The central bank yesterday announced its biggest stimulus since the depths of the recession, citing “vulnerabilities” related to the euro-area turmoil. King said the move, the first loosening of U.K. monetary policy since 2009, was a response to what may be the worst financial crisis ever.
“It’s pretty much a vote of no confidence in European officials,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc, and a former Bank of England official. “Either the virus is already in the U.K. so they had to respond, or they don’t believe the problem will be sorted out. I lean toward the second because of how much they’ve done.”
What’s this? Truth out of a central banker? You have to be kidding me!
Now the policy action is another matter entirely. More credit heroin in the arm is not going to fix the druggie. It will simply make it worse, and I suspect Mervyn knows this. But what alternative does he have, really, at this point?
Britain’s problems like most are fiscal; the monetary authorities are enablers. What does very-low rates allow? Ridiculous government spending, that’s what. In addition to trying to goad consumers and businesses into taking on insoluble debt (a short-term “answer” that ultimately screws you blind) it has the same effect on governments with the same outcomes!
Do I believe we’re “days or weeks” from a catastrophe? Maybe, maybe not. Timing is a bitch. But this much is relatively certain – what’s being attempted in the form of “band-aids” will not work.
The only solution is to reduce the systemic debt levels. This means that we must accept that we have been lying to ourselves and to the people of the nations involved. We’ve claimed we can have all these government programs but we cannot pay for what we’re promising.
That which cannot continue forever won’t continue forever. We’re arguing over the when, not the what, and it’s time to face the reality that the longer this goes on the worse it the outcome will be.