Memo to the Media: The Bank Works For Us
… not the other way round. How did central banks get elevated to this position of ultimate authority, rather than being seen in their true role as an executive agency of elected governments? The BBC wrote:
The Bank of England has said it will give the Treasury the interest it earns on certain government debts it holds.
Oh, how very kind of the Bank! Over to The Guardian:
Bank of England to hand over gilts interest payments to slash national debt
Such a generous move! We must send them a card. Next, the Daily Telegraph:
The Governor of the [B]ank*, Sir Mervyn King, has approved the arrangement.
King “approved” it? Do you mean to imply he had a choice? The Bank, and its Governor, they work for Her Majesty’s Treasury. They work for Osborne, the elected Chancellor of the Exchequer, appointed by the elected Government which in turn was appointed by the we, the voters. However much you dislike our man George, he’s the raw product of democracy, not some autocrat.
End this tyranny by inept central bankers now.
I still do not follow the argument that this move is a short term benefit for long term costs; back to the Guardian article:
The Treasury and the Bank anticipate the cash position of the scheme will deteriorate when Threadneedle Street starts to sell gilts, leading to higher debt levels in the long term, as future losses could not be offset against the coupon payments
The idea that we should be trying to hedge against “future losses” on the QE portfolio is totally crazy. The only case where the Bank makes losses on QE is when gilt prices fall significantly, and long term interest rates rise. The only case where long term interest rates rise is when nominal GDP is growing fast. When nominal GDP is growing fast, tax revenues will be growing fast. Getting to that point is (or should be) the sole aim of UK demand management policy.
You don’t hedge against winning. You hedge against losing. The government is already hedged against losing, having bought back a third of its own long term debt with zero-maturity liabilities, a.k.a printing money. So we don’t need to hedge against winning by issuing more gilts than necessary and hoarding the cash. We should instead instruct the Bank to try much harder to make massive losses on its investments; until they do, we’ll remain stuck with low growth.
* Telegraph sub-editing is worse than the Grauniad’s. What’s the nickname, the Dilay Tegrelpah?