From the TUC

Financial regulation: Economic policy puzzle of the day

25 Jun 2009, by Guest in Economics

Maybe someone can solve this for me.  Which one of these is more likely to thrust the UK into further economic turmoil in the next two years: another massive bubble and crash in the City or the Monetary Policy Committee making some duff decisions on interest rates? 

The smart money has to be on the latter: financial bubbles take many years to develop and the big crashes are rare events.  By contrast, the Monetary Policy Committee sets the Bank of England interest rate every month, made a complete hash of this last year and will soon be confronted by some very fine judgements about when to start raising rates as we come out of recession.

And yet (and this is the puzzling bit) everybody is rowing about how we regulate to avoid further bubbles but no-one seems bothered about whether we have the right structures, the right personnel and the right remit to ensure that the MPC doesn’t make the wrong call once again.

I’m not saying that financial regulation is not extremely important but the situation at the Bank is particularly worrying. The only member of the MPC who did get it right – David Blanchflower (who I’m glad to say finally got a gong following my call many months ago – only joking) has left the MPC, while the Bank’s Governor (who got it very wrong) continues to show his hawkish tendencies by attacking the Government’s plans on public spending.

Ah well, it’s a funny old world as Mrs. Thatcher declared just before she burst into tears.

2 Responses to Financial regulation: Economic policy puzzle of the day

  1. What will do for us? | called2account
    Jun 26th 2009, 8:00 am

    [...] Financial regulation: Economic policy puzzle of the day | ToUChstone blog: A public policy blog from…. Maybe someone can solve this for me.  Which one of these is more likely to thrust the UK into further economic turmoil in the next two years: another massive bubble and crash in the City or the Monetary Policy Committee making some duff decisions on interest rates? [...]

  2. sm
    Jun 27th 2009, 5:47 pm

    Isnt QE causing a bubble in the purchases of financial assets and bonds?
    When this QE ends this ‘demand’ will fade. Interest rates will then tend to rise other things being equal in a credit crunch.

    How should low interest rates be paid for by 1)taxpayers ,2) spending cuts or 3) inflation. Or what balance of these?

    Until the election only the unfortunate casulaties so far. Post the elections all 3.

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