George and Mervyn: The Secret Letters
Thanks to my moles in Whitehall, I can exclusively reveal the secret letters exchanged between Mervyn King and George Osborne over the last few months.
Bad news. Everything I said about cutting the deficit was wrong.
Confidence is evaporating. Uncertainty is everywhere. The black clouds, George! It just won’t stop raining.
Sterling is appreciating. Obviously there is nothing we can do about this over here at the Bank. It’s not like the value of Sterling is anything do with us, George!
Anyway, the reason for my letter is this: we expect to undershoot our inflation target by 0.5% by September. I don’t know what to do about it. I thought about printing some money, but really, what’s the point? People just complain about it “sitting in the banks”, and I get so much abuse in the Daily Telegraph, I’m worried about my reputation.
George, help us! We need you to borrow and spend some money and get that inflation rate up. We think about £20bn of infrastructure spending will work. Spencer and Ben wanted me to mention that they really like trains.
Sir Mervyn King.
Here is George’s reply:
Thank you for your letter regarding the expected inflation undershoot
I get the hint. I have scheduled the building of some trains, to the value of £20bn, as requested. They should get started as soon as we’ve completed the project evaluation, tendering, etc.
By the way I had a phone call from a Mr Gnome in Zurich – he said something about currency devaluation, but I couldn’t understand exactly what he was saying because he was laughing so hard. Maybe you could look into it?
p.s. I read in the papers that it might be better if we did £150bn of extra spending. Would that help, or is it too much?
There’s a rather terse e-mail reply the next day:
George – we don’t need £150bn – we only need 2% inflation not 5%. Dear God man, have you gone mad? Just do the £20bn of trains, OK? Thanks, Mervyn
So George sets the civil servants to work on buying some trains. A month passes. But the eurocrisis keeps getting worse, and Sterling just keeps going up. Another letter arrives at 11 Downing Street:
I am sorry to hear about your political troubles. I gather the Conservative party is not doing too well in the polls after having to completely reverse its economic policy, which I hear you based on my old advice about cutting the deficit. Don’t worry too much old chap. Such things pass. I’ll get you some tickets for Wimbledon next year by way of apology, and I have some friends in the City who could throw the odd directorship your way. At least, I think they’re still my friends. They don’t call much any more.
Anyway, I’m writing about those trains. Sterling went up some more. Spencer and his crack team of economists ran the numbers and we’re still going to miss the inflation target. The £20bn of trains aren’t going to be enough. Can you bung in £30bn of new roads too?
I don’t know what your Swiss friend was talking about, sorry.
George isn’t getting any lucky breaks, is he?
Are you serious? You want me to do another U-turn? I am going to go down in history as the most useless Chancellor ever – though I’m not sure how that Darling guy gets a break. This ship went down on his watch! What’s up with that?
Look – OK, I’ll get £30bn of roads done as well. But this is the last time. No more U-turns, alright? I don’t care what happens to Sterling, we’ll have to stick with what we’ve got.
By the way some Swedish guy called Lars called saying he’s willing to take over once you retire. Have you heard of him? He was talking about levels, targets, and forecasts. Does he mean level crossings? Does fiscal stimulus work better if we combine roads and trains? Like in Ghostbusters – “crossing the beams”? No? Merv? Help me out with this macro stuff, it’s pretty complicated.
George Osborne (soon to be ex-Chancellor)
To be honest, I’m not sure if these letters are genuine – it seems like an odd way to run a country.