Friday, March 27, 2009

Interest rates could increase 'with vigour', warns chief economist

Who does Spencer Dale, of the Bank of England, thinks he's kidding when he says they're going to be increasing interest rates with 'vigour' when the time comes?

Pull the other one, Spencer.

This is like a fat man who is piling away cakes threatening to go on a diet next month, but in the meanwhile he's bought all these cakes so he's got to eat them.

Just like all overweight slobs, the diet is always next month, never today.

Interest rates don't need to go up in the future. They need to go up RIGHT NOW. Or even better, the Bank of England should get out of the interest-rate-setting counterfeiting business, get out of the open market counterfeiting business, and get out of the quantitative easing counterfeiting business.

It could then sit back and see what the free market sets as a proper interest rate. Who knows what it might be, but I would reckon somewhere between 6%-10% for one year LIBOR.

This would be the free market's way of restricting capital to those who:

a). Need it most
b). Are most likely to pay it back

It would also be the free market's way of creatively destroying inefficient companies and businesses who are only surviving due to artificially cheap credit, and thereby re-allocating all of their now freed resources to more successful entrepreneurs. (As opposed to taking capital from successful entrepreneurs, to waste it still further on these failed businesses.) It would also force the government to stop borrowing so much, because the taxpayers would simply revolt at the thought of paying the enormous coupons necessary to service the debt.

But could the people of Britain stand by and watch a large interest rate hike, without using the tool of democracy to prevent the pain? Of course they couldn't, unless persuaded by a Colossus to accept this necessary pain. Are there any Colossi currently occupying the halls of power? Not from where I'm standing.

So am I just heartless then? No. I want this pain over with as quickly as possible.

To use Peter Schiff's analogy, what we need to do is rip the plaster off as quickly as possible. Instead, the government is using every tool at its disposal, including all of their tools at the Bank of England, to drag the plaster off as slowly as possible, in the most agonising way that can be devised.

Gordon Brown will never allow the Bank of England to set interest rates to 10% or 15%, as will probably be needed in a few years. Neither will the Dave, George, and Ken Rainbow coalition in the blue jumper club. The political will to do this will simply not exist.

So the minions and sinecured tax eaters in the Bank of England may dream they can do what they want, but they can dream on. It just ain't going to happen.

Unless of course a Colossus, of the stature of Margaret Thatcher, can enter the scene.


I ain't saying nothing yet, but if Daniel Hannan should give up his EU post, I would advise everyone reading this to get as long-term a fixed rate mortgage deal as they can lay their hands on.

He may be the only British politician alive who has the moral strength to do what needs to be done, which is to clear the economic underbrush of Great Britain with punitive interest rates to clear out the dead wood and to create clear ground all round for the successful British entrepreneurs of the future.

You have been warned.

In fact, just as a hedge, it might be worth getting that very-long-term fixed rate mortgage right now, before the rush to the exit pushes those fixed rates up to horrific levels.

But who knows what to do? Should you stick with paying your mortgage on a very low rate tracker, and hope that no politician has the strength to put interest rates up to necessary levels, or should you go for a long-term fixed, take a hit now, in the expectation that a strong enough politician can come in and do the right thing.

This is the horror of modern democratic government. It turns everyone into speculators who have to constantly observe politicians to make the best guesses on their life, who if they get this speculation wrong, can be ruined.

What we should have instead is a life in which politicians are absolutely irrelevant, and things like interest rates which move with the natural flows of the market, are therefore predictable, and with a gold standard, which as civilisation progresses, drives towards ever-lower interest rates as time preferences decrease slowly over time.

But no. Democracy gives us the horrific ups and downs of the boom and bust world of career politicians running amok, constantly destroying everything they touch.

Daniel Hannan, please come in. Your country needs you.


Anonymous said...

I think it should be within mans capability to devise a system that is not psycotically driven by profit and material wealth. With the development of computer technology people should only have been working a 3 day week, things became more efficient and so less man hours should be needed, everyone get paid the same salary for less time at work, spending more time with family and hey presto a better society. Instead greed leads corporations which are ultimately not human in thinking to reduce employment becasue now 1 person can do what 3 or 4 may have done in the past. The free market in not good for society at its extremes as money should not be the driving force of our lives. Surely there is a better way.

Jack Maturin said...

Dear God.