Europe is reacting rather than responding.

 

 

The Bank Of England is probably next only to Germany in having a considerably conservative/responsible monetary policy. When I say cons/resp what I mean is that they do not abuse monetary policy the way it has been abused in the US. The reason that they are departing from their earlier sensible stance may stem from the fact that over the last 2 decades or so, in the US, policymakers have been increasingly getting almost paranoid in their reaction/response to the “R word”.

It is not such an extreme response in Europe in Europe, at least it used to not be such an extreme response.

 

To a certain extent, British “Economic thought history” also, is not so much about fixing the economy via ‘intervention-policy’ when the economy slows down as it is about responsible/stable conduct of policy. I could be wrong on this, but this is what I recall.

 

However, human behavior is influenced by the ‘demonstration effect’. Given that the US in general has been the sole occupant of the economic center stage for the last 2.5 decades or so and the fact that Greenspan occupied office for about 17 of those years, his being knighted and a host of other reasons are all leading to Europe aping the US. We are the good apes. We evolved further, and are different from them in about 2% of our genome. So we homo sapiens tend to ‘ape’ the apparently-successful, and we do a pretty good job of it. Europe is reacting rather than responding.

 

Recessions are not to be feared, they are a part of the game. If anything, rightly, market participants should fear recession.

But, policymakers fearing a recession stems from attachment to their seats, electoral politics and greed for plum ‘Financial Street jobs’ via revolving doors.

 

Fear is increasing its stranglehold over policy formulation. Interesting days ahead.

 

interesting: [adjective] arousing or holding the attention

 

  *********

So do read David Marsh’s Bank of England sails into uncharted waters

Some excerpts: 

When interest rates approach zero, analysis of monetary policy has less to do with economics and extends more into the realm of psychology and metaphysics.

Historians, too, come into their own. Pundits have had a field day with the Bank of England cut to 1.5 per cent, bringing UK interest rates to the lowest since the bank was founded in 1694.

There has been ribald commentary on King William III. He arrived from the Netherlands and attained the English crown in 1689 at a time of internal stress. A similar motivation to people who back Britain joining the euro. The flagship BBC TV news programme “Newsnight” even dressed up its report on the credit easing in the quill pen-manner of 17th century City scribbler Samuel Pepys. Of course, many Americans think this is still the way we do business.

At the end of the 17th Century, the economic environment was less complicated. There was no excitable debate in tabloids about whether interest rate cuts needed to be passed on to mortgage holders, or held at higher rates so that building society savers (many of them pensioners) would benefit.

Public sensitivity about “printing money,” whipped up in 2009, intriguingly, by newspapers who normally care very little about monetary policy, certainly did not worry the Governor in 1694. In its early years the Bank of England did not have to live with criticism that its extreme interest rate measures might turn out counter-productively by discomfiting investors and borrowers more than it assured them.

By jumping down towards zero, the Old Lady of Threadneedle Street is trying to leap free away from recession. It may be locking itself up with golden handcuffs. King Billy would no doubt have approved.

 

Other related articles:

Latest job losses: thousands of redundancies announced

 

Gordon Brown pledged that people thrown out of work would not be “abandoned” by the Government. He announced a series of measures.. The scale of the cuts, with waves of job losses being announced on an almost daily basis, make it certain that unemployment will soon pass the politically sensitive two million mark.

 

Industrial Output Falls Across Europe as Recession Deepens

 

Today’s data add to evidence that Europe is sliding deeper into recession. ECB staff in December projected the euro-area economy to contract by an average of 0.5 percent this year.

Last 5 posts by suyodh

• Monetary policy in uncharted territory - January 13th, 2009
• 2008-the year when Merry Christmas was not followed by a Happy New Year - December 30th, 2008

Tags: British, Europe, fear, monetary policy, recessionm, response

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