The Daily Telegraph, 19 September, Professor Patrick Minford
Liz Truss this week made a brave speech, pointing out that there is really no alternative to her growth agenda if we want to create an economy with good fundamentals and viable public finances. Mark Carney’s cheap remark that her policies imploded because she created “Argentina on the Channel” has been flung in her face.
Yet this implosion was largely the result of bungled monetary policy and the worldwide withdrawal from the massive and misguided printing of money, conducted both after the 2008 crisis and then again under Covid. This episode gave us the era of zero interest rates which undermined capitalism by making capital a free good. Carney himself was heavily involved, before leaving the Bank to become a spokesman for central banks to focus on climate change – when their true role is to contain inflation.
Truss was embarking on her programme just as this monetary overreach was being corrected, with interest rates being forced up to push down the inflation that had resulted. Here the Bank, steeped in Carney’s legacy, made serious errors which compounded her problems.
First, it was slow in raising rates, well behind the Fed, and this depressed sterling, contributing to talk of a “crisis”. Secondly, concerns that the Bank was not doing enough to curb inflation set off fears that it would need to raise rates later to much higher levels. This destabilised the gilt-edged market.
Incredibly, the Bank announced that it would sell bonds (quantitative tightening) into this market, badly worsening the panic. It should have been sending out the opposite signal – that this panic was wrong and that it was raising rates sufficiently to get inflation down.
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