Paul Tucker, The Man Who Could Replace King
But it prompted me to look through Mr Tucker’s old speeches. Here he is talking to the IEA in 2010 about how to use “macroprudential” policy tools to “lean against” credit bubbles:
Monetary policymakers would need to be attentive to the use of such instruments, as they would affect credit conditions. Such instruments would also help to underpin the consensus that monetary policy should focus on the path of nominal demand at the aggregate level, with macroprudential policy seeking to address over exuberance in particular sectors or in credit markets generally and the resilience of the banking system.
My emphasis… does that wording sound familiar?
Returning to that recent Euroweek interview, the media picked up on Tucker’s comment that QE is losing its “bite”, when asked about the Funding for Lending scheme:
EUROWEEK: Presumably Funding for Lending acts as a complementary stimulant to quantitative easing.
Tucker: In 2009, QE played a very important role in helping to avert disaster. There is an understandable debate about the distributional effects of QE, but without it, everybody would have been a lot worse off.
The economy has moved sideways for a few years, which is uncomfortable for everybody. But it is much better than sliding into some modern version of the Great Depression.
I’ll break here so we can all take a moment to give thanks to the central bankers who insist we are not going through a “modern version of the Great Depression” whilst we experience what can reasonably be described as… a modern version of the Great Depression. Just as the central bankers during the Great Depression assured people “how much worse things could be” if not for their wise actions.
OK, are you feeling better? I thought not. Back to Tucker:
We still think QE works, even if in some respects it does not have the same bite it used to have. We essentially buy Gilts from long term institutions. That gives them money in the form of deposits with banks, which are fairly unattractive in terms of returns and risk. So that increases their demand for sterling corporate bonds, which since QE began have been issued by many more companies than usual. Some have used the proceeds to pay back bank loans, which delivers benign deleveraging.
QE does not have “the same bite”? I often wish central bankers would avoid speaking in metaphors. What could Tucker mean? That they will be unable to hit their inflation target using QE? Repeating the quote from later in the interview in my previous post:
EUROWEEK: How much fuel is there left in the QE tank?
Tucker: Technically we could do more. It’s just a question of what we think the risk to inflation would be.
So obviously he still thinks QE can affect inflation, otherwise there could be no “risk” posed by printing money and buying stuff. And can you imagine George Osborne getting away with a quote like that?
Well, technically we could borrow and spend more. It’s just a question of what we think the risk to inflation would be.
Osborne would be laughed out of office. Alright, Osborne is being laughed out of office. But here is the man deemed most likely to be next Governor of the Bank of England… and when asked about demand stimulus his first thought is not the risk to growth, not the risk of running years of high unemployment. But the “risk to inflation”.
Cancel the optimism, we’re still doomed.