Just posted to Iain Dale’s Diary on the current crisis

Just posted the following is response to Brown Tries to Sugar the Medicine on Iain Dale’s Diary.

 

The PM evades understanding the issues, as he is to some extent responsible. However, that responsibility is shared by many, including myself, who cheered on the cuts in interest rates in 2000 and 2001 to avoid a recession.

The independance of the Bank of England was irrelevent to the issue. The vast majority believed that after the dot.com bubble burst and then after 9/11 it was necessary to reduce interest rates significantly to avoid a recession. This worked, but only at the expense of creating a credit bubble, shown in this country both by the housing market boom, and being able to borrow on credit cards at 0% interest. The only one of the commentators who comes close (in my view) to getting things right is “not an economist”

The PM not only followed public opinion as Chancellor, but also the most respected minds in the business, lead by Alan Greenspan at the Fed.

To blame the private banks is nonsense. The structure in which they operated by created by the Central Banks, cheered on by governments and the general public.

 

THE LESSON TO BE LEARNT.

 

  Central banks must be dogmatically conservative and deaf to public opinion.

 

In so far as we know how the economy operates, it is always going to be tainted by the need to please public opinion and their elected representatives. Further, a can-do approach is more popular than one that says we are not sure, or maybe it could cause trouble. But collectively, we did not see this one coming.

 

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