists".

This sort of casual slander by association is so common that it goes unremarked.  I've said it all before, and I won't repeat it all here, but it's clearly ludicrous to imply that National Socialism, with its glorification of an all-powerful state, is somehow a more extreme version of Lady Thatcher's belief in personal responsibility, private enterprise, and a smaller, less intrusive government [1].

It is obvious to any unbiased observer that Fascists and National Socialists are to the left of the political spectrum.  They have much more in common with Old Labour and the BNP than with today's Conservative party.

But if you point this out, you're liable to be deselected as a Conservative candidate and fired from public office, as Rachel Frosh discovered.

Daniel Hannan's recent post on the subject is worth reading:

'I am a Socialist,' Hitler told Otto Strasser in 1930, 'and a very different kind of Socialist from your rich friend, Count Reventlow'.

No one at the time would have regarded it as a controversial statement. The Nazis could hardly have been more open in their socialism, describing themselves with the same terminology as our own SWP: National Socialist German Workers' Party.

Almost everyone in those days accepted that fascism had emerged from the revolutionary Left. Its militants marched on May Day under red flags. Its leaders stood for collectivism, state control of industry, high tariffs, workers' councils. Around Europe, fascists were convinced that, as Hitler told an enthusiastic Mussolini in 1934, 'capitalism has run its course'.

One of the most stunning achievements of the modern Left is to have created a cultural climate where simply to recite these facts is jarring. History is reinterpreted, and it is taken as axiomatic that fascism must have been Right-wing, the logic seemingly being that Left-wing means compassionate and Right-wing means nasty and fascists were nasty.

---

[1] Thatcher at least professed this belief, and regardless of the realities of the Thatcher era, this is what is commonly understood as Thatcherism - the furthest to 'the right' that Conservatives have ventured in recent decades.

Tim Aker disappoints

The campaign to free Britain from the EU will require cooperation with some unpleasant people.

Among them are those who think that banning all imports of EU 'beef' would be a proportionate response to the horse meat scandal.

The other big news story is the horse meat scandal, which has exposed the failures of the EU single market and its regulation procedures. Typically the European Union ties our hands when we try to respond to the crisis. The UK cannot introduce a temporary ban on foreign [meat] under trade rules (even though the French banned imports of British beef and cattle during the BSE crisis in 1990 and Italy banned the import of French beef in November 2000). We however are forced to negotiate with un-elected commissioners before we can even introduce random testing. The EU has helped to cause this problem and is now preventing us from fixing it effectively ourselves. Now they are using this exercise to grab more power from member states

In this, as in most things in life, the free market is more than capable of handling the situation. Those who want British beef can easily choose it over the imported variety.

It is of course typical that British officials stick to the rules, while the French and Italians happily take any excuse to favour their domestic producers.  It doesn't follow that we should stoop to their level.

It is of course absurd (if true) that discussions with EU officials are required "about the extent to which this country could randomly test meat being imported from the continent" (as the linked Spectator article claims).

And it is of course predictable that the Eurocrats would see in this 'crisis' an opportunity to expand their powers.

There is no question that we need to restore our sovereignty, but it's clear that the fight for a smaller, less invasive state will continue for a long time after we Get Britain Out.

Horse meat and the NHS, only one is deadly

Through James Delingpole, I discovered this excellent article by Peter Oborne (normally too statist for my liking):

the subject which nobody wants to talk about is the National Health Service. It is just over a week since the publication of the Francis report into Stafford hospital, where some 1,200 patients died in appalling circumstances. Had any other institution been involved in a scandal on this scale, the consequences would have been momentous: sackings, arrests and prosecutions. Had it involved a private hospital, that hospital would have been closed down already, and those in charge publicly shamed and facing jail.

Astonishing to relate, nothing has happened. Politicians have made perfunctory expressions of concern, while agreeing that there must be “no scapegoats”, and that Sir David Nicholson (the senior figure responsible) must remain in his job.

By contrast, consider the media storm over horse meat:

Not a single life has been lost, or even threatened. Indeed, so far as I can discover, no one has even fallen ill as a result. By comparison with the tragic and terrible events at Stafford hospital, the so-called horse flesh scandal does not register. It matters not a jot. It is beneath insignificant.

How to explain, then, the contrast between the recent, obsessive interest in horse meat and the near omertà surrounding Stafford? First, we need to grasp something important about modern media and political discourse: prominence is only very rarely the same thing as importance.

Second, there is a certain type of sentimental British do-gooder who, while relatively indifferent to human tragedy, is captivated by dumb animals. These do-gooders have been much to the fore over the past week. Consider the utterly false and inverted set of priorities at Staffordshire County Council, which (as we know from the Francis report) sat on its hands while hospital patients were dying in agony.

Staffordshire County Council has been among the first to jump on to the horse flesh bandwagon. Courtesy of the current issue of the Staffordshire Sentinel we know that the local council, so negligent and dismissive over the local hospital, has ordered that beef should not be served at the local school as a “precautionary measure”, even though it poses no threat of any kind to human health.

I recommend the whole article.

Political football

Football is a great game. I played it for years as a child and teenager, and I should really take it up again. But I just can't bring myself to watch professional football. All those prancing thugs, alternately violent and whimpering, shouting at the referees and then feigning injury - it is a rotten game.

From what I've seen, the old adage is true enough: soccer is a gentleman’s game played by hooligans; rugby is a hooligan’s game played by gentlemen.

With its vast, corrupt bureaucracy, the last thing football needs is more politics. And yet this is what our Coalition seems poised to deliver:

English football has been told it must introduce reforms within a year or the government will impose changes.

The ultimatum appears in a new report from the Commons Culture, Media and Sport Committee.

Trillions of pounds in debt and sinking deeper every day, the last thing this country needs is a Commons Culture, Media and Sport Committee!

BBC pride: Commons backs gay marriage bill

The BBC triumphantly reports:

MPs approve same-sex marriage in England and Wales in a key Commons vote, although more Conservative MPs voted against the bill than for it.

Although I'm an atheist and he's a Christian, my own view is exactly that of Westminster's most promising MP:

My strong view has long been that the government should get out of marriage. I am not alone. In December, Matthew Parris set out essentially the same view in The Spectator and showed that it works in South Africa: Gay marriage the easy way. For The Telegraph, J P Floru explained that one “can quite easily defend the position that the state ought not to be involved in marriage at all” before dealing with the fact that it is involved. The Adam Smith Institute’s Sam Bowman replied in support, concluding, “the next push has to be for true freedom for everybody: for the state to get out of marriage altogether.”
...
As a Christian, I am well aware of the Biblical view of marriage and I support it. However, I do not think it is right for a view based only on faith to be placed in law. If the Bill were merely about whether gay people should be allowed to get married or whether contemporary society accepts homosexuality, then it would be simple. Along with, I think, most people my age and younger, I am relaxed about other adults’ loves and consenting sexual relationships. However, I am not relaxed about muddled law, democratic consent or freedom of religion — whose protection is by no means certain — and I believe strongly that defining marriage is no business of the legislature.

That is why I voted against second reading and why I expect to vote against third reading too.