The Bank of England threatens democracy… Buy Turkey!… Everything you ever wanted to know about fracking…
From Matthew Partridge, across the river from the City
The Bank of England undermines democracy
This week, our editor-in-chief, Merryn Somerset Webb, looked at how the Bank of England’s interest rate policy is hurting savers.
As she points out, Dr Ros Altman has crunched the numbers on interest rates on mortgages and savings since 2007. Around a third of households – those with mortgages – have effectively been given a huge income boost since the financial crisis began, due to interest rates being slashed.
But savers have “done predictably badly… if you have £100,000 in a cash Isa, you are making £4,250 less than you were back in December 2007 (you used to get on average £5,350 a year, now you get £1,090)”.
Of course, it’s impossible to say “where interest rates would be if they were allowed to be set by the market rather than by central planners”. But it does show that “our monetary policy is set specifically to benefit one group of the population above others – debtors above savers.”
Merryn is “not sure” that this is “a good idea”. Former Bank of Japan governor Masaaki Shirakawa has argued that, “policymakers need to face up to the issue of who should be responsible for such policy actions in a democratic society.”
Merryn agrees. “Monetary policy is not supposed to redistribute resources – just to keep interest rates at a level that keeps inflation knocking around 2%”.
Such policies are “the responsibility of the elected representative body” – in other words, the government. In her view, “this is one of the problems with today’s Bank of England: it redistributes income and wealth as part of policy rather than as a side effect of policy, but it does so as an unelected body”.
Blog commenter Ellen12 agrees. “If you are a saver, you are being robbed by the central bank every day. Mervyn King and Mark Carney both apologise for robbing savers and, instead of being put in jail for it, they carry on robbing them some more”.
SimonW reckons that “cronyism also applies!” Just look, he says, at “how the structure of banking has remained unchanged since the financial crisis as a result of the ‘lobbying’ of the banking community on the politicians both in the US and the UK”.
Whatever your feelings about money printing and the rest, it seems hard to argue with the idea that redistribution is the responsibility of our politicians and not Carney and his team. Give us your views here.
And we’ll be looking in more detail at promising ‘frontier’ markets in the next issue of MoneyWeek magazine, out three issues free here.. If you’re not already a subscriber, get your first
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